|By Michael Ereli||
|December 30, 2009 02:30 PM EST||
Whether you are an electrical supplies wholesaler or a manufacturer of oilfield equipment, the challenge is the same: Are you maximizing your margins by keeping your administrative processes as streamlined as possible? Or, are you wasting time and money by supporting paper-intensive processes to handle quotes, orders, ship notices, receipt documents and invoices?
Unfortunately, many companies face this challenge and feel as if they are pushing too much paper dealing with their suppliers, customers, and transportation providers, but they do not know how to break the cycle.
Where is it coming from?
Recently a trade association representing a group of independent distributors conducted a survey among their 146 member companies. These distributors and wholesalers ranged from $16 to $142 million in annual sales. When asked about the supply side of their businesses, over 70% of the respondents said they received between 100-250 invoices a month from suppliers.
The troubling statistic was that almost 90% of the respondents said that 20% of the invoices they receive do not match the original PO’s (Table 1). When you consider all the paper that must be matched and reconciled to process these invoices, not to mention the ones that do not match, the work can be staggering. One manufacturer looked at the time their purchasing group spent processing PO’s, receipt documents, bills of lading and invoices and calculated that it cost an average of $42 to process an invoice. In order to better understand what is driving these costs, the survey also explored the reasons behind the matching and reconciliation problems.
The most prevalent cause of mismatches was pricing differences (Table 2, next page). The fact that many of the raw materials for these manufacturers are based on volatile commodity prices makes price increases a standard business practice in this industry. But the price mismatching had more to do with the flood of paper and out of sync databases, than with the frequency of the updates. Without an efficient process and easy to use systems, purchasing departments simply cannot keep up with the pace of communications from their suppliers.
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