At your service

At your serviceElectronic Data Interchange (EDI) has become acknowledged as an important tool by distributors and customers alike, but it still has a way to go before it is taken up by most low value order customers. Paul Gregg finds out how RS Components is tackling the issue
Supermarkets and catalogue distributors face a common problem. They both want to reach as many Low Value Order (LVO) customers as possible, in the most cost effective way.
Supermarkets have approached the issue by handing out loyalty cards to help them find out what their customers are buying, and more significantly, what they are not purchasing. They then try and fill in the gaps. Now they have begun moving into home shopping via the Internet, in the hope that they can secure a share of that market once everyone has access to it.
In the case of catalogue distributors, there is less agreement about electronic business and the best way of reaching as many LVOs as possible. Whole hearted commitment to one particular technology can prove an expensive exercise, so they have been stepping very carefully.
Having ones own Web site and issuing of CD-ROMs to customers has become pretty much standard practice, but the emphasis is still very much on putting out a catalogue. CPC for instance puts most of its resources into its free catalogue, which goes out to more than 40,000 accounts each year. While Electronic Data Interchange (EDI) has become acknowledged as an important tool by distributors and customers alike, it still has a way to go before it is taken up by most LVOs.
There are some 20,000 buying points in the UK, but only 150 customers are dealing regularly with their suppliers using EDI. Admittedly this figure represents some 15 per cent of the total value of orders taken, showing that the large customers have already seen the benefits of EDI.
Gary Kibblewhite, who is the chairman of the International Distributors of Electronics Association (IDEA), said that there are two problems associated with getting smaller customers to adopt EDI. First there was a lack of awareness of the benefits to be derived from EDI. Secondly, companies found it difficult tofind the time needed to change their purchasing system, given all of the other daily problems they faced.
It is customer uncertainty and doubt that has been the objective of a special development team formed by RS Components. The Corby-based company has every reason to focus upon LVOs. It processes 17,000 orders a day with an average order value of less than ?100. In attempting to capture its customers hearts and minds, the firm is trying to get them to face the realities of doing business in the future.
Customer value-added services manager at RS, Phil Cocks, said: We believe that they will have less time and money, and will be staffed with fewer managers and supervisors. There will therefore be less opportunity to make mistakes and considerably less tolerance on their behalf of waste, duplication and non-conforming quality.
Research undertaken by the RS team indicates that an average order placement cost is around ?65. If you multiply these transaction costs hundreds of times a year across a number of suppliers, it becomes obvious that attempts have to be made to end this administrative and financial nightmare.
As well as issuing its catalogue in CD-ROM form, the company also puts out a six-part catalogue. In addition, it is trying to get the co-operation of its customers to adopt EDI as well as using its purchase card. They should not be confused with the loyalty cards issued by supermarkets, or credit/charge cards. The RS Purchase Card provides card holders with pre-allocated authorised spending limits.
When it comes to adopting electronic commerce, said Cocks, unfortunately too many companies still lack strategic vision. Worse, they are perplexed and puzzled by the maelstrom of change that is whirling around them, seemingly distorting the shapes of supply chains.
It is against this background of uncertainty and confusion that RS has been trying to interpret the real needs of LVOs.
The companys own EDI software package, which is called Electrolink, is Windows-based. It is issued free of charge and there is a help line available for customers. It can operate over a modem or leased line. Features include support of all stores products from any supplier, not just RS. There is also a customer part number capability via conversion software, enabling the distributor to establish closer links with the customer.
Whilst RS has Electrolink, the other big catalogue firm Farnell Components has a similar system called FAST (Farnell Automatic Stock Transfer). FAST grew from our French operation, says Simon Dawson of FAST Support and Development, Goods are reordered when stocks fall below a minimum level. We guarantee to hold enough stock for the customer.
Chris Emptage, Farnell Component’s managing director, says that a typical order for electronics components costs, on average, ?27. With FAST, it’s just a cost of a phone call. The system has been around for over two years. It can be used by customers not only for automatic replenishment, but for one-off orders, and may be integrated into a customers MRP (Manufacturing Resource Plan).
According to Tracy Burke, an EDIspecialist at RS, the take up of Electrolink had been across the board. A complete cross-section of our customers are using Electrolink, from large corporates to small start-ups. It is available to any company wishing to improve business efficiency by trading electronically,she commented.
It is not possible for suppliers to be all things to all customers says Cocks, so they must choose their customers, just as buyers have always chosen their suppliers. Customers in general still hold the power in a relationship, and whether customers are willing to change and consequently are ready for the truly proactive supplier is a key issue. RSgoes in-plant at 3M
RS has gone event further down the road of forging closer relationships with its customers, and is now running the in-plant stores of international manufacturer 3M in the UK. 3M had come to recognise that its suppliers were an under-utilised resource, a nd it believed that up to 70 per cent of its operational costs were associated with supply chain issues.
In 1994, 3Ms stock levels of maintenance products were managed on an inventory replenishment system. The overall result was L2m of inventory, 500 suppliers and 17,000 stock items There simply had to be provision for making savings in these acquisition costs.
Outsourcing part of its supply chain activities to a single supplier offered the best opportunity of solving the problem. 3M was looking for a distributor with an innovative and flexible approach to developing solutions.
In addition, the company was looking for a distributor with a broad product range and a local support capability.
Using its own knowledge of customer purchasing systems, RS was able to create a bespoke solution the following year at 3Ms Aycliffe manufacturing plant near Darlington. Called Managed Stock Replenishment, it has been designed to be implemented at other 3M sites.
Initially there were 150 standard RS items selected that were purchased over 10 times a year. Now the scheme has been broadened to cover items required less frequently, and it now includes over 300 RS products. Key to the cost efficiency is the proximity of the RS trade counter 10 miles away in Newcastle.

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