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EVALUATING A NEW BUSINESS SYSTEM A TWO‐PART PRIMER FOR CPG DISTRIBUTORS AND MANUFACTURERS

COMPLIMENTS OF CAL BUSINESS SOLUTIONS INC.

Evaluating a New Business System 2008

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PART I ‐ EVALUATING A NEW BUSINESS SYSTEM – GENERAL

Overview ........................................................................................................................................................................ 4

Introduction ................................................................................................................................................................... 4

About Business Systems ................................................................................................................................................ 4

Does your business require a change? .......................................................................................................................... 6

Index Recommendations ............................................................................................................................................... 8

Financial Management vs. Supply Chain ....................................................................................................................... 9

Sales Order Processing .......................................................................................................................................... 9

Business Validation ................................................................................................................................................ 9

Compliance ............................................................................................................................................................ 9

Fulfillment .............................................................................................................................................................. 9

Remittance........................................................................................................................................................... 10

Reconciliation ...................................................................................................................................................... 10

A Case for The Best‐of‐Breed Model ........................................................................................................................... 10

Business System Models .......................................................................................................................................... 11

Custom Model ..................................................................................................................................................... 11

Out‐Of‐the‐Box .................................................................................................................................................... 11

Best‐of‐Breed ....................................................................................................................................................... 11

Evaluating Value Added resellers or VARs ................................................................................................................... 13

Evaluating Best‐of‐Breed Products and Services ......................................................................................................... 14

Supply Chain Specific Workflow Checklist ................................................................................................................... 19

Supply Chain Terminology ........................................................................................................................................... 20

EDI Drives Workflow .................................................................................................................................................... 20

Scalability of Operations .......................................................................................................................................... 21


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Managing Markdowns and Discounts ..................................................................................................................... 21

Remote Warehouse Capabilities ............................................................................................................................. 21

Expertise with customer requirements ................................................................................................................... 22

focus on fulfillment .................................................................................................................................................. 22

Tiered or Extended Pricing ...................................................................................................................................... 23

Cross Dock Requirements ........................................................................................................................................ 23

Deduction Management .......................................................................................................................................... 23

Consider Point of Sale Data (POS) Usage ................................................................................................................. 24

Conclusion ................................................................................................................................................................... 25


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PART I EVALUATING A NEW BUSINESS SYSTEM OVERVIEW

This whitepaper identifies critical business issues that may surface as your business changes, which may require you to seek alternative systems to run your business and achieve your growth goals. Selecting a new business system is a major undertaking which requires due diligence. CPG distributors and manufacturers have unique business needs that require them to evaluate systems by looking at the relationships they have outside of their own four walls. This guide is divided into two parts. Part I focuses on general guidelines for evaluating a new business system, while Part II focuses on supply chain details that Consumer Goods companies need to consider as they are evaluating new systems. Using this guide, you should be able to easily evaluate the impact your current business system is having on your operations and growth, and identify ways in which a new system would provide you with increased capacity, streamlined operations, and the ability to accommodate changing business climates over the next ten years.

INTRODUCTION

In this guide, we will refer to “business system” as an application that manages the information and processes associated with your financial and supply chain operations as they relate specifically to the Consumer Goods Industry. Business systems come in many sizes in terms of scope. Usually, it is a foundational system that helps the company with financial management and supply chain management, however, these systems can also include modules for human resources, manufacturing and operations.

ABOUT BUSINESS SYSTEMS

Twenty years ago the term for a business system was MRP (Manufacturing Requirements Planning). It was the system that connected the processes of making and distributing product to the financial processes associated with running a business. Ten years ago MRP morphed into ERP (Enterprise Requirements Planning) because these business systems grew to help companies run more than just manufacturing and financial management. Back then the most popular business systems were sold by the companies that developed them. These systems were generally only available to large companies, but today mid‐market companies have a wealth of business systems to choose from.

Most of today’s mid‐market business systems are not sold by the company that developed the software but through a channel. A channel is a constellation of companies that actually sell, implement and support the system. These companies are sometimes referred to as Value Added Resellers (VARs) or “Partners”.


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Whether you call it ERP, Financial Management Software or Business System software, this guide can help you identify when the time is right to research new business systems, how to choose a VAR and how to take advantage of the newest best‐of‐breed models. The right business system should give you the ability to make faster, better decisions, automate common processes and help your employees do their jobs more efficiently.

The critical question most companies struggle with is knowing when it’s time to consider a new business system. There are several key indicators that may signal that your business is ready. Instead of providing you with a generic guide, we’ve looked at the key indicators that address the unique needs of Consumer Goods (CG) distributors and manufacturers that sell to large retailers, automotive suppliers and other customers that require supply chain compliance. Customer business requirements affect every part of your company. Choosing the right business system to address changing business climates and requirements can mean the difference between profitability and instability.


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DOES YOUR BUSINESS REQUIRE A CHANGE?

This questionnaire will help you identify high‐level pain points typically experienced by companies that may require a new business system. How does your existing business system stack up? Score each of your answers on a scale of 1 to 5, a score of “1” not being a significant problem at all, a score of “5” being a highly significant problem.

1 Your system is no longer supported or the end of support is imminent. 1 2 3 4 5

2 Maintenance and version upgrades to your system are becoming difficult, or are disrupting your business.

1 2 3 4 5

3 You are questioning the value of what you’re getting for your annual maintenance fees. 1 2 3 4 5

4 System users have expressed concerns about system capabilities or performance and the complaints seem to be escalating

1 2 3 4 5

5 Reports take too much time to generate, or data is exceedingly difficult to access. 1 2 3 4 5

6 The system produces lots of data, but it’s not in a format that makes analysis easy or intuitive.

1 2 3 4 5

7 Writing or changes to reports requires someone who understands the innerworkings of the system or a specific report generator.

1 2 3 4 5

8 “What‐if” report scenarios don’t exist in your current system. 1 2 3 4 5

9 System performance is poor, slow, causes crashes, produces productivity issues, etc. 1 2 3 4 5

10 Your business now requires features beyond basic accounting that your current system can’t provide (distribution or manufacturing capabilities, compliance capabilities, workflow enhancements).

1 2 3 4 5

11 You rely heavily on manual tracking, or are using Excel and Microsoft Office databases in a variety of disconnected spreadsheets, documents, presentations, or flowcharts to run your business.

1 2 3 4 5

12 Your business has grown to the point that you now require standardization of business processes.

1 2 3 4 5


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13 Besides Microsoft Office, you have many disparate systems that have limited access to data for employees who need it. (ACT for CRM, Excel for Distribution, Web portal for EDI data, Web portals for shipping information, etc.)

1 2 3 4 5

14 Manual reconciliations are very time consuming, making it hard to get invoices out in a timely manner.

1 2 3 4 5

15 Your business system has become a hodge‐podge of employee‐added, non‐authorized software applications that benefit a few but may cause more work for others.

1 2 3 4 5

16 Service levels are affected by lack of access to information or an inability to acquire needed information in a timely manner.

1 2 3 4 5

17 Your business system often requires customization to adapt to changing business processes. 1 2 3 4 5

18 You’ve had to add IT staff to help you manage your business system. 1 2 3 4 5

19 Your support calls to your software vendor are increasing. 1 2 3 4 5

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Your business requirements have changed – you’ve brought on new EDI customers or web customers that require a high degree of compliance and find yourself deploying staff solely to customer accounts in an effort to understand and comply with those business requirements.

1 2 3 4 5

21 You have seen an escalation in unplanned customer deductions. Managing them affects both productivity and cash flow.

1 2 3 4 5

Total Score


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INDEX RECOMMENDATIONS

70‐105

While your revenue may not be suffering on the surface, there are underlying issues that put your company at significant risk. Your processes appear to be negatively impacting your cash flow and making it difficult to adapt to any change in business conditions. Your business has changed since you installed your business system. Better functionality is available to you. Your competition, with better systems in place, has a significant advantage as they penetrate your existing customer base. Customers don’t complain; they just take their business elsewhere. You may not realize the impact customer satisfaction is having on your ability to grow. You may be experiencing cash flow issues, a longer accounts receivable cycle, inventory issues and customer deductions for noncompliance errors. You may also have experienced a fair amount of employee turnover. Your employees may not be empowered to do their jobs effectively and may be leaving you for a better environment. You may receive significant paybacks by investing in a new system in the form of better productivity, increased cash flow, better customer service, customer and employee retention and overall profitability. Since you’re already running Microsoft Office, start with the VAR that assisted you in its implementation. Have them recommend a VAR that can provide you with a free business assessment. This guide will provide you with key qualities to look for when choosing a VAR and evaluating a new business system.

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You’re nearing the end of your investment. Business systems usually have a shelf life of 6‐10 years. Business conditions, however, don’t have a shelf life – they can change at any time, and those changes may not be compatible with the business system you chose 18 months ago or 5 years ago. It appears that you’ve experienced a good amount of change that may warrant some research into other business systems. Use this guide to assist you in your research and to identify functionality that may meet your requirements. There appear to be a few pertinent pieces missing in your system that, if addressed, could have a significant impact on your company. Review the areas where your system scored the highest and consider their impact on your business from a financial standpoint, as well as from the standpoints of employee retention, risk, growth and cost. An easy way of begin your research is to take advantage of the many webinars that are available today. If you have a VAR that assisted you in your Microsoft Office installation, you can ask them to recommend a business solutions partner that can provide you with a free business assessment. If you do not have a VAR, contact the company that sent you this guide for a recommendation.

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Congratulations are in order. You rank in the 93rd percentile of CG distributors and manufacturers that have systems in place that are sufficient to reach their goals. Consider reading the following whitepapers on how operational changes may affect and add value to your organization. The ideas in this guide might spark a new idea that will improve your robust, agile system. The following guides can be downloaded free of charge from www.dynamicsedi.com/6.html Is Your Warehouse Stealing Your Profits? Demand Planning: Optimizing Operations Across the Supply Chain Inventory Management: Analyzing Inventory to Maximize Profitability Winning with Lean in The Automotive Marketplace The Value of Manufacturing Visibility Asserting Control, Seizing Opportunity in High Tech: Five Critical Success Factors


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FINANCIAL MANAGEMENT VS. SUPPLY CHAIN

Financial Management is normally the catch‐all phrase used to describe business systems, however, for consumer goods companies, supply chain capabilities must be a critical component of your business system. Financial Management features in a business system are geared toward process facilitation in the areas of the General Ledger, Accounts Payable, Accounts Receivable, Purchasing and Sales.

The term “Supply Chain “ is sometimes used to describe the modes and processes associated with getting your products to your customers. Many times it is used to describe the entire chain of events that occurs between receipt of a sales order, execution of a purchase order, manufacturing, receiving, fulfillment, shipping and reconciliation of payments to invoices.

Because of the major emphasis Consumer Goods companies place on adhering to specific business rules dictated by the customer, this guide will use the term “supply chain” to define the processes that must happen between the time the sales order is entered into the system through the time the invoice is reconciled with payment. The strength and flexibility of this chain determines the success a company will have in maintaining exceptional customer service levels which in turn determines the long‐term growth the company can achieve. This guide will look at business systems as they relate to the core supply chain described in the paragraph above. Between the endpoints of sales order receipt and invoice reconciliation is a chain of events or cycles that must occur:

SALES ORDER PROCESSING

This event starts with the physical receipt of a sales order (not its entry into the system).

BUSINESS VALIDATION

This is the review cycle that must be completed for sales orders before they can move to the next step (data is correct, product is in stock, clear instructions are available, delivery is feasible, etc.)

COMPLIANCE

This is the set of the business rules and responses that must be completed as dictated by the customer (acknowledgement of the order, fulfillment of the order, notification of shipment etc.)

FULFILLMENT

This event begins with the transfer of the sales order to the shipping station or warehouse (including an off‐site warehouse) and includes the physical packing of the order, shipping of the order and the capture of details associated with that order (quantities fulfilled, shipping data, item identification by container).


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REMITTANCE

This event starts at the point of creating the invoice and ends with receiving payment or a remittance notification.

RECONCILIATION

This is the process of matching the payment to the invoice, including the creation of credit memos for deductions.

A CASE FOR THE BEST‐OF‐BREED MODEL

If you are not satisfied with the productivity of your business, your growth rate or the speed at which you are acquiring new customers, it could be that your business system is the underlying cause. New technologies and enhancements to today’s mid‐market business systems can provide a huge benefit to your operations. Perhaps your business has outgrown the business system you purchased a few years ago?

You can and should periodically review new business systems, whether you’re in the market or not. If for no other reason, do this to stay on top of what your competition’s potential capabilities may be. Take advantage of offers to view online webinars (the easiest way to review technology) or attend free seminars and events from local consultants to kick the tires. What you find may surprise you and be just the fit you need for your company’s next step.

For the purpose of this white paper we will use the term “Vendor” to describe the developer or owner of the business system. “Value Added Reseller” (VAR) describes the services firm a company would hire to implement a business system. “Provider” will be used to describe a third party provider that offers additional applications that are created for the business system to extend functionality.

When you implemented your current business system, you probably adapted your processes to correspond with the way the system was designed to handle those processes. Those of you that didn’t probably paid a small fortune for customization services that even today may still produce “clunky” business processes and workflow. Consumer Goods companies are unique in that they are forced to comply with ever‐changing customer requirements which have an impact on the business processes they deploy. A system that is not flexible will leave you in much the same boat as you are in now. When the business system is too rigid, companies are forced to deploy “band‐aids” or manual processes to get around the limitations of the application.


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Industry solution

Figure 1: Embedded applications strengthen business system

BUSINESS SYSTEM MODELS

Business Systems generally fall into one of three categories:

CUSTOM MODEL

You have a choice in deploying mid‐market applications that are designed to be completely customized or partially customized for your business, however, your tradeoff may be increased development, implementation expense and the costs associated with maintaining the customization. This model is a good choice for companies that have unique business processes that must be accommodated by the business system and would not be found in Out‐of‐the‐box type business system models. Microsoft Dynamics™ AX, PeopleSoft and SAP are examples of business systems that are built to be customized for each unique installation on a company‐by‐company basis.

OUT‐OF‐THE‐BOX

Another model is a rigid out‐of‐the‐box model in which all modules are created by the vendor and designed to be used “as‐is” or with very little customization available. QuickBooks and Peachtree as well as Fourth Shift, Macola, Profit 21 and some Sage products are examples of “light” business systems in the out‐of‐the‐box model. These applications are usually installed quickly and are intuitive to the user, however, they won’t provide you with a broad spectrum platform to serve you outside of Accounts Payable and Receivable.

BEST‐OF‐BREED

The best‐of‐breed model provides a flexible yet robust breadth of functionality, but also embraces the integration of third party provider offerings to produce deep functionality in areas that the business system alone can’t provide. This model relies on the underlying structure of the business system to provide a breadth of basic, configurable, general business functionality that can be used by most companies, yet is built on a platform that easily enables a company to select from a wide variety of niche applications to serve the unique needs of their business.

Business Systems that adopt the best‐of‐breed model tend to have a community of software applications developed by software providers that have a deep‐level knowledge of areas such as inventory management, or supply chain compliance, but have an equally deep knowledge of the business system. Their applications usually are built specifically for a

particular business system, enabling a simpler installation that leverages the value of the business system.

Microsoft Dynamics GP, for example, falls under the best‐of‐breed model and has a large community of providers that offer specialized applications for specific business processes. To clarify, this guide will refer to the developer of the business system as the VENDOR (i.e. Microsoft) and to companies that


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produce the niche applications for the business system as PROVIDERS. In the market, these companies are sometimes called Independent Software Vendors (ISVs) or Third‐Party Providers (TPPs).

Many consultants consider this model to be blasphemous. There is a misconception in the marketplace about best‐of‐breed models and third party providers. Some consultants cite that when providers are involved, you lose accountability because there are many entities contributing to your implementation, which increases the risk of an unsuccessful installation. Another argument is that managing the providers and associated support contracts for those solutions is time consuming and hard to track. However, you have to look at where this misconception started. It started when best‐of‐breed models became available to mid‐market companies.

Prior to that time the options for business systems were mainly customizations or systems produced by a single vendor (i.e. PeopleSoft) with custom development required. Where does most of the expense lie in implementing these types of business systems? You guessed it: customization services. The majority of these system integrators make their money on customizations. Best‐of‐breed models diminish customization service fees, and ultimately provide you with proven niche solutions built by software providers that are experts (not generalists) in the processes their solutions address.

The best‐of‐breed model has matured to the point that best‐of‐breed business systems are now sold in “solution stacks”. These are collections of niche applications bundled to achieve specific functionality vertically or by industry. The business systems that have embraced this model have found that by partnering with best‐of‐breed providers, they can now provide highly configurable business systems that can be implemented faster, with a minimum of customization and with predictable results. There are two reasons for this.

1. The vendor has built the business system to be highly configurable to meet a business’s basic needs, and 2. Best‐of‐breed providers have built their applications to extend and enhance the functionality that already

resides in the business system.

If you believe that your competitive advantage relies on flexibility and the ability to adapt to changing business requirements faster, the best‐of‐breed model makes the most sense. It provides you with the flexibility to choose the best products to handle very specific needs in the best way possible (and with little or no custom development). It allows you to extend the life of your business system, since you may be able to replace applications that you outgrow instead of ripping out your entire business system. Additionally, the best‐of‐breed model provides you with the ability to easily add functionality at reduced cost as your business needs change in the future.

When a vendor tells you that their business system does it all, they’re not being truthful. Every business is unique, even those in a particular industry or vertical market. A business system that relies solely on its own functionality built by the vendor rarely fits your business without a significant amount of custom development. Be wary of providers that claim that they integrate with business system “A” or “B” but are not certified by the vendor of the business system. Additionally, be wary of providers that claim to integrate with all business systems.

Providers that have applications that support all business systems usually possess general functionality. These providers cannot provide a deep level of functionality because supporting that functionality across multiple business systems would be cost prohibitive. Check providers references carefully for established integrations to


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see whether those integrations are replicable for your implementation. In many cases they are not. A best‐of‐breed provider will have a standard integration for the business system that requires a minimal amount of integration services.

The competitive nature of the best‐of‐breed applications available for a particular business system naturally ensures that these providers continuously produce robust application features and functionality to hold their best‐of‐breed spot. For a best‐of‐breed provider to stay alive in this model they have to

• Demonstrate commitment and focus on a particular business system

• Demonstrate through current installations the ease of implementation and configuration

• Demonstrate their ability to work with other leading complementary providers for the business system

• Demonstrate a level of niche knowledge that you can leverage (i.e. the provider has experience working with so many companies like yours that they can advise you on best practices and pitfalls in setup and production).

This last point is often overlooked as a strategic value. When you choose a best‐of‐breed provider that has worked with many companies with your specific needs, you benefit by having access to these subject matter experts. They have the experience of learning and consulting with a large population of companies like yours and have figured out which practices are the best fit for your company. This is extremely important when you are working with best‐of‐breed providers in the areas of Inventory Management, EDI, Fulfillment & Shipping, Warehouse Management, etc.

Evaluating a business system that deploys the best‐of‐breed model does require a bit more time up front, however, the time you spend up front is recompensed by the extended shelf life of the business system you end up purchasing. Many consultants will try to scare you into thinking that managing multiple maintenance and support contracts can be problematic, however, VARs and providers are deploying new and innovative support models that can consolidate and manage this process for you. The trick to deploying a best‐of‐breed business system model is finding the right Value Added Reseller (VAR).

EVALUATING VALUE ADDED RESELLERS OR VARS

To deploy the best‐of‐breed model effectively, it is imperative to look to the expertise of the Value Added Reseller. Choose a Value Added Reseller that demonstrates competence in your industry. If a reseller doesn’t demonstrate industry knowledge, experience, or a focus in your industry, move on. A reseller in this industry will be aware of the issues and snags unique to Consumer Products companies. They will know the correct “solution stack” for your business and will have a formal business relationship with each provider.

The stack they recommend will be in use at several companies, however, keep in mind that the beauty of this model is that customers have chosen a variety of best‐of‐breed applications to meet their needs. The best‐of‐breed applications you need may not be installed together at a single reference site.

Look at the VAR’s level of commitment to the vendor. Most vendors that use a channel to sell their solutions classify their channel into groups based on their commitment and expertise. For example, the highest level of expertise for VARs within the Microsoft community is Microsoft Certified Gold. VARs with higher certification get


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access to special training, and generally hold a closer relationship with the vendor than VARs at lower levels of certification. Each vendor’s reseller program is different. You should become familiar with how the vendor trains or certifies its resellers as well as any vendor awards the VAR has won to get a feel for their performance and commitment to a vendor.

Assessing the VAR’s focus is important too. Most VARs that support mid‐market companies only serve companies within a defined area or state. This local focus can be highly beneficial to the customer for several reasons.

1. Local VARs have a firm commitment to your success because the pool of available prospects for them is smaller. In a local setting, both good and bad news travels fast. When a VAR has an unsuccessful engagement, everyone knows it. The damage this news does to their business takes years to overcome. Local VARs depend on every engagement being successful and those that have large client and many references are generally good VARs to partner with.

2. Along these same lines, a local VAR is going to be vested in your business and will provide you with a deeper level of support than a VAR or vendor that does not have a local presence.

3. It is easier and strategically important for a local VAR to understand your long‐term priorities and business goals – especially when local market conditions change. A local VAR is in a better position to understand your unique flows and patterns to better support your company.

4. A local VAR can provide education activities, so you always have access to new ideas, new solutions and new ways of overcoming business challenges.

Check references, meet your providers, and get your expectations in writing before implementation begins. Competing models will tell you to avoid the best‐of‐breed model citing integration issues, maintenance and support issues. In fact, this model has evolved to the point that many VARs have figured out how to mitigate these risks with creative solutions. Although this is a downside of the model, we believe the best‐of‐breed model provides mid‐market companies with a highly customized business solution that is very flexible and scalable with little custom development required. In addition, the model enables you to choose specific functionality that can’t be covered by all business systems.

EVALUATING BEST‐OF‐BREED PRODUCTS AND SERVICES

This is often the hardest part of using the best‐of‐breed model, however, your local VAR can make this process much easier. Your VAR has a stake in your success. If they’ve demonstrated that they understand your business, they will know the strongest best‐of‐breed providers for your industry. Your local VAR can provide a short list of selections or “stacks”, and can explain the advantages and disadvantages of each, reducing the amount of research you need to do.

As you evaluate best‐of‐breed providers to fill gaps in the business system, you should expect the provider to meet the following qualifications:

• They should be certified at the highest level with the vendor of the business solution. Maintaining these certifications is costly and therefore indicates that the provider is committed to the platform and has an


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established relationship with the vendor that is required to keep up with version upgrades, changes to the business system, etc.

• The top best‐of‐breed providers hold advisory positions or something similar within the structure of the business system vendor. Vendors have stringent guidelines for filling these positions and the provider must demonstrate their competence and the superiority of their products to be chosen.

• They should ideally provide their solution for just one business system, or two of the vendor’s product lines. Providers that integrate with competing business systems cannot realistically provide you with the deepest level of functionality, because supporting a range of products would be cost prohibitive. Generally you will find only superficial integration in the solutions provided for multiple business systems. They can’t take advantage of the business system’s underlying architecture to provide you with the depth of functionality you may require.

• The business system should have an established presence rather than a huge number of installations. Providers that have thousands of installations appear to fit every business. A smaller number of installed customers (under 1500 but above 100) would indicate that their application is specialized for one or two particular business systems and therefore likely to provide you with detailed workflow functionality that can be configured for your business. Support levels also become an issue when you are a small fish in a big pond. The bigger fish tend to get superior service because they provide the bulk of the revenue for large providers.

Now that we’ve covered the basics of knowing when it is time to evaluate new systems, and how you might go about doing so, Part II of this guide will look at detailed supply chain processes that are unique to Consumer Goods companies and will need to be a part of the business system you choose. The following pages contain checklists to use as you evaluate new business systems and partners.


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VENDOR SELECTION CHECKLIST

VENDOR – Developer of Business System Vendor A Vendor B Vendor C

Number of customers

Number of customers in your industry or vertical market

Deployment Model (Custom, Out‐of‐the‐Box, Best‐of‐Breed)

Has an established program for certifying VARs and Best‐of‐Breed providers at multiple levels (indicating commitment and investment in the business system)

Integrates with familiar tools to leverage existing employee skills (such as Microsoft Office)

Has a wide variety of certified best‐of‐breed providers (sometimes called ISVs) that have established certification with the business solution vendor

Annual investment in enhancements

Clear roadmap – projection over 10 years Documented support for products through 2013

Viability – will they be around 10 years from now? Who ultimately owns the company? Consolidation is rampant among lesser know mid‐market business systems. Vendors whose companies are privately held are at risk for acquisition and merger activity.

Scalability of solution from 1 user to 100s of users or more

Breadth of application – a wide selection of integrated business modules spanning Accounting, CRM, Fixed Assets, Manufacturing, Distribution, Human Resources, Services, Reporting Analysis, Project Accounting, Sales Order and Purchase Order Processing, Warehouse Management, eCommerce, Portals, Field Service

Has a presence locally and can provide you with access to management‐level resources


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PARTNER (VAR) SELECTION CHECKLIST

VAR Selection VAR A VAR B VAR C

Demonstrates an understanding of your business

Demonstrates competency in your industry

Key industry focus of the VAR (i.e. Food & Beverage, Electronics)

Geographical focus (local, regional, or national)

Demonstrates business solution expertise through certification with vendor. At what level is the VAR certified?

Provides several business solutions from a single vendor’s product line instead of competing business systems from two or more vendors.

Number of customers supported by the VAR that are using the business system

Can provide you with a variety of references to choose from in businesses that are similar to yours

Knowledge of Best‐of‐breed Providers or solution stacks

Demonstrates experience and established relationships working with the recommended “stack” for your business


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PART II ‐ SUPPLY CHAIN SPECIFIC EVALUATION CHECKLIST FOR CONSUMER GOODS COMPANIES In Part I of this Guide we provided a toolset to see if your company might benefit from evaluating a new business system. We then provided you with an overview of the types of business system models that exist and how to evaluate the types of partners you may require as you evaluate a new business system.

In Part II of this Guide we will cover detailed supply chain requirements for Consumer Goods companies that should be looked at in detail when evaluating business solutions. Often, companies evaluate a business system for basic functionality as it pertains to the business processes within their own four walls. This guide encourages you to also carefully review and think through the business requirements of your business partners (i.e. customers, carriers, other partners) and how those processes and workflows will affect your workflows using the business system you are evaluating.

The following grid provides you with a high‐level checklist of requirements that a business system should handle. If you are reviewing a best‐of‐breed model business system, you will want to evaluate how the best‐of‐breed provider addresses and processes these areas using the business system. If you are selling to retailers or other companies that have EDI requirements, this section will be of the utmost importance to you.


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SUPPLY CHAIN SPECIFIC WORKFLOW CHECKLIST

Consumer Goods Workflow Requirements Vendor A Vendor B Vendor C

Scalability of operations (how does new customer acquisition affect your workflow)

Management of markdowns and deductions

Remote Warehouse capabilities

Automated generation of Advance Ship Notices

Pack Verification

Automated Shipping

Business Rules Validation to automate workflow and manage unique trading partner requirements

Contract pricing support

Workflow Optimization to handle cross dock requirements

Deduction management and analysis (chargeback processing)

POS EDI data support

Fixed cost model used to bring on new trading partners

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Another area to review closely is how you will bring on new EDI partners. Can you bring on new EDI customers in a fixed cost model? Many suppliers deploy strategies that require professional services to bring on and test new EDI trading partners. Costs can range from a few hundred dollars to $10,000 or more depending on the complexity of the documents required. Often, Consumer Goods companies fail to achieve ROI from their EDI investments because they avoid adding new trading partners due to cost factors. By enabling a fixed cost model for adding trading partners, you will be better able to plan for new customer acquisitions, and better able to take advantage of the workflow benefits EDI can provide you.

If you have just brought on an EDI customer or have a few EDI customers, this section addresses key factors to consider as you evaluate workflow processes.

SCALABILITY OF OPERATIONS

Be sure to consider what type of program you use with your customers, because the scale of complexity increases as you move from local to regional to national programs. Programs are the large‐scale processes that a retailer may require you to follow. Some retailers employ a ship‐to‐store program, while others may require you to ship to a distribution center. The structure of your program will also dictate the complexity. For example, you’ll need to think about the impact a ship‐to‐store program will have on your operations versus a Distribution Center program. Shipping specific orders containing many line items to one DC may be manageable with a hosted EDI solution, but you will heavily tax your workflow if you enter into a ship‐to‐store program, as you’ll be receiving many orders with many line items that have many ship‐to addresses. In this scenario you will need to manually enter sales orders for each ship‐to address and figure out a way to communicate this information to your warehouse staff to ensure accurate delivery. Keep in mind too that you may need to look at the ASN process associated with these shipments. All have a significant impact on the amount of manual entry that will be required.

MANAGING MARKDOWNS AND DISCOUNTS

How will you manage markdowns and discounts against inventory availability? If you are a standard pack company, this is not complex, but if you are a pick and pack company mixing SKUs in your orders, this process becomes problematic. If you’ll be manually entering EDI orders, your process will also involve adding up all of the markdowns and discounts and entering the sum into a markdowns field (new store discounts, advertising, returns allowances) in the order processing module. More importantly, if you don’t have a good handle on inventory availability and you can’t completely fill the order, you will need to reconfigure the markdowns or discounts manually based on what inventory you shipped.

REMOTE WAREHOUSE CAPABILITIES

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Business Office

Buyer

DC or Store

Sales Order

Fulfillment

Shipping

Invoice

Reconciliation

1

2

4

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3

Payment


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If you use a public warehouse, or are considering contracting with one, review the EDI solution capabilities of the warehouse carefully. Many public warehouses will say they do EDI, which could mean they have a high level of EDI experience, or that they can get EDI orders from your customer. The optimal setup is a warehouse that can transact EDI with you for visibility, better pricing and fewer manual processes. A public warehouse may offer to receive your customer’s EDI order, fulfill it, send your required Advanced Ship Notice and ship it. If your warehouse is not EDI capable, the quantity fulfilled and other information will need to be communicated to you via fax or possibly flat file. Fax communication presents a variety of issues in the double entry required on your part, plus the readability and accuracy of the data. Flat file imports are better, but require customization to accommodate the import function. If you are sending orders to your public warehouse, your warehouse will need to manually enter that data – and you’ll pay higher rates for their services.

Many EDI‐capable warehouses can send the ASN for you, however, you’ll want to review the fee structure associated with this service. Warehouses can charge you by the order, by the box, or by label, making this solution cost prohibitive. Having the warehouse generate the Advance Ship Notice on your behalf can be problematic as well – giving you very little control of potential deductions taken for noncompliance. By generating the Ship Notice yourself, you may lower your remote warehouse costs, improve order accuracy and improve the number of complete shipments they process. Whatever EDI solution you choose should enable you to easily generate customer‐specific ASNs either from your warehouse or a public warehouse.

EXPERTISE WITH CUSTOMER REQUIREMENTS

Who will “own” the knowledge of the business rules associated with each customer, and what’s your backup plan? Your EDI customer provides you with complete instructions, guidelines and routing requirements which will lay out specific instructions on how they want orders to be processed. An employee resource is usually allocated to study these guidelines and become intimately familiar with the business process requirements to avoid errors associated with customer mandated deductions.

Many companies designate one person to own the customer requirements and operations – which is fine, until that person leaves your organization or you bring on more customers than you have staff to support. There will be at least a four week learning curve which could represent thousands of dollars in penalty fees for non compliance.

FOCUS ON FULFILLMENT

Can your EDI solution help you streamline the fulfillment process? This is a common area where productivity is lost and errors are made. A common scenario is that once the EDI order is entered into Microsoft Dynamics GP, a pick ticket and associated packing slip is printed and sent to the warehouse. As the warehouse packs the order, they find that there is not enough product to ship. A handwritten note is made on the pick ticket, which must go back to the department that is responsible for changing the quantities fulfilled for that order in the system. The packing slip may need to be reprinted, as may additional labels. The shipment sits in the warehouse until all of these steps are completed.


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Look carefully at your ASN generation process, as this is another area that is often inefficient and results in ASN delays. Who in your company is responsible for generating the ASN? Where should the ASN be generated for maximum efficiency – back in customer service, or perhaps on the warehouse floor? Could you streamline the process with a solution that automatically captures the shipping details required of the ASN? Many companies encounter customers that want multiple orders consolidated into one shipment. If this shipment requires an ASN, a manual process can be grueling. The right orders must be grouped together, the right quantities must be captured and fulfilled, and the ASN must arrive before the shipment to avoid penalty fees. The solution model you choose will often dictate the process flow, regardless of what the right process should be.

TIERED OR EXTENDED PRICING

How will you accommodate tiered pricing and contract pricing in your operations with your EDI customers? How will you make sure that the pricing the customer designates in the sales order is the price you negotiated? Many companies find contract pricing administration so cumbersome that they settle for using the transmitted price from the customer – often leaving a significant amount of money on the table that could’ve been captured.

CROSS DOCK REQUIREMENTS

Are you prepared for Cross Dock Orders? Some customers will provide you with one order that contains multiple items designated for multiple ship‐to addresses. Again, if you are not mixing SKUs in your fulfillment process, this is not complex. If you are a pick and pack environment however, how will you manage to communicate fulfillment instructions to your warehouse for these orders?

DEDUCTION MANAGEMENT

How will you manage charge backs? Penalties are commonly assessed for errors or non compliance, as are other known deductions (i.e. advertising, promotions). These allowances and penalties are noted on an electronic EDI remittance document detailing what allowances or deductions were taken against your original invoice. You’ll need to somehow capture these deductions and create debit or credit memos associated with payment remittance to balance your books. You should also analyze your deductions, because many are disputable. To dispute fees with your customer, you are going to need to capture the reference numbers and associate them with each purchase order.


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Analyzing your deductions is also a great way to anticipate your scorecard rating. If you’re seeing penalties for short‐shipments, this will help you focus your efforts on inventory management. If you’re seeing penalties increase for order errors, you may need to focus on pack verification processes. Many companies, however, don’t analyze these deductions. Some find it easier to manually create credit memos because it’s too time consuming to capture that data. These penalties can add up to thousands of dollars per year that could be fixed or disputed in a very short timeframe. The worst outcome is to have your customer drop you because they find another supplier with a consistent track record of accuracy and compliance.

CONSIDER POINT OF SALE DATA (POS) USAGE

Will you be able to derive value from Point‐of‐Sale data? Many retailers will send you periodic POS documents via EDI, letting you know what sold in what timeframe. This data can be extremely valuable for running your business and anticipating your customer’s needs. POS data means nothing to you if you can’t analyze it properly, either by customer or collectively for all your customers. POS data can help you pinpoint problems before they occur by allowing you to see trends by region, store, product, etc.

A recent study among Consumer Goods companies found that, on average, three purchase order changes occur per purchase order. One of the reasons this happens is that retailers don’t mandate the use of EDI Change Requests. Buyers call in their changes to the supplier and the supplier makes the necessary changes in their business system. Problems occur because the retailer has not made adjustments in their system to reflect this change using EDI. The retailer’s system can’t see this change, so it appears that your ASN doesn’t match – even though it’s correct. Unfortunately, until the retail industry starts mandating EDI change orders, you should capture and review your deductions carefully. Further analysis may find that your customer erroneously took deductions because of their own undocumented changes. Can your EDI solution accept change orders? How will you uncover erroneous deductions?

Compliance penalties were found to be between 1% and 2% of gross sales revenue. If chargebacks are a problem for your company, there are several things you can do to reduce this number and gain greater efficiencies.

• Automate the purchase order change transaction

• Automate Advanced Ship Notice and Shipping transactions

• Deploy pack verification solutions to make sure your shipments are accurate

• Focus on reducing penalties versus negotiating them

• Use benchmarking to analyze your operations and focus on correcting the weak areas

‐ The Credit Research foundation’s Customer Deductions: Impact on Receivables 2006 Edition.


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CONCLUSION

We are often most comfortable with the least amount change, which is why many companies put off a decision to replace their existing business infrastructure. Wait too long and you could find your business in a downward spiral; jump too soon and you risk implementing a system in which you take advantage of only 20% of the functionality. This guide has provided you with several key areas that should be reviewed as the evaluation of a new business solution takes place rather than after the selection has been made. While EDI may be a requirement in your business, companies need to understand that EDI requirements drive sales order workflow, which can be optimized to provide you with great advantages, or create more problems for your business if the right EDI solution is not in place.

Any solution you deploy should provide for workflow optimization and not merely data transfer. Using the following goals as a guide, you can leverage your investment in a new business system and use EDI for the competitive advantage it can bring to your company.

• Increases order accuracy

• Reduces data entry

• Enables Management by Exception

• Optimizes workflow through the order‐to‐reconciliation process

• Ties processes and workflows together electronically

• Extends communications and optimized workflows to other partners in your business (carriers, public warehouse, etc.)


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About the author:

vSync is the leading provider of supply chain compliance and execution solutions for Microsoft Dynamics™ GP. Our solutions enable suppliers to meet and manage customer mandated EDI and fulfillment requirements. Using vSync solutions, companies can automate the order‐to‐cash process through rules processing, automated transfers to remote warehouses, automated ASN generation, automated pack verification, shipping and label automation. vSync integrates with several other complementary ISVs such as Maximum Data, Accellos, Rocky Soft and Blue Moon Industries. For complete details on our EDI, Shipping, Warehouse and Chargeback solutions visit http://www.vsync.com/solutions

625 E. North Broadway Columbus OH 43214 614‐261‐0058 Email: [email protected]

Website: www.vsync.com

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