Placing orders
Think of a company that issues thousands of purchase orders a month. They’ll likely receive at least one invoice for every purchase order issued. Let’s look at the process for this simple scenario:
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| Buyer manually enters the purchase order in their software | Buyer sends order to supplier via email | Supplier manually enters the purchase order in their software | Supplier manually enters the invoice in their software | Supplier sends invoice to buyer via email | Buyer manually enters the invoice in their software |
Some organisations have put a price on manually processing a single invoice in the ballpark of $30.
Some of the costs associated are:
- Paper
- Postage
- Printing
- Filing
- Labour – This includes staff working on the processing of the transactions.
- Error checking costs – Manual processes create errors and these errors can add costs to your business in order to correct them. This isn’t just additional labour hours to correct the issue. If the wrong number of goods to be sent is incorrectly inputted, it could lead you having an under supply or over supply of goods required.
Now let’s compare this process with EDI.
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| Buyer enters the purchase order in their software |
Purchase order appears in Supplier’s software | Supplier enters the invoice in their software | Invoice appears in Buyer’s software | ||
As you can see from the diagram the process is reduced and streamlined because of the EDI automation. The amount of manual inputting is reduced, saving time for your account team. Connecting partners’ ERPs reduces or eliminates the need for postage, filing and printing and paper costs.
This scenario is just one of the steps in the procurement process. Other messages can be exchanged to automate other steps, such as:
- Purchase Order Change – sent by buyer to supplier if the original purchase order has been changed.
- Purchase Order Acknowledgement – sent by supplier to buyer to acknowledge receipt of the order.
- Purchase Order Response – sent by supplier to buyer to notify them of any responses or changes to an order.
- Advanced Shipping Notice – sent by supplier to buyer to let them know when and how goods will be shipped.
Receiving goods
When receiving goods from suppliers, a team is needed in the warehouse ready for the order to be delivered. Using a manual procurement process, it is hard for the receiving team in the warehouse to know what will be in each package sent or how it is packaged. It is also difficult for them to know when it will be sent. Once the delivery comes in, items need to be checked off manually and inspected to ensure no goods are damaged. This is sometimes done with pen and paper on a clipboard. This information then needs to be inputted into the ERP system or sent separately to the accounts team.
Costs associated are:
- Labour costs – accounts team and receiving team.
- Stationary – paper, pens, etc.
- Any errors occurred during this process.
With EDI, this process is simplified and more streamlined. Before goods are shipped by the supplier, they can send an Advance Shipping Notice (ASN) to the buyer. This details what is being sent, how it is being sent and when it is expected to arrive. The buyer can then prepare their warehouse with the right personnel and equipment to accept the goods once they arrive. This reduces labour costs and increases productivity. The supplier can also generate SSCC labels on the individual logistic units sent to the buyer (e.g. pallet, carton, container). This can be scanned by the receiving team, automatically sending the information to the buyer’s ERP.
Preparing payments
Once your goods have been received, any discrepancies are raised and need to be rectified before payment is made. This is often done using three- or four-way matching. Some of the discrepancies that may arise in the matching process are:
- Inaccurate quantities received or invoiced
- Incorrect prices
- Received (including damaged) goods.
Typically, matching requires three documents to be reviewed:
- Purchase order – confirms the order has been made
- Receiving advice – details what has been received and the condition of the goods
- Invoice – sent by the supplier requesting payment.
The accounts payable team collects and reviews each of these documents for the quantities, prices, and payment terms. This can be quite time consuming as this information can be in the form of paper documents, emails, faxes and PDFs; all stored in different places. Documents can also be lost or misplaced causing further delays to payment potentially missing discount opportunities.
With EDI, the process is faster and more simplified. All required information is sent directly to your software via EDI. It can then be programmed to automatically match the information and identify discrepancies. If an issue is detected during matching it is filtered to be investigated by your accounts team. All successful matches are processed and scheduled for payment; no need for manual processing and paper-based documents, saving you money and time.
Interested in implementing EDI for your business? get a free consultation from one of our EDI experts.