Omnichannel Considerations for the Purchase Order Process

A GXS White Paper for the Active Business

Omnichannel Considerations for the Purchase Order Process

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 ProcessA GXS White Paper

Key Omnichannel Considerations for the Purchase Order Process

• Trading partner agreements should be clear regarding the expectation of prod-uct offerings and the requirements associated with each of the various go-to-market 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.

• 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 • 3A GXS White Paper

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.

Introduction

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 ac-commodate 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 continu-ally 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 exam-ine 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 fragment-ed “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.


Organizations must deter-mine how to transform what is generally a fragmented “multi-channel” approach into a seamless omnichannel experience, both within the enterprise and for consumers.

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 pur-chases, 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?

Understanding the expectations of the buyer and the capabilities of the supplier is extreme-ly 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 retail-ers offer consumers several delivery time frames, and service level commitments are critical in a consumer-driven marketplace.

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


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 registra-tion and contact management

A need to expand retail data synchronization beyond the core 15-20 attributes has emerged along with the growth of omnichannel retail.

Suppliers

Retailer ERP

WebForms

AutomatedDocumentExchange

POShip Notice

Invoice

e-Commerce Platform Consumer

Order Status

Package TrackingStatus

EDIEDI

Managed Services

Figure 1, An Overview of the Drop-Ship Process

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

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, buy-ers started to request suppliers provide additional data elements to help drive logistics and distribution efficiencies. Now, the scope has enlarged to accommodate details that consum-ers 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 pur-chased 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 previ-ously mentioned, there are a variety of item characteristics needed to facilitate assortment planning, e-commerce presentation, and other buy-side business processes. Product dimen-sions 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 tradi-tional 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 posi-tioned 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 informa-tion. The Consumer Product Safety Commission requires companies to certify such things


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 sup-ply chain

• Packaged dimensions for direct-to-consumer drive indi-vidual bagging or boxing

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 con-taining 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 stream-line 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 pro-vide 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 involve-ment to resolve, as well as deductions and longer payment reconciliation times. Automat-ing 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.

Purchase Order Acknowledgment: While deployed in many replenishment and vendor managed inventory programs, the Purchase Order Acknowledgment has not often been ful-ly 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 quanti-ties and shipping windows. If the supplier is unable to meet the Purchase Order require-ments, 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-min-ute response for every Purchase Order) can assist in effective communication to consumers when there may be a concern about being able to meet expectations.


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 Pur-chase 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-to-consumer orders

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 prod-ucts with high sales volumes.

Delivery Confirmation: This document is also extremely useful when the channel is direct-to-consumer. Most products sent through a drop-ship process travel via small package car-riers. 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-to-end 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

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, com-panies 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 pre-defined guidelines and requirements, and across documents as a purchase becomes a ship-ment 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 ele-ment 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 excep-tions. Most business constituents would agree that when things are going according to


InTegrATe DATA QuALITy CheCKS InTO yOur exIST-Ing BuSIneSS PrOCeSSeS

• Decide within your business where quality assurance is best placed in existing processes

• Decide on the business rules according to industry stan-dards or tailor for your exact requirements

• Expand the testing processes to ensure all varieties of pur-chase orders can be exchanged and understood

• Create a data quality interface from your business applica-tions

• Event-based notification and remedia tion signify aspects of best-in-class data quality offerings

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 remedia-tion 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 en-vironment 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.


Figure 2, Purchase Order use Cases are Complex and require understanding retail expectations and Supplier Capabilities

Direct to a consumer

SUPPLIER

RETAILSTORE

RETAIL DISTRIBUTION/FULFILLMENT CENTER

WAREHOUSE/DISTRIBUTION CENTER

From supplier to retail distribution

center, packed for store

From supplier to retail store, spreadsheet order

Special order items

To retail distribution center, bulk order

Direct to a retail store, large volume order

From warehouse/distribution center, direct-to-consumer

Configure to order (furniture)

From a supplier direct to a retail store for consumer pickup

From supplier to retail fulfillment center, packed individually for consumers

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 con-sumer 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-to-market 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 chal-lenges 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.


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 com-munity-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 competi-tive 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.


About GXSGXS is a leading B2B integration services provider and operates the world’s largest integration cloud, GXS Trading Grid®. Our software and services help more than 400,000 businesses, including two-thirds of the Fortune 500 and 22 of the top 25 supply chains, extend their partner networks, automate receiving processes, manage electronic payments, and improve supply chain visibility. GXS Managed Services, our unique approach to improving B2B integration operations, combines GXS Trading Grid® with our process orchestration services and global team to manage a company’s multi-enterprise processes. Based in Gaithersburg, Maryland, GXS has direct operations in 20 countries, employing more than 2,400 professionals. To learn more, see http://www.gxs.com, read our blog at http://www.gxsblogs.com, follow us on Twitter at http://twitter.com/gxs and join us on LinkedIn at http://www.linkedin.com/company/gxs. You can also access our public filings with the Securities and Exchange Commission at http://www.sec.gov/edgar.shtml.

© Copyright 2012 GXS, Inc. All Rights Reserved. September 2012 A

North AmericA ANd GlobAl heAdquArtersGXS9711 Washingtonian Blvd.Gaithersburg, MD 20878US+1-800-560-4347 t+1-301-340-4000 t+1-301-340-5299 fwww.gxs.com

euroPe, middle eAst ANd AFricA heAdquArtersuNited KiNGdomGXS Limited18 Station RoadSunbury-on-ThamesMiddlesex TW16 6SUEngland+44 (0)1932 776047 t+44 (0)1932 776216 fwww.gxs.eu

AsiA heAdquArtershoNG KoNGGXS InternationalRoom 1609-1016/F China Resources Building26 Harbour RoadWanchai, Hong Kong+852 2884-6088 t+852 2513-0650 fwww.gxs.asia.com

JAPAN heAdquArterstoKYoGXS Co., Ltd.3F Akasaka 1-Chome,Minato-ku, Tokyo 107-0052+81-3-5574-7545 t+81-3-5574-7560 fwww.gxs.co.jp

Documents

Omnichannel Considerations for the Purchase Order Process