There are three major classifications of purchasing and order entry in use today: manual systems, assisted systems, and automated systems.  A manual system requires action at each step by a human attendant, the classic example being the old pencil and paper.  An assisted system is one which can take steps for the user, but still requires user intervention to complete its work.  Lastly an automated system is one that requires only supervision and review by a human; it can complete its role independently.

Q) How much can becoming automated save me?

A) A study of Food Distributors by the EFR initiative found that supply chains would gain 4.49% of their total product sold in cost savings! 
($5.9 billion in savings out of $131.4 billion in product studied.)

Phase 1 – The Manual System.

A manual order entry system is often the starting place for small to medium food distributor.  The initial investment is minimal and there is very little setup that needs to be done between companies before they can start placing and receiving orders.  Once a company begins to grow however shortcomings of a manual entry system become apparent.  The first is that it takes time to place an order, and to receive one.  A great deal of time and money can be spent on hold, waiting for the right salesperson, checking on pricing, and dealing with miscommunication about orders.  The second big concern is that the average cost per order does not decrease.  No matter how many orders you receive each one takes the same average amount of time, paper, and therefore money.  In fact as businesses grow and additional product and clients are added manual systems often see the cost per order increase due to the added complexity.  Lastly manual systems are considered a weak link in supply chains, the added processing time, high risk of errors, and lack of easily shared processing information hamper the efficiency of other companies.

Phase 2 – The Assisted System

An assisted system can take many forms.  The defining point is that the system takes a step for the user automatically but cannot complete the entire task.  The most common assisted order entry systems handle keyed data entry from a worker, issue pick-tickets, generate invoices, and track inventory.  Assisted purchasing systems can generate PO’s to be faxed, or emailed, and provide vendor item numbers and price history.  Assisted systems frequently see large increases in productivity and accuracy (See Issue 74).  Assisted systems require an initial investment and staff training.  Initial systems must also be suited to your business model to be effective.  Food distributors have several special needs: catch weights, broken cases, and the meat cutter’s inverted bill of materials. See issue 24 for more information on how to be sure the system you are investing in doesn’t have a fatal flaw that will waste your time and money.

Phase 3 – The Automated System

An automated system does not require user input to do its job, though it will of course need supervision.  Automated systems rely heavily on supply chain strength as standards must be established to place and issue orders.  Automated systems require significant investment and must be fully planned before implementation.  Food distributors must consider not only their up and downstream but food safety and government tracking regulations see issue 29 for and introduction  With these requirements in place a compliant automated system could for example issue a purchase order for an item that has hit its re-order point via EDI, the second system would receive the order, check inventory and issue the needed pick- tickets and invoicing, and have a scheduled delivery time back to the original system in seconds, on an exceptionally strong chain the second system might notice this order put it below it’s re-order point and continue the cycle up the chain as needed  (see issue 40 for additional details).  The strongest feature of this type of automation is that your cost per order now decreases for every order the system takes.

As you can see the automated system will supply the largest benefits, however it cannot be used to its fullest potential without strong supply chain organization.  With a cost savings of 4.49% on the total sales you can be sure that order automation is coming.  As we reviewed in Issue 13 food distributors should look for “Competitive Weapons.”  Right now automated systems can still give you an edge over the competition, and open previously closed markets.  Next week’s issue we’ll take a look at how the supply chain strength can affect your shipping and receiving directly.