The following case study is excerpted from Driving Growth and Shareholder Value: The Distribution Value Map” published by the National Association of Wholesaler-Distributors.
A large, U.S.-based electrical components distributor (ECD) had to keep track of the pricing on 550,000 materials from 5,000 vendors. Some of the pricing was maintained at a national level and some at a plant level. Since the company’s suppliers dictated their own list prices, change requests occurred in a volume that was staggering: roughly 20,000 per day.
Typically, a vendor sent a full price change annually and smaller updates quarterly or monthly. With volatility in some of the commodity markets, prices often changed weekly.
Many of the company’s business processes were handled by legacy systems that were incompatible with its ERP system. As a result, ECD lacked the flexibility and speed to process all the price change requests efficiently. And, the company did not fully capitalize on credits it was entitled to in transactions. What’s more, management couldn’t identify requests that were irregular or that negatively affected long-term customer contracts and profitability.
Management charged a business/technical team with these tasks:
- Reduce errors in the ERP system in terms of inaccurate or outdated material and pricing information.
- Improve efficiency and timeliness of new price change updates through automation.
- Create a solution that allows the company to identify the impact of price changes on profitability.
- Find the gaps in the ERP system’s support of business processes that were fundamental to wholesale distribution. A new, unified system gave ECD the ability to receive material price changes from vendors in a variety of formats and volume
- Input price changes manually
- Process large volumes of data efficiently
- Recognize and process material attribute changes received in the price change file
- View the impact of price changes based on current stock levels before update to the ERP system
- Report changes at least five days before effective date
- Correct data in the vendor master file update
- Handle all ECD pricing condition types as defined in the ERP system’s calculation schema.
- A large number of the current processes depended on unnecessary human observation. Most changes to list price were a simple pass through of information with verification steps to confirm that an exchange was, in fact, within the contractual guidelines of the vendor agreement. Change requests outside guidelines, or those perceived to be errors, were tagged for a second look.
- The process/technology standard had to be simple enough for lowtech vendors to adopt and use, while still able to keep pace with the capabilities of more advanced vendors. For example, relatively few of the company’s vendors were able to deliver the requests electronically. Finding a path that created connectivity and parity among the different vendors was important to ECD’s efforts to achieve the operational efficiencies that should underlie automation.
- ECD needed to be able to preview price changes and their potential impact on stock levels before updating its ERP system. If a change affected inventory, the request was sent to the appropriate cost services manager for approval. To capitalize on its existing ERP assets, the company needed to integrate a Web-enabled application.
The new system created an intelligent approval routing that allowed price changes, which fit ECD’s criteria, to pass into an automated price update, while price change requests unique or outside contract guidelines were routed to pricing managers for human intervention.
This improved the visibility and processing time for price change requests from suppliers, in addition to automating much of the business process.
This article is excerpted from a publication available from NAW at www.naw.org/dvm or by calling Vicky Walsh at NAW: 202-872-0885.