To start with, we probably all know that the Supply Chain is the interdependent process of receiving and sending documents and the associated goods. For example, if you are a supplier, you receive a Purchase Order, you turn it into a sales order in your system, which becomes a pick ticket, and the goods are picked and packed for shipping. Often times, an Advanced Shipping Notification (ASN) is generated and sent to the Buyer to let them know what to expect. Once the goods are shipped, an Invoice is generated and sent to the buying organization. Several days/weeks/months later the invoice is paid and you are in the money.
Tightening of the supply chain can start with Electronic Data Interchange or EDI. EDI is the process of handling the documents in the supply chain electronically rather than on paper. Ok, that may sound mystical and expensive, but it doesn’t have to be. Doing EDI is simply a matter of receiving a document electronically and converting it into the right format so that it can imported into your order processing system. Years ago, this was done by hiring a whole IT staff and investing in lots of computers and programs to convert the data. Nowadays, companies are available to pick up that data, convert it and send it to you (over the Internet) in a format that can be imported into your system.
This is a good time to explain “The Cloud”. Back when I was in college we had to draw computer program flow charts. The flow charts had weird symbols that you used to define parts of the process such as disk storage, decisions, cards, etc. (See Figure 2). As the years progressed and the internet became a huge part of our everyday lives, kids in college taking programming courses still had to draw flow charts but they needed a symbol to define the internet. As such they went with a Cloud image like the one shown in Figure 3. So with all the mystery of “The Cloud”, it is simply a different way of saying the internet. Companies that offer services over the internet, have been called Internet based companies, Application Service Providers, Software as a Service companies and now they are simply referred to as Cloud based computing. Cloud computing is anything that takes place on the internet, from using QuickBooks Online, to doing EDI with B2BGateway.Net, or even buying consumer goods on Amazon.
So, now you understand EDI and “The Cloud”, but you are still asking yourself, “How do I increase my Sales”? The real increase in sales comes from using Cloud based EDI, but ratcheting it up a notch to be known as Vendor Managed Inventory (VMI). With VMI, you….as the vendor, manage the inventory, (so that’s how they came up with the name). What this means is that instead of you receiving orders from a company that is buying from you, you receive inventory information. A company that is buying from your organization could easily buy from your competition, particularly if you sell commodity type goods, unless you manage the inventory.
When you approach an organization that is buying from you, and say, “Hey, we will completely manage your inventory and we will ensure that your bins/shelves/racks are never empty”, that is VMI. The buying organization saves money on purchasing and is always ensured that the goods are in stock. You will be ensured that you will always make the sale, because in essence, you are placing the orders to yourself. Pretty cool… yes, but how does it work?
VMI is just like EDI, but instead of receiving Purchase Orders
for goods, your Cloud Based EDI service provider will receive inventory
information. This inventory information can be in the form of on-hand
information, or it could also be point of sale (POS) information. On-hand is the optimal information to
receive, but on-hand can be computed by subtracting POS items sold from the
starting inventory. Thresholds can be setup
in the Cloud Based EDI service provider’s system to define Max Level, Min
Level, Safety Stock, lead time, optimal ship quantity, etc. The on-hand
quantity is compared to the levels that are set and if the quantities are below
the threshold, an order is automatically generated. See Figure 4 for a clever
and timely use of a flow chart decision symbol. From
the end-users standpoint, you are receiving an EDI Purchase order, in both
scenarios. Although it is not shown in Figure 4, you would still be invoicing
in the normal EDI way.
So let us recap; you have
tightened your supply chain by using EDI, (in the “Cloud”) and you have secured
your sales channel by offering to manage the inventory of the buyer. You have
increased you sales and you have effectively ruled out the possibility of the
buyer buying from the competition, because the whole system will break down if
they do.
Now, human nature will probably take place; the buyer will
say to you, “I’m giving you all my sales and I’m saving some money on
purchasing. Yeah, my shelves are always filled, but they were when we were
purchasing, what else is in this for me….?”
The proper response to this question, (It will always come up), is “We
will give you better terms”. Many organizations that do VMI offer long terms.
Yes it can be a bit painful, but since you are maintaining the inventory, you
essentially own the stock until it sells. You can either set it up with
extended terms that are longer than you buyers cycle times, or you can invoice
for the goods as they are sold.
Your sales force is going to love you. All they have to do
is say, “We will manage your inventory to make sure you always have goods in
stock and you don’t have to buy the goods from us until after you sell them”.
Who doesn’t love consigned inventory? So
you see; streamlining the supply chain, utilizing cloud computing, without
breaking the bank, and increasing sales… is possible.
For further information on B2BGateway’s cloud based EDI and
VMI solutions please call +1 401 491 9595 / +353 61 708533 or email Sales@B2BGateway.Net
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