More often than not, the inbound operation is considered a burden in the organizations. The focus is on the core processes, may them be productive, distribution or customer service. But have you considered that for your core processes to be efficient they require raw materials, components, services or some other critical piece that is available only because you have an inbound operation in place? Well, your inbound operation is the starting point for all your core processes and you should consider it just as critical as any other process. And you need to monitor it, make it efficient and use it to promote quality and traceability, as you would with any other process. And guess what, if you make it responsive, you’ll be pushing for dramatic savings. Read on and discover how you can transform your inbound operation into a responsive, efficient, money saving machine.
There is a common misconception about the complexity and relevance of inbound processes. They are often considered a low yield process in the value chain and dismissed as a simple check in operation, that just matches quantities, values and provides some information so that suppliers get paid. As a consequence, there is very little investment in this area which translates into poor efficiency, low responsiveness and, guess what, serious impacts in core processes and the bottom line. Why is the inbound operation so important?
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First, it’s the key entry point for all your core processes. You cannot distribute, produce, provide services or do whatever you’re good at if you don’t have the components, raw materials, services or whatever is relevant for you at your disposal. So you need to make sure you have it before you can use it. If you take too long or if you are not accurate about what you have, then it’s pretty clear you’re in for a tough time in your core activity;
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Second, it’s the first line of defense for traceability, quality and accuracy. If you don’t start the trace at the inbound, I’m pretty sure you won’t trace it at all. The same goes for quality. If you don’t assure quality on the first step of the chain, any quality audit will tell you that you’re not doing a good job. And finally, if you’re not accurate processing the data on the inbound step, then it’s a matter of when, not if, you’re going to lose money;
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Finally, it’s a cross functional, complex process that requires serious attention to make it operate flawlessly and provide cost savings and efficiency for the entire organization. This process spans purchasing, partners, logistics, accounting, controlling, tax and deals with highly complex contracts, multi-tier approvals, continuously evolving business rules, pressing timeframes and highly costly mistakes. You need to face the complexity and provide a sound, consistent strategy to deal with all the different variations and requirements so you can achieve a consistent, responsive operation that drives costs down and makes your organization operate smoothly.
By now you’re probably saying that you’ve got it already covered, since you have some sort of EDI processing in place, an automated goods receipt process and you’re pretty sure that all that can be done is being done. Well, there is much more you can do and, in fact, the real gains and the actual responsiveness and sustainable efficiency of the entire process lie elsewhere. Don’t get me wrong, EDI and automated goods receipt are very important pieces, but they are not the entire process. And you need to go all the way if you want to make a clear positive impact in your bottom line.
The first thing you need to work on is to get electronic communication between your partners and you to be complete and adequate to your process requirements, I’m talking EDI on steroids. This means that you need to get through electronic communication not only the dispatch advice, but also the invoicing data, the process related data and the quality data that is relevant for every single inbound process. This electronic information exchange must go as far as the dispute process, since you need to assure that differences, if detected, are reported automatically and without human intervention. It is very important to understand that electronic communication must be extended to every single aspect of the inbound activity. So, transportation invoices, service invoices, batch and characteristic related data, serial numbers, configuration information, all must be placed inside the same mechanism in order to assure that you have one single, common way of handling the inbound process. Otherwise, you still need human resources to process information, which prevents cost reduction, deteriorates data quality and hampers operational throughput. There are two major objectives behind the use of electronic communication: First, automate all process stages, by feeding accurate data to all internal process activities without human intervention. Then, provide a clear foundation to perform preemptive data analysis.
This leads us to the second thing you need to focus on the inbound process, which is to have a fully automated, flexible, error detection process, based on information provided by partners and master and document data owned by the organization. The objective is to know in advance what problems exist between what your partner is telling you and what you will accept, in such a way that you know in advance about every single flaw and error that will occur if the process is executed based on the data made available by your partner. The error detection process must also clearly pinpoint what is the area of the error, the actual discrepancy and the owner of the error in the organization. This information must be fully available and monitored in real time, with clear SLAs across the organization to handle each error and prevent the process from stalling or being delayed in the organization.
This is a major task, because very often the complexity behind the validation process, most notably in purchasing, controlling and tax areas is colossal. And the characteristics behind this validation change very often, which increases the complexity of such process, because you need the validation process to adapt as the validations change. To overcome this, you need to work on getting this done using rule-based engines that operate on data and, through configuration that you can change, get you the results you need. Additionally, you must consider that some of the validations performed must allow for variations to exist and accept them, again based on rules. My point is, it’s not enough to have EDI, it must be complete, it must be thorough and it must be used to prevent errors and assess problems.
As a side benefit, you will also have enough information to make capacity planning in your organization and trigger disputes before the error is actually detected.
Then you need to work on automated, sample-based goods receipt, if that is required in your organization. You cannot rely on the information to be true, you need to undergo sampling during the goods receipt and automatically downgrade or upgrade your partner as you consistently validate or not the ability of the supplier to send you accurate data, including quality-relevant data.
Finally, you need to assure that all subsequent processes are all automated, when the last stage of inbound validation is performed. You just cannot accept that you have multiple activities fundamentally doing the same task, only in different departments in the organization. So, if the automated validation process accepted a transportation invoice based on the contract rules and the registered transport requisition, then all subsequent activities must be performed automatically. And this means that purchase order confirmation, transportation registration, invoice creation, invoice acceptance, ledger update and even regulatory / government related system updates must all be done automatically without any other form of intervention. The same goes for material goods receipts with quality-related data creation, service acceptances and customer returns.
Bottom line, you need complete, full electronic data communication with your partners, automated, rule-based preemptive data analysis, real-time process control dashboards, sample-based inbound validation and fully automated process execution mechanisms. This may seem as a stretch and at first a too big job to justify the investment. And I won’t sugar coat it, there is a lot of work involved, namely in establishing consistent electronic communication with your partners and clarifying the full set of rules the inbound process needs to be validated against.
You may think that EDI is a closed, simple standard but it is not so. There are very few simple interfaces that are mostly common, but for the majority, you need to undergo a communication definition for your organization using the EDI standards as a foundation and then establishing this communication standard with your partners. So you need a flexible and adaptable platform that you can configure to establish the EDI communication according to your specific requirements.
Similarly, you may think that all the required validations are known within the organization and, therefore, very simple to apply. This is hardly the case. Purchasing contracts are complex and getting worst, sometimes using tenths of variables and thousands of rules to describe the conditions agreed between the parties. Tax regulations and practices are, to say the least, fun and governments like to change them because, well, because they can. This makes out an extremely complex set of rules that are normally not available in anyone’s head and it’s through trial and error that most processes are completed. So, there is a challenge in establishing this automated process, by extracting the existing knowledge from multiple organization areas and crystalize it in rule sets that need to be maintained. So you need a rule-based, process-oriented platform that allows you to build such complex validation schemes and maintain them with very little effort.
But in the end, the impact in your bottom line, is tremendous. We’re talking about cutting your inbound workforce in all departments involved by 80%, reducing the amount of processing activities by 90%, reducing your inbound cycle by 75% and assuring 100% accuracy in all data. You do the math.
Processware has created a fully flexible, rule-based, real time, electronic-oriented inbound process control solution and we have implemented it in world class organizations with remarkable success. You can read more about it and the results we’ve achieved here.
