Maintaining Profitability—Part 1

The news of a well-known supplier with a long history closing their doors stunned the industry recently. This isn’t the first of such casualties and it certainly won’t be the last. There also will be losses of distributors and more consolidation. Strong suppliers will buy smaller suppliers and strong distributors will absorb smaller distributors. Some companies will just close their doors.
I’ve been a part of some interesting discussions on issues that affect the profitability of our industry. I was shocked to discover that up to 70 percent of orders that come in to suppliers are lacking details for them to be efficiently processed.

That’s a huge number! POs don’t have style numbers, the correct color for the item and imprint. They have incomplete ship-to addresses, bad art and on it goes. The discussion has led to the need for orders to be processed more efficiently. The idea of an industry standard in ordering is not new. It’s been discussed and tried in various ways through the years.

The latest discussion is on implementing some form of Electronic Data Interchange (EDI), an electronic communication system that provides standards for exchanging data via any electronic means. By adhering to the same standard, two different companies—even in two different countries—can electronically exchange documents (such as purchase orders, invoices, shipping notices, and many others).

I’m hardly an expert on EDI, but before you tune out this topic as being irrelevant, please understand that this is important for businesses of all sizes. It affects both suppliers and distributors. Efficient processing of orders affects our ability to maximize profitability.

The move to a standardized order processing system is difficult because our industry is so fragmented. Large distributors have their own proprietary order processing systems and small distributors are all so different. On top of that, we don’t embrace change well.