Magazine Article | September 1, 2001

Putting B2B On Automatic Pilot

Source: Innovative Retail Technologies

Dollar General is on course to eliminate paper-based communication with its supply chain partners and reduce EDI (electronic data interchange)-related fees. By using B2B software and the Internet to automate transactions, the $4.5 billion retailer will decrease costs and improve efficiency.

Integrated Solutions For Retailers, September 2001

Retail is all about selling to the right person, at the right time, through the right medium. Essential to the end result is the communication you use to entice us to spend our hard-earned cash on anything from shampoo to T-shirts. When the Internet came on the scene, it too became a business mechanism used to entice consumers to buy. But with online retail sales taking only a 2% bite out of the $600 billion retail market last year, it is clear that B2C e-commerce does not drive the exchange of money over the Internet. Instead, the Internet's cruising altitude is set at the level where business relationships begin. By using the Web as the communication vehicle between retailers and suppliers, Gartner said B2B transactions generated $433 billion in revenue last year.

But ROI metrics of e-business don't have as much to do with revenue as they do managing B2B relationships and making areas of the supply chain more efficient. The Internet enables processes that were once person-to-person to be accomplished by machines - ideally, with no human intervention. This minimizes paperwork and maximizes productivity. "B2B is about business-oriented transactions moving over the Internet to strengthen the supply chain, so we can drive value to the customers," said Dennis Krautsack, senior director of information services at Dollar General. "Retailers have limited means to cut costs, so it only makes sense for them to focus on strengthening their B2B relationships."

Most companies are only in the early stages of establishing a full-blown Internet-based buying strategy. One such company is Dollar General, a $4.5 billion discount retailer with 5,200 stores in 27 states. The company is laying the groundwork for supply chain efficiency by transmitting purchase orders and invoices with its suppliers, and coordinating transportation with its carriers over the Internet.

Why Drive A VAN When You Can Fly?
Although Dollar General already communicated electronically with half of its trading partners via EDI (electronic data interchange), an Internet connection would eliminate monthly VAN (value-added network) fees it incurs with every transaction. VANs facilitate EDI transactions by offering EDI translation and encryption, secure e-mail, and management reporting. For a large company, VAN charges could add up to $100,000 or more per month. Wanting to decrease its VAN dependency, Dollar General purchased a transaction management product from IPNet Solutions Inc. (Newport Beach, CA) called IPNet eBizness Transact, in the second quarter of 2001. The software allows Dollar General's suppliers to communicate securely via any standard browser or transport protocol including VAN, Internet, FTP (file transfer protocol), and HTTP (hypertext transfer protocol).

Procter & Gamble, one of Dollar General's largest suppliers, supports the move to an Internet-based trading environment. "On a global basis, 70% of our business orders are transmitted to our customers through a number of different EDI standards," said Steve David, CIO and chief B2B officer at Procter & Gamble. "We want to move these transactions to the Internet, where open standards-based transmissions can occur with all of our trading partners so we can achieve machine-to-machine, no-touch, perfect transactions." This way, retailers and suppliers could use their existing EDI systems. Internet-enabled EDI provides the potential for all companies to conduct business in a standard environment - the challenge is having industry players agree to standards. This was the advantage Dollar General knew it could offer its suppliers. The next step was taking the concept for a test flight and asking its trading partners to copilot.

E-Liminate Paper With An Internet Link
Dollar General had to first consider that not all its suppliers can exchange information via EDI. "After each interaction with our bread vendors, for instance, a paper invoice is created and sent to the home office to be paid," Krautsack said. "As we add more perishable food vendors, we could be processing 15,000 paper invoices a week."

To combat this inundation of paper, IPNet eBizness Transact provides electronic invoices, or WebForms, to be transmitted over any Internet browser, eliminating the need for paper documentation. IPNet accepts the electronic invoice and directs it into the retailer's Lawson Software accounts payable system. This saves time on managing paper invoices and will process the vendor's payment faster by eliminating manual intervention. Eventually, Dollar General would like to expand its supply chain's connection to its Catalyst warehouse management system to provide stores and distribution centers (DCs) with advance ship notices. "This information extension will allow us to know what merchandise will arrive before the truck pulls up to the dock," said Bruce Ash, VP of information services at Dollar General. "This way the stores and the DCs can plan their staffing in advance."

Transportation Confirmation At The Click Of A Mouse
Exchanging purchase orders and invoice information is fairly straightforward; they are transactions that can be managed by machines without human interaction. But, automating processes like transportation planning requires Dollar General's partners to take action within two hours.

Last year, Dollar General opened its seventh DC in Zanesville, OH. This produced an increased workload of 15% to 18% on its transportation department, which arranges truck transportation among its suppliers, DCs, and stores. The retailer knew it needed an electronic solution to manage the load tendering function of offering jobs to its transportation carriers - a process that relies heavily on telephones and fax machines.

Barr-Nunn Transportation (Granger, IA), one of Dollar General's carriers, developed in-house software that will enable it to interact with the retailer over the Internet and through eBizness Transact. When an EDI shipment request comes into Barr-Nunn's system through the Internet, it is translated and directed to a load coordinator's computer in the form of an instant message. The message appears on the screen, and the load coordinator has the option to accept or reject the request in minutes with a click of a mouse. "There are no more frustrating phone calls or missed faxes," said John Kerber, director of information technology at Barr-Nunn. "The system sends us everything we need for an order through Internet-based EDI, and it is automatically loaded into the dispatching system. This way our drivers have their orders prior to picking them up."

Dollar General's goal is to integrate as many links of its supply chain as possible, on as many levels as it can. Dollar General has not yet decided to purchase the next part of the IPNet solution called eBizness Collaborate, but the company sees the benefit of extending its B2B negotiations to sharing sales and merchandise planning information over the Internet. "Our thought is to get the immediate benefit of automation and prove the concept of B2B electronic transactions before expanding the scope," Krautsack said. "Full-blown collaboration will require more diligence and negotiation as well as design and forethought with the vendors."

Dollar General is currently piloting eBizness Transact with a few of its 2,000 merchandise suppliers and 15 of its transportation carriers. "The easy part is installing the software and bringing it online with a couple of vendors," Ash said. "But to electronically communicate with everyone, we have to be able to send, receive, and process the information in our systems. The hard part is campaigning to each of our trading partners to get them to participate."

Dollar General won't require 100% supplier participation over the Internet, but it hopes its trading partners will recognize the competitive advantage that supply chain efficiency can provide. The Internet allows companies to look at B2B transactions on a new level, while the day-to-day mechanics of the supply chain switches to automatic pilot.

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