Omnichannel Considerations for the Purchase Order Process for the Active Business
Table of Contents Key Omnichannel Considerations for the Purchase Order Process... 3 Introduction... 4 Trading Partner Agreements... 5 Communication of Product Information... 6 Business Document Workflow... 7 Data Quality... 8 Picking, Packing and Distribution... 9 Process and Systems Integration...10 Conclusion... 11 2 Omnichannel Considerations for the Purchase Order Process
Key Omnichannel Considerations for the Purchase Order Process Trading partner agreements should be clear regarding the expectation of product offerings and the requirements associated with each of the various go-tomarket channels. Detailed product data should be exchanged prior to initiating the purchase order cycle including the attributes needed to fulfill channel needs such as product classification, key marketing messages, display and shipping dimensions, and regulatory information. Companies should consider these key best practices when assessing how they need to modernize their internal procedures as well as the way they interact with their trading partner community. The industry should consider expanded adoption of key business documents, such as the Purchase Order Acknowledgement and Inventory/Inquiry Advice, to confirm commitments regarding quantities and delivery schedules and improve visibility earlier in the purchasing cycle. Organizations need to renew their focus on data quality in light of the multiple purchasing scenarios and increased document volumes associated with omnichannel support. Suppliers should understand the purchasing use cases utilized by each of their retail trading partners and optimize their picking, packing and shipping processes for maximum efficiency. Retailers should explore how to simplify the management of purchasing across channels through integrated systems and business processes. Omnichannel Considerations for the Purchase Order Process 3
Introduction Organizations must determine how to transform what is generally a fragmented multi-channel approach into a seamless omnichannel experience, both within the enterprise and for consumers. In an effort to provide consumers opportunities to engage with retailers anytime and anywhere, companies are turning to creative methods for managing purchase orders to maximize their product offerings and availability, while continuing to manage the risk associated with carrying too much inventory. Retailers offer products that cannot be found in stores through their websites, mobile applications, and even the television, and are working with suppliers to develop direct-to-consumer shipping, aka drop ship, processes. The retailers goals are to accommodate a diverse base of customers that desire to have whatever they want as soon as they decide they want it, as well as maintain profitability levels in a continually challenging economic environment. Now that consumers have information at their fingertips 24x7x365, they have become much more savvy and demanding, and as a consequence, the industry must engage them through new and innovative means. And trading partnerships have to adapt to accommodate the evolving array of methods for responding to this high level of consumer connectivity. This new way of working together has resulted in the need for the industry to examine the purchase order process to determine how best to improve it to accommodate all the channels now available for product delivery. With the support of GS1 and VICS, the industry has started examining potential changes to both standards and guidelines to continue to leverage its long-standing history of the community-based approach to B2B adoption. While the industry continues to blaze the trail on the standards front, retailers and brands need to begin an examination of their internal processes and documentation as well. Organizations must determine how to transform what is generally a fragmented multi-channel approach into a seamless omnichannel experience, both within the enterprise and for consumers. Upon evaluating the key business areas associated with the procure-to-pay/order-to-cash lifecycle, there are some best practices that can be applied to improve efficiency. 4 Omnichannel Considerations for the Purchase Order Process
Trading Partner Agreements The availability of additional channels allows retailers to offer products that may not be possible to carry in their brick-and-mortar stores. The size of the store back room has been steadily shrinking, while at the same time, consumer appetites for greater options have grown. With online sites and mobile applications, retail operators can expand the product assortment to include styles, colors and sizes that encourage consumers to increase their trips. Several industry studies have shown that compared to basket size, number of trips is more effective at improving the top line. In addition to exploiting repeat customer purchases, a deeper range of products may also appeal to new customers that are either not enticed by the store product mix or live too far to make regular visits to a physical store. In assuming this broader item offering, there are several factors to consider. Will the retailer purchase the products and store them at a distribution center or fulfillment center for shipping to customers as they do for store inventories? Or, will the retailer engage in a direct-to-consumer model with their suppliers, opting to take ownership of the inventory only after it has been purchased by the consumer? Supplier lifecycle management takes on new meaning when implementing Omnichannel purchase order support. Number of parties involved increases along with necessary level of negotiations and communication Understanding of buyer expectations and supplier capabilities is critical Utilization of technology tools can automate supplier registration and contact management Suppliers Web Forms PO Ship Notice Invoice EDI Automated Document Exchange Managed Services Package Tracking Status Order Status Retailer ERP e-commerce Platform Consumer Figure 1, An Overview of the Drop-Ship Process Understanding the expectations of the buyer and the capabilities of the supplier is extremely important. Trading partners need to clearly establish which products are intended for which channels. For drop ship or retailer fulfillment, suppliers need to be able to meet the requirements for consumer packaging as well as shorter shipping time frames. Most retailers offer consumers several delivery time frames, and service level commitments are critical in a consumer-driven marketplace. A need to expand retail data synchronization beyond the core 15-20 attributes has emerged along with the growth of omnichannel retail. Supplier lifecycle management takes on new meaning when implementing omnichannel purchase order support. The number of contacts that need to be involved in negotiations and ongoing communications for both trading partners is likely to increase. The supplier Omnichannel Considerations for the Purchase Order Process 5
enablement process for direct-to-consumer programs may differ slightly from traditional purchasing; however, there is no substitute for good governance and the delineation of all the procedures required to be fully compliant with all of the buyer s expectations. Whereas manual processes and the addition of personnel to address increased workload were required in the past, there are now technology tools available to help automate supplier registration and contact management. Communication of Product Information Product Dimensions The Linchpin for Omnichannel Success Out-of-box drives display and shelf planning applications Packaged dimensions at the carton level drive logistics and shipping in the traditional supply chain Packaged dimensions for direct-to-consumer drive individual bagging or boxing Electronic data synchronization in the retail industry was initially driven by the desire to automate the purchase order process. The core attributes consisted of product information (the style number), size, color, GTIN, and perhaps a suggested retail price. Gradually, buyers started to request suppliers provide additional data elements to help drive logistics and distribution efficiencies. Now, the scope has enlarged to accommodate details that consumers are looking for when making a buying decision. While browsing a retailer s website or accessing a mobile application, consumers now seek out facts, such as product features and benefits, use and care instructions, and even complementary products that can be purchased simultaneously. To support the needs of the various channels and ensure there are no delays as physical product moves through the supply chain, trading partners need to exchange accurate, detailed product information prior to commencing the purchase order process. As previously mentioned, there are a variety of item characteristics needed to facilitate assortment planning, e-commerce presentation, and other buy-side business processes. Product dimensions are perhaps the linchpin for omnichannel success. Dimensional data is critical for several areas of the business: 1) Out-of-box, which is the consumer-level item, independent of any packaging, to drive display and shelf-planning applications; 2) Packaged dimensions, often at the carton level, for logistics and shipping in traditional supply chain product flows (to distribution center or direct-to-store); and 3) Packaged dimensions for direct-to-consumer use cases where more individualized packaging is required. The product may actually still be shipped to a retailer s distribution or fulfillment center, but will generally need to be individually bagged or boxed so it is ready to be picked one-at-a-time for shipping to consumers via small package carriers. In addition to physical product specifications, suppliers should communicate information such as marketing messages and a prioritized list of features and benefits. By doing this, suppliers can reduce the workload on the merchant side to develop the rich content needed for both the web and mobile presentation of items. Provision of this data from the brand owners also offers them the opportunity to gain greater control in how the product is positioned with consumers. Finally, although not directly tied to the omnichannel process, regulatory requirements are placing increased pressure on retail value chain participants to specify additional information. The Consumer Product Safety Commission requires companies to certify such things 6 Omnichannel Considerations for the Purchase Order Process
as whether products intended for consumers 12 and under is lead-free and phthalate-free. The Forestry Stewardship Council provides certification to demonstrate that items containing wood are produced in accordance with their pre-defined standards. And the Truth in Fur Labeling Act requires that items containing fur are labeled with the animal s name, whether the fur has been artificially colored, the parts of the animal used, the name of the manufacturer, and the product s country of origin. There is clearly no shortage of information needed to facilitate purchasing and distribution across channels. Fortunately, the retail industry has had long-standing agreements in place to utilize Electronic Data Interchange (EDI) and third-party catalog providers to streamline the dissemination of this complex data across the networked community. Business Document Workflow Different companies have adopted a variety of business document workflows, and it is probably not possible to achieve a one-size-fits-all approach that will meet the needs of each organization in assisting them to meet their individual program objectives. However, it is important to understand that outside the widely adopted Purchase Order, Advance Ship Notice (ASN) and Invoice, there are some highly valuable transactions that will assist you in creating a comprehensive lifecycle to support your omnichannel strategy and provide additional levels of automation with your trading partner community. Purchase Order Change: Industry studies have shown that only about 40% of purchase order changes are automated in retail. The average purchase order is altered 4.4 times. If not done systematically, the high levels of manual intervention required to manage the changes are bound to lead to downstream shipping errors, such as incorrect items or quantities. This also means that invoices will be discrepant, resulting in human involvement to resolve, as well as deductions and longer payment reconciliation times. Automating the Purchase Order Change affords both the buyer and supplier the same version of the truth in terms of expectations regarding product assortment, quantities, and delivery time frames. And sales representatives and merchants can be freed up from managing the minutiae of each order, so they can focus on product performance and business intelligence coming back from the various market channels. Create a Comprehensive Lifecycle to Support Omnichannel Strategies Think beyond the Purchase Order, Advance Ship Notice and Invoice Automate the Purchase Order Change Maximize the use of the Purchase Order Acknowledgment for fashion and one-time buys Exchange of the Inventory Advice is critical to the drop-ship process Use of Delivery Confirmation provides end-to-end visibility for the supplier in direct-toconsumer orders Purchase Order Acknowledgment: While deployed in many replenishment and vendor managed inventory programs, the Purchase Order Acknowledgment has not often been fully exploited for fashion or other one-time buys. The Purchase Order Acknowledgment goes far beyond the traditional Functional Acknowledgment, which simply advises the sender of receipt of a business document, and that it passed syntactical and semantic validations in the receiver s translation software. The Purchase Order Acknowledgment allows a supplier to tell a buyer, down to the line item level, whether they accept the order, including quantities and shipping windows. If the supplier is unable to meet the Purchase Order requirements, they can specify in the acknowledgment what quantities they can fulfill, and whether they need to potentially split shipments across multiple dates. In a omnichannel setting, quick turnaround of Purchase Order Acknowledgments (some retailers require a 30-minute response for every Purchase Order) can assist in effective communication to consumers when there may be a concern about being able to meet expectations. Omnichannel Considerations for the Purchase Order Process 7
Inventory Availability: In drop-ship use cases, where the supplier is going to ship product directly to the consumer, bypassing the retailer s distribution processes, Inventory Advice is probably the single most critical business document that can be exchanged. Most retailers e-commerce applications rely upon inventory feeds from the supplier in order to determine whether products can be available for consumer purchases on.com or mobile sites. At a minimum, inventory needs to be provided daily, but potentially more frequently for products with high sales volumes. Delivery Confirmation: This document is also extremely useful when the channel is directto-consumer. Most products sent through a drop-ship process travel via small package carriers. Once the supplier secures the tracking number and provides it to the retailer, usually through the Advance Ship Notice, the communication ends. Providing complete end-toend visibility by requesting the carrier and or retailer to confirm consumer receipt, assists the supplier in closing out the purchase order and managing the payment and settlement cycle. Data Quality Integrate Data Quality Checks into your Existing Business Processes Decide within your business where quality assurance is best placed in existing processes Decide on the business rules according to industry standards or tailor for your exact requirements Expand the testing processes to ensure all varieties of purchase orders can be exchanged and understood Create a data quality interface from your business applications Event-based notification and remedia tion signify aspects of best-in-class data quality offerings To effectively support omnichannel, data quality must be addressed from all angles. Each of the partners in the value chain is reliant upon the others for data that will drive whether the consumer gets the product they are looking for in a timely manner, via the channel they desire, and for the price they are expecting to pay. Purchase order volumes are increasing dramatically due to the evolution of all the new routes to market in the retail industry. In the past, retailers often issued one purchase order per supplier per season, perhaps broken down to the distribution center level. Now, companies have to be prepared to send and receive potentially hundreds of orders per day, each destined for a different end location. They must be able to rely on business-to-business service providers that can move documents quickly and respond to swings in volume as demand waxes and wanes. At a minimum, trading partners need to expand their testing processes to ensure that all varieties of purchase orders can be exchanged and understood. Business rules need to include validation on individual attributes within a single document, according to predefined guidelines and requirements, and across documents as a purchase becomes a shipment and then an expectation of payment. Many organizations struggle to bulletproof the input particularly the one-third of data that is generated outside their own enterprise, but flows through a myriad of internal systems upon receipt. It isn t safe to assume that an EDI translator is sufficient to capture and correct any errors. In the past several years, technology providers have stepped up in this area to offer software and cloud services that authenticate data against simple data element definitions and provide complex two-, three-, and even four-way matching between purchase orders, purchase order changes, ship notices and invoices. Additionally, data quality tools can offer visibility into omnichannel supply chain exceptions. Most business constituents would agree that when things are going according to 8 Omnichannel Considerations for the Purchase Order Process
plan, there is no need to monitor an order as it works its way through the supply chain. However, when something goes wrong an item is no longer available from a supplier, or a product cannot be shipped within the consumer s expected timeframe someone needs to be alerted and corrective action taken immediately. Event-based notification and remediation are two important aspects of best-in-class data quality offerings. A worthwhile solution will allow users to concentrate on only those situations that need attention, minimizing disruptive workdays and the constant crisis management mode in which many less strategic companies find themselves. Picking, Packing and Distribution Historically, there have been two widely used purchase order types when the retail store is the ultimate destination. In the first scenario, the retailer will request the items as bulk pack several hundred or thousand units of each item that will be broken out by store at the retailer s distribution center based upon capacity, demand and other factors. The second commonly used format is the spreadsheet purchase order. In this case, the retailer breaks out the purchase order by distribution center locations, but at the line item level will indicate how many units of each product should be marked for each individual store. The supplier will generally pick the total units for the order, and then pack by GTIN for a bulk PO or by store for a spreadsheet order. Most suppliers organize their distribution environment to handle these high volume orders and can pack and ship extremely efficiently as their processes are oriented and their staffs highly trained for this method. SUPPLIER Direct to a consumer Configure to order (furniture) WAREHOUSE/ DISTRIBUTION CENTER Direct to a retail store, large volume order From warehouse/ distribution center, direct-to-consumer From supplier to retail store, spreadsheet order From a supplier direct to a retail store for consumer pickup Special order items From supplier to retail fulfillment center, packed individually for consumers To retail distribution center, bulk order From supplier to retail distribution center, packed for store RETAIL STORE RETAIL DISTRIBUTION/ FULFILLMENT CENTER Figure 2, Purchase Order Use Cases are Complex and Require Understanding Retail Expectations and Supplier Capabilities Omnichannel Considerations for the Purchase Order Process 9
However in the case of purchase orders targeted for new channels the picking, packing and shipping environment is turned on its head. Purchase orders come in with a single item destined for a single address. In the case of direct-to-consumer or direct-to-store for consumer pickup, the item has to be individually packed for presentation to the customer not folded or boxed in multiples for placement on shelves. Warehouse personnel may lose productivity as they pick by ones and twos instead of by hundreds. And shipping is done most often with small package carriers, versus the trailer or less-than-trailer loads associated with large orders. Therefore the supplier may have a lot more activity at the back door. Suppliers need to be clear about the service levels offered by the retailer and assess their capabilities to pick, pack and ship to those expectations, particularly for drop-ship orders. Most retailers allow consumers to select from several delivery windows. The availability of product from the supplier and the capacity of their warehouse operation may determine whether a particular brand owner is a good candidate for a direct-to-consumer program. Being a leader with such capabilities can prove to be a competitive differentiation for a company trying to expand its brand footprint and increase top line revenue and market share. Understanding the new and sometimes challenging requirements associated with omnichannel commerce allows the buyer to define appropriate expectations with their suppliers; and suppliers the opportunity to streamline their outbound product flows to maintain consistently high levels of productivity and exceptionally high fill rates. Process and Systems Integration Many organizations have approached omnichannel by introducing new business silos. When a new department is launched to provide oversight for a narrowly defined go-tomarket strategy, it often means duplicative work across both the buyer s and supplier s organizations. This frequently results in miscommunication and confusion. Suppliers are not always clear on which merchant group to contact with questions regarding the product assortment or compliance requirements. If the retailer is managing item setup separately for their online or mobile channels, the data requirements may not be synergistic with the brick-and-mortar stores. When multiple purchase order management systems are deployed by the retailer, suppliers find themselves scrambling to sort through all of the inbound requests and try to service them according to the diverse requirements that likely exist for the different channels. While it may not be pragmatic to support a single process in the short-term, alignment of objectives across the channel teams in the retailer s organization can help to alleviate challenges on the supplier side. Retailers must be willing to make the process collaborative, not punitive. And in the interest of efficiency and improving the bottom line, project teams set up to speed delivery of new channel strategies should be integrated back into the corporate structure once initial program goals have been achieved. 10 Omnichannel Considerations for the Purchase Order Process
Conclusion New scenarios seem to be presenting themselves almost daily, and organizations and systems have been forging new roads in trying to manage the complexity. Suppliers are becoming concerned that automation will take a back seat as business needs are outpacing the standard toolkit of the past. And retailers are wary of creating one-off requirements that may not be tenable over the long-term across a broad vendor base. The good news is that over the past twenty-five years, the retail and consumer products industries have developed a proven track record of working well together to develop community-based standards to help improve business-to-business communications. From their broad adoption of EDI, data synchronization, carton labelling, and other best practices, the industry serves as a terrific example of how organizations have set aside their competitive differences to create guidelines that encompass the superset of everyone s needs, while allowing individual organizations the ability to adapt certain aspects of what works best for them. Through the continued leadership of GS1, accompanied by the strong participation of many of the world s leading omnichannel retailers and brand owners, the industry is poised to once again to raise the bar for purchase order management, drive further levels of automation, and improve the effectiveness and productivity of the entire trading partner community. Omnichannel Considerations for the Purchase Order Process 11
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