The Strength of Many…The Power of One | Article

Under the weight of outsourcing relationshipThe concept is simple. Gather together numerous small to medium-sized entities, leverage their commonalities and enable them to wield the force of their united strength. It is a concept on which activities ranging from grassroots organizations to business associations have flourished. Now, another implementation is helping small to medium-sized companies discover a more level playing field in† electronic commerce.

“Intelligent trading engines allow the small to medium-sized companies to appear in the marketplace as a very large player,” said Rob Skyler, EC/EDI solutions manager, Litton Enterprise Solutions (LES).

LES is one of the vendors helping companies band together into buying groups that reap rewards in rebates, volume discounts and other preferential treatment from suppliers. The automation of supply chain management is delivering big business benefits to smaller organizations.

One example of what’s going on in the industry is the arrangement between LES and VIPAR Heavy Duty, Inc., a national consortium of independent truck parts distributors. LES has agreed to design, develop and operate a network that will support Internet and EDI-based transactions for VIPAR’s more than 75 members in 300 locations in the U.S.and Canada. The network is scheduled to be operational in June.

“VIPAR calls it ‘the force of one,'” said Skyler. “When a suppler receives a purchase order, it may have 10 to 20 different distributor orders, all on that one purchase order. The volume, rather than being $10,000, may be $150,000.”

More Bank for the Buck

With the increased volume, trading partners can receive larger rebates at the end of the year, and suppliers can cut the cost of overhead by handling fewer purchase orders.

The intelligent trading engines offer more than just the capability to purchase in volume. The technology presents individual trading partners with the capability for better management, honed to their specific needs and preferences. In the VIPAR program, for example, trading partners established profiles listing such information as whether they wanted to participate in consolidated orders, would accept substitutions, wanted to be notified of sales, and other specific details. Through the automated process, the system analyzes the purchase order based on the profile information and determines the best order.

“What happens today is a lot of people just send transactions out. They don’t manage them,” said Skyler. “When an order comes in, the system looks at it for opportunities. We can redirect orders based on certain criteria called trading rules.”

The trading partners can do some of that management themselves by visiting the web site to check whether specific suppliers have parts in stock and do price comparisons. They also have the option of selling their inventory overstock to other group members, rather than returning it to suppliers and paying a restocking fee.

“When that happens, the distributors get a great deal, and the suppliers have fewer returns, which they like,” said Skyler.

After the Order Arrives…

At the other end of the ordering spectrum is the reconciliation of the invoice and purchase order. That process, usually done manually in smaller companies, is analyzed automatically in the trading engine. When the two don’t match, the trading partner is notified.

“It cuts out having so many people do manual error checking,” said Skyler. “That’s all done automatically.”

Another way the trade engines enable smaller enterprises to look and act like bigger businesses is through easy access to more information. All of the order information goes through a centralized server, which becomes a repository for that data.

“At the end of the year or anytime we want, we can do a trend analysis on how many orders are going through or when a supplier is retooling his line and we have to go to the next supplier,” said Skyler. “We know how much volume is being bought from a supplier per year, so rebates and discounts can be renegotiated.”

Looking to Year 2000

As more small and mid-sized companies warm up to the idea of electronic commerce, Skyler expects to see more of them moving toward intelligent trade engines as a concept that can work in any virtual community.

“It’s for any type of association or group that buys in volume,” he said. “Especially with the year 2000 issues, the subject comes up quite often. A lot of things have to change. Rather than buying one computer, if you can buy 100 computers from the same supplier, the cost savings are tremendous on both sides.”

Lessons from the Outsourcing Primer

  • Intelligent trading engines enable volume discounts and preferential treatment from suppliers.
  • Partner profiles establish trading rules.
  • Technology enhances management capability.
  • Centralized information respository provides data for trend analyses and year-end renegotiations with suppliers.

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