Every business is looking for the key to getting ahead in the current tight economy. But what is the key to getting ahead of the curve? Process standardization is one place to start. With standardized processes, critical business transactions are unified, including purchase orders, invoices, shipping notification and payment with customers and suppliers - resulting in fewer errors, timesavings and an increase to the bottom line.
Moldmakers Can Learn From Wal-Mart
While your moldmaking company may not be a corporate giant like Wal-Mart, your business can emulate the profitable example that it sets. With long manufacturing leadtimes, complex processes and high-value materials, cost cutting and time reduction are critical to your continued success.
Wal-Mart continues to improve its earnings, even during difficult times. During the second quarter of 2002, Wal-Mart reported that net profits surged 26 percent, while J.C. Penny narrowed its net loss and the Ames Department Store chain - one of the largest regional discounters with 327 stores - declared bankruptcy, according to the Wall Street Journal.
By continually finding ways to improve profit margins through cost cutting, inventory control and limiting discounting, Wal-Mart is leading the pack. Its commitment to investment in technology drives down operating costs.
Wal-Mart knows that standardization works. To be a Wal-Mart supplier, all business information must be delivered electronically in a uniform matter. Additionally, all merchandise, cartons and shipping containers must be properly identified with standard labels and bar codes for fast and efficient tracking from warehouse to final retail checkout. Wal-Mart's phenomenal success proves that standards work.
Standardization Saves Resources And Money
Companies that utilize standardized electronic information exchange will eliminate errors and reduce redundancy, deliver superior customer service and increase employee productivity for higher profitability.
Think about it this way: a company may have 20 major suppliers. Suppliers provide an electronic advanced shipping notice (ASN) for each shipment in their own format. The company must either invest employee time on the IT side to maintain 20 different programs - one for each supplier - or the information must be re-keyed into the company's format.
Imagine if your NC machines received a differently formatted instruction for each item produced, and your NC programmers had to write a new translation routine for every item. Standards help businesses manage their inventory and processes, and eliminate the need to re-key.
Need additional proof that standards help increase the bottom line? The correction of even one simple error typically costs $100. If you are processing 1,000 invoices in a period, lost time and revenue may cost up to $100,000. That is significant!
Standards help the production side of the business as well. Accurate electronic receiving data that is automatically input to inventory control, production planning and control systems can virtually eliminate discrepancies. Resolving discrepancies in manual systems can take many research hours and involve multiple individuals. These discrepancies cost everyone time and adds costs to the operation, regardless of where in the process the discrepancy was introduced.
By standardizing advanced shipping notices (ASN), you can re-engineer your receiving process and in turn, products get off the receiving dock faster, thus reducing the amount of inventory needed to get customers the products they need. High-value inventories such as specialty steels can be minimized. Not to mention, with a standardized ASN, you have fewer invoice discrepancies to resolve - allowing your accounting staff to be more productive. Standards help businesses manage their inventory and improve the validity of the delivery dates.
Without standardization, your IT group must develop individual computer programs for every trading partner. By getting all of your suppliers to follow the same data content and format, your team can develop one program, thus saving substantial time for your already overworked IT staff.
The improved processes created by standardization ensure the best total value is delivered to the end user by having the right products in the right place at the right time.
How Are Standards Established?
Efforts to create standardized documents began more than 25 years ago with the development of the ANSI X12 EDI. Unfortunately, these early standards were not practical for the small- to medium-sized company to implement. Despite the original intention, ANSI standards are not a "one-size-fits-all" solution.
Standards development must be driven by your business needs. It is about reducing costs and solving common business problems. Individuals from multiple disciplines need to participate, not just your IT professionals. For the standards to be effective, they should involve logistics, accounting, manufacturing, purchasing, operations, shipping, receiving and - not to be forgotten - sales.
Standardization does not happen overnight - but it can happen. By pooling resources, your industry can collaborate to create electronic communications standards in record time. To ensure success, a wide-range of companies of all sizes from an industry must "buy-in" to the process.
Technology is readily available to help your company get ahead - but only if your industry has already standardized the business processes that take place between trading partners.
Who Should Be Involved in Establishing Standards?
You may believe the standards process is a purely technical effort. Other companies may be waiting for the "industry leaders" to lead the way. Some people suggest that you should rely on the computer software providers to develop the standards for your business. Believing any of these myths is a huge mistake.
It is essential that standards reflect the needs of your industry and your company. Only you know your business requirements and you need to make sure your voice is heard.
As a standards consortium, you must remain focused on the immediate task, working to resolve one issue at a time - rather than attempting to rework the entire industry. Industry groups must reach a consensus to create a single, uniform interface for customer/supplier data exchange.
How Can This Work?
When traditional competitors and trading partners acknowledge competition and agree to work together, everyone wins. By following the best business practices, industries can create improved company profitability though lower inventory levels, shorter leadtimes, simpler business processes and making better decisions.
An outside neutral party can help develop standards as part of a ground-up industry wide effort. But first, you need "leaders" to recognize the need to establish industry-wide standards to reduce costs and improve customer service.
For example, the Embellished Activewear Industry (EASI) established a standards committee that took less than 12 months to finalize the first phase of initial standards from start to completion, which included a UCC Global Trading Identification Number, product ID, master carton labels, product case tracking bar codes, product ID bar codes with case quantity, product description databases and advance shipping notices. In the coming months, an estimated 75 percent of all products in the industry will be shipped based on the standards this group of industry leaders has developed.
A second phase includes standards for electronic purchase orders, order acknowledgements, invoices and point-of-sale information. Many of the participating companies expect to have rapid deployment of the second phase standards.
Resources are tight for all business; everyone is looking for a better solution. Recognizing that solutions are available is the first step.
The supply channel from raw material supplier to manufacturer to end user must continue to evolve and become more efficient as customers increase their demands for lower prices and more efficient business practices.
Standardization within an industry is a high-return investment that is critical for the leaders of tomorrow.