The Impact of VMI on Order Touches in Consumer Goods Companies

Eliminating order touches is a big issue within consumer goods companies.

By Carl Hall, President and CEO, Datalliance

Various Gartner reports indicate between 30 and 60 percent, and even as high as 95 percent of all orders require manual touches: VMI Helps Reduce Order Touches

“Based on Gartner client inquiries, the percentage of manually touched orders varies widely among consumer products companies, with many companies touching 30% to 60% of their orders. These companies need to manually adjust orders for a range of reasons, including master data errors, lack of product availability, incorrect lead times, lack of alignment with terms of sale, and technology issues. Thus, reducing manual intervention requires a concerted effort from nearly every department, including sales, marketing, customer service, planning, manufacturing, purchasing, finance and logistics.”

Gartner, “Maximizing Zero-Touch Orders in Consumer Products Companies”, Beth Coppinger, August 5, 2016
“Manual order intervention (touches) to correct for ordering errors, such as pricing, product identification, quantity and delivery request dates, is prevalent across the CP industry and negatively impacts perfect-order performance. The variance of touches is wide, with some companies touching up to 95% of their customer orders while a few are on a path to achieving 95% touchless orders.”

Gartner, “Take Six Actions to Improve Customer Fulfillment in Consumer Products”, Steve Steutermann, November 6, 2015

Order Touches are Expensive

According to Gartner:

“Order touches add to order management costs and hinder cycle-time performance. The few CP companies that can measure the cost of an automated untouched order versus an order that contains errors find that touched orders can have more than three times the order management cost. It is wise to understand the sources of error that contribute to order touches and put in place plans for improvement, including adding order touches to your definition of perfect orders.”

Gartner, “Take Six Actions to Improve Customer Fulfillment in Consumer Products”, Steve Steutermann, November 6, 2015

VMI Eliminates About 90% of Order Touches

It’s pretty intuitive that Vendor Managed Inventory (VMI) would have a big impact on touchless order performance because orders are generated based on product information from the supplier. Demand and inventory information come from the retailer and are matched perfectly against the supplier’s data making the process run much more smoothly. The basic impact is intuitive, but we wanted to more clearly quantify that impact, and we did so through work done in the summer of 2016.

For our customers we surveyed:

About 45% of EDI orders required touches when hitting the supplier’s ERP system in a typical period – and that is in companies that are well-known for their process efficiency.

Less than 5% of VMI orders required touches when hitting the supplier’s ERP System during the same period in the same process-efficient companies.

In other words, of 100 EDI orders, 45 needed changes after passing them to ERP; while of a 100 VMI-generated orders only about five typically needed adjustment. That’s a big difference.

Addressing the Root Cause of Most Remaining Touches to VMI Orders

We also found the majority of VMI order line items that did require a change were a result of product availability issues. Product availability checking is something we have focused considerable attention on here at Datalliance over the past year.

Once companies start using the automated product availability checking capabilities we have recently built into Datalliance VMI, the number of touchless VMI orders will go even higher, approaching 98 to 99% after passing to ERP.

Why VMI Reduces Order Touches So Significantly

It is pretty obvious how Datalliance VMI helps reduce order touches. We generate orders using information from the Supplier Item Master (SIM) record in Datalliance. That information comes straight from the supplier’s master data. It includes things like source warehouse, pallet configuration, minimum order quantities, and the current shipping part number, etc. – all maintained directly by the supplier.

With EDI orders, the retailer is ordering based on product information they maintain or download from an industry data source. That data can never be as fresh as the supplier’s. Add to that the fact that product data is inconsistent from supplier to supplier and you can imagine how much work it is for a retailer to try and properly configure something as simple as the minimum order quantity (min OQ in Datalliance). On some items it's pallet, on some items it's layer, on some it's cases. The rules for each supplier or even product line from the same supplier are different. The rule from the supplier to the retailer also varies. It’s really a tough nut to crack. Yet VMI does it automatically. In fact VMI directly impacts each of the causes for order touches highlighted in the earlier Gartner statements (e.g., master data errors, lack of product availability, incorrect lead times…).

Touchless Orders Make VMI with Datalliance Extremely Efficient

Order touch reduction – and the resulting customer service cost reduction – is clearly an important benefit of VMI for consumer goods companies. It doesn’t get as much attention as increased on-shelf availability, reduced transportation costs and stronger trading partner relationships, but it is very significant.

And by the way…it’s just as much of a benefit to industrial product companies – especially those with a high number of replenishment orders each week. Every company benefits from automated generation of good orders to one degree or another.

We welcome your feedback.

Carl Hall
Datalliance President and CEO

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