Successfully Adopting Electronic Ordering Within A Buying Group
Buying Groups struggle with moving from a decentralized or paper-based ordering network to a centralized electronic ordering platform. Even though electronic ordering benefits everyone in the Buying Group’s supply chain, numerous road blocks seem to deter groups from moving forward.
Why Electronic Ordering?
Electronic ordering (or e-ordering), if done correctly, can provide Buying Groups with valuable purchasing data that can be used to strengthen the group through:
- Meaningful preferred vendor programs
- Improved rebate negotiations
- Knowledge of member performance and trends
- Ability to forecast rebate earnings
- Additional value-added shared services to members
- Improved relationships with suppliers
A successful e-ordering strategy includes:
- Adopting a flexible methodology that makes it easy for members with different capabilities to participate
- Providing carrots for both member and supplier participation
- Setting realistic adoption goals
- Committing to provide feedback to both members and suppliers on an on-going basis of the results of the program.
It’s a fact of life of Buying Groups that when it comes to technology, members have their own comfort zones, capabilities, and preferred way of doing things. Unless your members are strongly motivated to adopt e-ordering, attempts to impose a single way of doing things will fail.
There are three broad forms of e-ordering:
- A web-based ordering system where members manually key orders into an online catalogue
- Capturing orders generated from members’ ERP systems
- Converting other manual order mediums, such as emails, faxes, or spreadsheets, into an electronic (EDI) format
Each of these approaches have pros and cons, and no single approach will appeal to all of your members. However, by providing all of these options (or as many as possible), you will ensure that the maximum number of members participate.
An online catalogue is simply a web-based tool for members to view the product available from a supplier and manually key in orders.
This approach requires the most effort from your group, your suppliers, and your members. As a Buying Group, you will need to work with your suppliers to provide product information in a format you can publish into a web-catalogue. Ideally this product information will include product images, rich descriptions, and relevant cost information. Where possible, the task of putting this information together should be pushed to the suppliers themselves, but your Buying Group should be prepared to step in where needed.
Members will have to be willing to visit the group’s web catalogue and manually key in orders. If they are accustomed to keying in orders into their supplier web sites, this will not be a difficult transition. However, if the member is used to generating purchase orders directly from their ERP systems, then convincing them to re-key their orders will be an uphill battle.
One advantage of managing online catalogues is that you will have a rich repository of product data that can be used in analytics as well as member e-commerce. The other advantage is that there are no costs for the member to participate.
Capturing Member Orders
A far less labour-intensive approach to e-ordering is to allow members to enter purchase orders into their existing ERP software, as they are already doing, and then provide a way to access those orders electronically.
The most common approach is to provide integrations into the various ERP systems used by your members. Such integrations result in either a file exported that can be transmitted and mapped as an EDI file, or a direct API integration into your ordering platform.
Some online catalogue providers also have the ability to accept “punch outs” from various systems. With a punch out, the member can view the catalogue and place orders while staying within their own software platforms. This style of e-ordering is most common with larger systems such as Oracle or J.D. Edwards.
The benefit of this approach is that it is built upon your members’ existing ordering process and eliminates any need for re-keying. The downside is that there is usually a cost involved for the member to create the integration and on an ongoing basis for transmitting orders. Groups can help reduce these costs by funding ERP integrations on behalf of their members and by negotiating a group rate for the EDI traffic.
Depending on your provider, it is also possible to capture purchase orders in other formats and convert them into EDI files.
If your members regularly email or fax their orders, some providers have tools to capture those transmissions and convert the PDF attachment or fax into usable data that can be translated into an EDI file. This practice, unfortunately, tends to be less accurate than traditional EDI methods and may result in an increased number of failed orders.
Members may also create orders in Excel spreadsheets or other file formats. As long as the format is consistent from order to order, these files can be mapped into traditional EDI files. This process is highly accurate and provides a very reliable form of electronic ordering. The downside is there will likely be an additional cost to the member for translation maps.
For an e-ordering initiative to be successful, it is important to have buy-in from your members and suppliers. The first step in achieving this buy-in is to communicate very clearly why you are adopting e-ordering and what the benefits are for everyone participating.
Carrots for Members
Members will benefit from added efficiencies, improved customer service, and increased cost savings.
The added efficiencies enjoyed by your members will vary based on how they are currently placing orders and how they will be sending e-orders. In environments where members have to visit each individual supplier’s web site, remember a username and password, and login to key in an order, having a single, group-sponsored online catalogue for every supplier will be very appealing to members.
Online catalogues also open up the opportunity for providing product information to members to fuel their POS, ERP, and eCommerce solutions. Product data is gold, and its value to members should not be underestimated.
In environments where orders can be created and transmitted directly from their ERP systems as part of their normal ordering process, maximum efficiency is gained. There is no re-keying as purchase orders are created automatically.
Members with the ability to already generate EDI orders from their ERP systems may have already launched their own e-ordering campaign. These efforts by individual members are generally time consuming and expensive, usually resulting in only a handful of suppliers being onboarded. A group-initiated e-ordering campaign eliminates these duplicated efforts among members, and result in a much higher level of supplier participation at far less cost and effort for each member.
Electronic ordering typically includes electronic acknowledgements and advance shipping notices. This will provide your members with timely information about out of stocks, back orders, product substitutions and shipping dates that can be vital when dealing with trade customers.
Finally, e-ordering can be used to negotiate increased rebates or discounts from your suppliers. E-ordering will save your suppliers money and will generally increase their sales. This can be used as a basis for negotiating additional rebates that can be passed along to your members. These rebates will sometimes cover any EDI costs the member may incur.
Carrots for Suppliers
Suppliers enjoy many cost savings and revenue generating opportunities when orders are placed electronically.
Electronic orders are fed directly into their ERP systems without the need for human processing. Their automatic processes are able to take the order, acknowledge it, fulfill it, and invoice it far more efficiently than if it arrived by other means.
Combining e-ordering with e-invoicing will provide further incentives for suppliers to participate. Studies show that e-invoicing greatly reduces the time to pay, putting money in your suppliers’ pockets sooner.
Offering a central billing program for some or all of your suppliers will also make them more eager to participate. If your group is paying invoices on behalf of your members, your suppliers will feel more confident of prompt payment. A single payer also streamlines their payment processes. With e-ordering and the right software tools, you will have visibility of what your members are ordering and be able to control any credit risks associated with central billing. The benefits of central billing to your suppliers will often cause them to provide you with better terms discounts which can introduce further savings for your members or generate revenue for your group.
Onboarding suppliers onto an electronic ordering platform is as much an art as it is a science. Treat it as you would any other major group initiative – talk about it in all your communications, measure it, and build a marketing initiative around it.
Tackle your low-hanging fruit first. Identify your suppliers who already support e-ordering and who are eager to participate. Early wins will help build confidence in the program and build momentum.
Next focus on your bigger suppliers, the ones with the greatest purchase volume from your group. They have the most to gain and will provide the biggest benefit to your members.
On the member-side, identify the most common ERP systems in use by your members and work to create integrations with them. Recruit members who will act as champions for your campaign and will be willing to talk with suppliers and other members.
If you will be creating online catalogues, make sure you have adequate staff in place. No matter how good your catalogue tools are, you will need staff to maintain products and catalogues on an on-going basis.
Set realistic goals and timelines for the number of suppliers and members participating in the program. It is unrealistic to expect 100% participation. Decide what numbers make sense for you.
Once your e-ordering platform is up and running, continue to follow up on it. Continue to add suppliers to the platform. If possible, encourage your members to place orders for non-group suppliers as well so that you can capture data about those purchases.
Run reports every quarter, showing member purchases from suppliers and provide this feedback to your trading partners. Historically, purchases from suppliers who participate in e-ordering will increase over time. It is good practice to show this trend to your suppliers.
You can also use purchase data when evaluating your preferred vendor programs as well as tracking your members’ participation in your programs. Access to line item information may also help you when considering container buys or white label product lines.
Moving to an e-ordering platform requires a knowledgeable partner who understands the uniqueness of the Buying Group model, has the appropriate software tools, and has experience building an EDI exchange within a supply chain.
Written by Steve Seguin
LBMX offers a business-to-business marketplace platform, helping independent businesses, their buying groups, and suppliers buy better and sell more. Its Private Group Marketplace for Groups has transformed billing and ordering, rebate management, real-time analytics, e-commerce and product information management across the building materials, HVAC, plumbing, sporting goods, industrial supply, manufacturing, and agricultural industries. Its LBMX Supply Cloud platform allows suppliers to look at their industrial distribution customers through one lens, offering full EDI, PIM, Analytics and Payments.
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