Fulfilling the perfect order requires that several things happen perfectly along the way between the customer creating the order and eventually receiving exactly what they ordered. The most basic piece of this puzzle is that the various transactions that make up the order process are all created and interpreted perfectly by all trading partners along the way. Making all those documents perfect does not happen automatically. Even the most elementary document needs to be tested to assure that the content, format, and the processes that handle it work as intended.
In the end, vendors want to get paid for the products they send to their customers. And customers want to pay the price they negotiated. But the interpretation of price and cost can be a sticking point for both. Every supplier has a set of costs it calculates in order to arrive at its total cost and then at the profit it expects to make on the item. The same goes for the retailer selling the products it buys from its suppliers. While the retailer doesn’t have the manufacturing and parts costs, it does have an entire set of other costs that go into its pricing calculation. When any of those costs turn out to be different from what was expected, margins are affected—generally in a negative way.
A common reason for increased costs is errors in the handling of the EDI documents exchanged between the retailer and supplier. They can turn up in a number of ways, but typically they appear at the time of delivery, when the shipment doesn’t match the order or the documents can’t be processed automatically and require manual intervention. Those issues add cost for the retailer that were not included in the initial price negotiations. The retailer may then deduct that cost from the payment the supplier is expecting for their goods. And while it may seem that the burden is on the supplier to foot the bill for the costs, the deductions they face rarely make up for the full effects of the problems on the retailer’s side.
Avoiding the problems
Making sure processes run smoothly and delays are mitigated is really everyone’s responsibility and end up benefiting the partnership as a whole. Though it’s probably unrealistic to think that there will never be problems to resolve, it’s pretty easy to anticipate the ones that are likely to show up and cause the most pain to both parties.
As with most business relationships—or for that matter, all things in life—relationships work best when the ground rules are known at the outset of the relationship. Here are a few things to consider when starting a new trading partner partnership, or even if your partnership is continuing.
What documents are being used and planned?
The question of current documents required for the partnership is obvious, but many retailers plan far ahead for the incorporation of more specific and complex transactions. Be prepared for what’s to come.
Find out what testing is expected
Testing is something many suppliers find to be an imposition. And costs for testing are usually borne by the vendor. Understand ahead of time what testing is required and what the costs are. It’s unlikely you will be able to avoid the costs, but knowing what they are ahead of time allows them to become incorporated into the pricing negotiation.
Inquire about deductions and penalties
Most retailers have some policies regarding errors and have set fees and deductions. Just like testing fees, understand what they are ahead of time. Incidentally, thorough and adequate testing should eliminate most errors and their associated deductions. Find out if the retailer provides assurances that once testing has been completed satisfactorily some considerations will be made for EDI document errors that occur.
Read document requirements
Your EDI team is well acquainted with document specifications. But understanding how they relate to the sales and “special deals” arranged by product managers can avoid conflicts in the future.
Ask about timing requirements for updates and changes
As retailers update their document specifications, vendors need to mirror the changes in their own processes. Some changes need to be made quickly while others have longer time frames. Find out what the retailer expects so that the right resources can be applied as needed.
Understand overall compliance expectations
Compliance goes far beyond EDI documents. Find out what the retailer’s policies are regarding compliance reviews and remediation.
Certainly there will be other issues that haven’t been anticipated and discussed, but establishing an open conversation that acknowledges that the relationship needs to be profitable and beneficial on both sides is key in starting off on the right foot in satisfying your customers with orders that are correct and sent on time.
-Daniel Ford, DiCentral