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BETTER INVENTORY MANAGEMENT STARTS WITH ACCURATE SUPPLIER DATA

by Scott Bolduc | Jan 29, 2020 | Distributors, Inventory Management, Retailers

Each year, retailers and distributors reflect on what went well and what they
want to improve the upcoming year and beyond. Virtually all buying organizations
I talk to have one thing in common: they don’t have the accurate supplier data
needed for effective management of their orders.

The lack of information leads to a host of problems that cost buying
organizations time and money, such as ordering excess safety stock and hiring
unnecessary staff. However, despite these issues, most organizations don’t even
realize they have a problem or that a better inventory management process can
solve it.


COST SAVINGS, INVENTORY VISIBILITY & MORE

For example, I recently worked with a $10+ billion distributor with the
potential for saving $30 million per year by getting data from more of their
suppliers as well as exchanging more complete data with suppliers already
sharing information. In addition to reducing hard costs, accurate supplier data
could lead to significant soft dollar savings in inventory management, warehouse
management and other areas of the business.

Yet in our initial discussions, the distributor’s supply chain team felt
everything was running smoothly. They weren’t aware that working with suppliers
to send critical supply chain information like purchase order acknowledgments,
advance ship notices and warehouse EDI transactions could benefit them.

Here are some of the challenges they faced and how accurate supplier data could
help.


LIMITED SHIPMENT DATA CREATES CHALLENGES IN THE WAREHOUSE

This distributor didn’t have a clear picture of what goods were coming into
their distribution centers or when. In addition to not knowing what would be
included in a shipment, they also didn’t know when an item would not be shipped
on time or would be back-ordered.

Suppliers’ use of advance ship notices (ASNs) was inconsistent. Although the ASN
typically matched the physical receipt, deliveries often represented partial
orders, which flagged nearly every shipment as incomplete and created a need for
further audit. Conducting frequent audits and breaking down boxes was
time-consuming, slowing down the process of getting goods ready for sale.

More consistent data from suppliers, such as ASNs and warehouse EDI
transactions, would have significant benefits such as:

 * More effective planning for supplier deliveries in the warehouse
 * Reduced need for audits
 * More proactive planning and expedited ordering to meet demand when shipments
   would be late or incomplete


POOR ORDER VISIBILITY LEADS TO ISSUES FOR THE INVENTORY MANAGEMENT TEAM

Order changes are common for all retailers and distributors, and this
distributor was no exception. Whenever there was a change to an order, the team
would fax, call or email suppliers. This required a staff of 25 people, spending
2 hours a day handling changes.

Requiring suppliers to electronically acknowledge orders and changes would allow
this distributor to:

 * Manage orders more proactively
 * Improve inventory visibility and reduce safety stock
 * Use open-to-buy dollars more effectively


ACCOUNTS PAYABLE RELIES ON MANUAL P.O-TO-INVOICE PROCESS

A significant portion of this distributor’s invoices was entered manually,
requiring two full-time staff members to manage the process. In addition, all
credits were managed manually.

Because suppliers received electronic invoices but did not send other types of
data electronically such as purchase order acknowledgments, it was impossible to
automatically reconcile orders, shipments, and payments through three-way
matching.

By automating this data exchange, the organization could:

 * Reduce invoice processing costs and staffing needed for reconciliation
 * Reduce data entry errors
 * Process invoices faster to take advantage of payment discounts


SMALL CHANGES WITH SUPPLIERS RESULT IN BIG SAVINGS

Partnering with suppliers to automate the order cycle can save companies
$120-$150 per order. For this distributor, a fully optimized supply chain has
the potential to improve its operating profits by 5 percent: a total of $30
million annually. But the benefits of getting more consistent, accurate and
timely supplier data go well beyond hard dollar savings.

If you’re interested in how getting accurate supplier data can help your
organization, especially when it comes to better inventory management processes,
visit our website or click here to speak to one of our retail supply chain
experts.


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WHAT ABOUT FORECASTING

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 * Author
 * Recent Posts

Scott Bolduc
Customer Strategist Director at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros
to Know. He has worked with e-commerce retailers on their growth strategies and
helped retailers transform their freight spending strategies to maximize
efficiencies.
Latest posts by Scott Bolduc (see all)
 * Test new products online before stocking at retail stores - February 2, 2023
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