The way to profit in EIPP is Systems and Quality

I was reading the postings of another blogger the other day, regarding EIPP. Quick note; For most people EIPP is a re-branding of the most basic of EDI, the supplier sends an invoice. We're great in IT at making up new acronyms or names for old processes in the hope of selling more.

Anyway back to the subject of the post. The blogger in question was bemoaning the fact that whilst there is a lot of interest and "new" players in EIPP, few if any make a profit. One company in question has a turnover of £3.5 Million but loses approximately £7 million per annum. Its P&L account reserve is -£27 million. Another has turnover of £1 Million and loses of £3 million, P&L reserve of -£23 million.

Now here I show my limited knowledge of the practice of Venture Capital and high finance. Both these organisations are backed by VC's and so they are NOT insolvent. But... when are the investors going to get their money back? Or to put it more accurately when are the VC's going to get a return on their investment of other peoples money? I make it that break even is 200% of current turnover, assuming costs do not rise with increased turnover. To get the £27 million pounds back at current growth rate you are looking at a minimum of 10 years. Given that the turnover of the smaller company above went down slightly last year it and that costs increased ahead of turnover at the larger company it could take longer. This is almost "Dot Com" optimism.

So much for high finance.

I think there is a different approach that can lead to a profitably growing company. It may grow slower but note the word profit. That way is to concentrate of quality and systems. Quality because that leads to better systems requiring less resource to manage the processes. Quality because it leads to fewer remedial actions, which always cost more. Get it right first time and it's always cheaper. Quality because any business must concentrate of delighting it's customers. Delighted customers lead to higher retention rates and easier new business sales because of customer referral. My other point is systems. Quality systems. If you can systematise a process rather than having to add more support staff for each new customer then you gain a much bigger return on the investment and, sorry to say, but the fewer humans involved in a process the lower the error rate so the higher quality.

The only downside to the quality and systems approach is that you cannot make a quick "land grab" for a market. But it a lot less stressful for you and your trading partners.

Here's an interesting question for you. If a new customer came to you and asked for 30 days credit, with their company finances in the state described above, would you extend them credit? If not then why would you put important business relationships between you and your business partners in their hands.

Far better to put it in the hands of a company making a profit and dedicated to a quality implementation. Preferably one with a recognised accreditation for quality. Business relationships are hard won and even something as seemingly simple as sending invoices to your customers or receiving invoices from your suppliers deservers to be handled in a quality manor that does not put the relationship at risk.

It's the data that matters, not how it looks

This blog could also be entitled the triumph of substance over style.

We had a new customer sign with us last week, not in itself unusual, but that fact that we were replacing an alternative solution, and at the same time becoming the partner of choice for another software house is worth mentioning. At a more technical level it gave me an insight in to the limitations of some of the older methods for EDI integration.

The client concerned required a particularly rapid turn around of one specific trading relationship and asked if we could move faster than our standard Service Level Agreement (SLA). We had a quick look at the data, the format required by the recipient and the how the missing data could be deduced. We then said yes.

However, the reason for the rush was that this particular Trading Partner (a customer of our customer) had been waiting for over six months. The reason was that whilst the previous EDI vendor had claimed that their tool was flexible and did not need rigid formats. The truth was more like "we have several different formats that we can use, but outside of these formats we will struggle or it will be a an expensive consultancy exercise".

I have a problem with this approach. I do see the benefit of standard data formats being developed, in fact I really admire the business analysis that has gone in to the development of standards such as UN EDIFACT. However these standards are rarely rigidly adhered to and that is both the problem and the beauty. Different businesses have different data requirements, sometimes based around restrictions in the ERP system, sometimes around the business process. Therefore, your EDI solutions must have the flexibility to change as the business requirements or you or your partner changes, this may involve merging data from various sources, using a message intended for one purpose to provide the data for a different message, splitting or concatenating data to provide different data and the use of look-up tables or catalogues. Sometimes we are even asked to use one message between trading partners to add data to another message between the same partners. Obviously, because our service is Software as a Service (SaaS), the idea of such data merging is easier than for software deployed at the end user site, especially when like us you can be using industry catalogues that are shared amongst many users.

One thing is certain, the format of the data (XML, EDI, csv, Fixed Width or even MS Excel) is irrelevant as long as the data that is required by the recipient is either present or can be deduced. You see the style of the message is not as important as the substance (aka content) of the message.

"Both Parties Must Both Gain Benefits" is the First Golden Rule

You may recall that in "Beware the "cheap" option!" we looked at some of the wasteful abuses that can be imposed on you if a "website" substitute for business-to-business, integrated EDI is presented to you as the means to provide your customer with electronic documents, such as invoices, despatch and remittance advices. The "cheap" option only leads to your staff having to double type all the information from the documents into your systems and into the “website”!

• Your work is doubled.
• Your risks from human error are doubled.
• Your costs go up.
• Your profits fall.
• Your prices need to go up...
• You become less competitive!

What can you do to avoid such abuses?

Well, the remedy is a bit like growing asparagus...

Asparagus?

Yes. To grow asparagus you dig a hole three meters long by three meters wide about one meter deep. You fill it with all sorts of good stuff from stables mixed with exquisite soil and you plant the asparagus – FIVE YEARS AGO!

You must avoid being pushed around by the eBusiness team. They are working to a very restricted agenda. They know nothing and care less about your business value to their employer. You need to maintain and cultivate your highest levels of contact within your customer. You need your relationship to be strong enough for your senior contact to be prepared to instruct the eBusiness team to co-operate with you. To make an exception in your case. You will still be a very willing eBusiness partner, but the job is going to be done properly and, to a certain extent, on your terms!

It is best if you avoid direct contact with the eBusiness team. Let your eBusiness provider do that whilst you maintain your good standing with your senior contact(s)!

What then do you offer to do for your ally in the senior echelons of your customer?

When the “website” was implemented it was configured to receive orders from your customer's purchasing systems. These orders are passed to the “website” in electronic form. They are files and they have a format. All that has to be done is for you to be supplied with this format and for your customer to agree to sending the order files to your eBusiness system by one of the accepted transport methods.

Similarly, the “website” passes the documents (such as invoices, despatch advices and remittance advices) that are inbound for the customer's systems as files and they too have formats. If the formats are made known to you and your eBusiness provider then they too can be passed directly to the customer's systems just as efficiently as the files that are currently passed to them from the “website”.

The benefits here are that you avoid doing the work twice.

All the risks listed above are eliminated.

You have reinstated the first GOLDEN RULE:

BOTH PARTIES MUST BOTH GAIN BENEFITS!

In that same WIN-WIN vein, you are perfectly entitled to follow the example of Oliver Twist and ask for more. You are being asked to make an investment in money, time and effort to help your customer. Are you getting as much business from your customer as you could? On a number of occasions I have seen the Sales Director of a supplier use the “request” for electronic trading as a very sound reason to visit the customer and literally “ask for more”. In one instance a customer of mine, a supplier of specialist tools and devices to the construction industry, went to her customer and said something along the lines of, “We would be happy to do as you ask, but currently you only give us about ten per cent of your business. You give ninety per cent to our competitor! Give us fifty per cent and we will do all you ask and do it immediately!”

She won the extra business, increasing her company's sales to that customer by 400 per cent!

In summary so far then:

You must be informed of exactly what is required, IN FULL. It can be too late to get a decent working relationship if you fail to cultivate your senior contacts in your customer and just become part of a target list drawn up by the customer's eBusiness team or their vendor. You and your customer must get worthwhile benefits out of the eBusiness relationship. Get these things right with your customer and you have both made a good start towards successful and beneficial electronic trading.

You may even find an early opportunity to multiply your sales to this customer!

In a later blog we will consider the second GOLDEN RULE for successful integrated EDI.

Beware the "cheap" option!

A natural tendency, when asked by a customer to trade via EDI, is to put off the dreaded day for as long as possible. It is apparent that cost is involved. Who is to say that the customer will stick with you after you have spent the money to implement EDI? No wonder folks do their best to avoid it all and no wonder customers find it takes much longer than was hoped for to persuade the suppliers to trade electronically.

About the cheapest way for a customer to get correctly formatted electronic documents into their ERP system is to only have one set of integration links out to one system. To this end, cheap and freely available web technology is used to create an application that all the suppliers not taking up EDI are forced to use. Such tools are often dressed up in trendy jargon such as, “web pickup” or “zero integration”.

If you hold back on the EDI implementation you may be told to visit this “website” to find your orders, then create order acknowledgements, then despatch advices (or Advanced Shipping Notes, ASNs), and then perhaps your invoices, unless there are no invoices allowed and you have instead to find your remittance advices as part of the customer's self billing process. It seems great for the customer as all the documents to and from the website are already mapped to suit their systems.

In fact it is not all that great for the customer and it is certainly not great for you...

Your staff are expected to type it all again into your systems or copy type it into the “website”!

• Your work is doubled.
• Your risks from human error are doubled.
• Your costs go up.
• Your profits fall.
• Your prices need to go up...
• You become less competitive!

In truth that second bullet point is as deadly to your customer as it is to you. It leads to increased costs for your customer every time they get into the paper chases and escalations that always result during any remedial activities.

What to do?

Well don’t run a mile when you get asked to trade via EDI. Get the EDI integrated with your system so it runs automatically. Use a service that shines forth with efficiency and prompt attention for your customer. Stand out from the crowd and you will have a good chance of avoiding a dictated “solution” that may save you the price of a proper EDI implementation but will cost you much more in extra work and inevitable human error.