The is a transcript of a GXS webinar with Michael Brady, Programme & Change Manager, Marks & Spencer (M&S) discussing how M&S achieved 100% success in their electronic invoicing programme with 2,000 small and mid-size suppliers in just one year. To view the webinar please click here.
“We are one of the U.K.’s leading retailers, with 21 million customers visiting our stores each week. Our group turnover is £9.7 billion and group profit before tax is £714 million. We operate in general merchandise, clothing and home wares which is our core business and also in the food business. We have a 12.3% volume share in clothing and 3.9% of the total U.K. food market and approximately 78,000 staff globally. We operate 703 stores in the U.K., 361 stores internationally across 42 territories, and we all try and live and breathe by our core values, which are quality, value, service, innovation and trust. And these are as important to us today as they were when the business was founded over 125 years ago.
I’ll be providing an overview of the program that I’m part of, what drove us towards greater B2B integration, the B2B integration solution we’ve put in place in M&S, working very closely with GXS, and finish with lessons learned from the supplier onboarding project.
First I’m going to start on the Business Foundation program, the program of which I’m member. We started back in 2008 on the back of a strategic review of our general merchandise and food businesses and our plans for growth. Little did we know what was going to happen in terms of the economic environment at that time. This was a business-wide program, and in essence we ripped the heart and guts out of M&S, changing our business processes, supported by a new IT infrastructure and the implementation of SAP. This is very much a business-led program, rather than a technology-led program. It’s about consistently having the right products in place at the right price and to ensure demand is successfully met, that’s really what every retailer is about. Fundamentally that’s what we’re trying to achieve, and we’re trying to do that by getting the basics – the basic business processes right first of all, providing new business capabilities, particularly when we’re looking into new markets, new operating methods, our core ways of working, supporting our longer term growth plans and updating our current system’s infrastructure.
Since the original review in 2008, the worldwide business climate has changed significantly, but the principals that we put in place for the Business Foundation program remain as appropriate today as they did when we first started.
We were unable to grow efficiently because of the constraints of our IT infrastructure; we had 30 years of in-house IT development and no single view of stock. It was difficult to plan stock management effectively, with different sources of spend information, inconsistent ways of working, causing really major growth restrictions.
If we wanted to make changes to any of our systems, a change in one area would impact other areas in the IT network that would be very difficult to plan for. Change was very difficult and very complex and our vision was to streamline in a number of areas. Change is complex and risky and we needed to get the basics right, and hence, the name of Business Foundation program. Getting the basics right included having the master data in place and having a purchase-to-pay operation with our vendors. So distributing orders out to our vendors and getting invoices back, and that’s really the start point for our SAP implementation.
So we’ve changed how we buy our merchandise, from creating the basic product information, trading contracts, purchase orders and corrections, and finally onto supplier payments. Also, how we price our products to our customers, how we retain that data and pass it down to our point-of-sales system, how we promote and mark down our product and then how we utilise new profit information, sales and stock management information.
Ultimately having all the data in one place means we can finally provide true product level profitability. Alongside that we’ve put in new policies and controls supported by the implementation of the SAP system. This has had a far-reaching and pervasive impact across the majority of areas of our business, from our general merchandise business to our buyers, merchandisers, buying admin teams, product technologies, products and garment technologies and our regional offices. Internationally, this impacts our international buyers, international merchandisers, the Republic of Ireland, the Channel Islands. And, supporting the core business of our procure-to-pay process, record to report, master data, our supply tech management team, business finance and imbedded finance.
To achieve this granular level of data and to drive better information and better decisions, we have to work at a more detailed level than we had in the past. We wouldn’t have been able to achieve this with the existing procurement and payment processes with our suppliers, which were largely manual and included invoice matching at total level rather than at product level.
I’ll now talk about the phases of the program and how we’ve actually broken that down. So, basically there are three core phases, and we’re in the final stage now of the program, the first phase was around the procure-to-pay process for our general merchandise business and getting all of our master data and our pricing information in place. We started out with high level design and build in 2009 and went live with all of those changes during 2010 and that’s where we started the supplier integration. Phase 2 was for our food business, and again, the procure-to-pay process for our food business throughout 2010 and into 2011. This year we start to pull all of our data back into SAP, which is all of our sales data, and our stock movement data. This will enable us to give a new income statement for the business, a new product level profitability, and basically a full suite of reporting from SAP, to enable the business to drive forward.
That’s what the Business Foundation program is about really. It is very much an enabler for long-term growth, and it captures all sorts of areas of the business in terms of supporting the benefits and supporting new initiatives across our general merchandise business, food, supply chain, and all areas, whether it be stock planning and management, better on-shelf availability for our customers, better allocation and replenishments, supporting international growth, multi-channel growth, which has been huge, and I’m sure will continue to grow, through our forecast and ordering processes, arranging space management, move to new logistics infrastructure and a single-tier network.
We’ve got to get the basics right first of all, and the Business Foundation program was key in capturing all the data and getting all of our suppliers to operate with us electronically. We had in excess of 2,000 – 2,500 suppliers across a number of geographic locations, obviously the geographic locations bring with them the added complexities of language and time zone issues when implementing a new solution.
Our aim was to put in electronic communications for 100% of our suppliers in a 9-month period. The general consensus was that we would achieve approximately 60% to 70% of suppliers over a 2-year period. That seems to be the industry norm in terms of delivery for electronic documents. Our aim was to put in up to eight new messages with our suppliers, not just the invoice but a number of other messages as well. I’m really pleased to say that we achieved our goal and M&S now has all of its suppliers on electronic communications for ordering and invoicing.
Every single one of our merchandise vendors that trades with us receives an electronic order from us, and that’s the only way they get an order, and they then submit an electronic invoice back to us. I can tell you from experience, it is achievable!
EDI is the method of communicating messages to and from any given recipient. As for the level of integration you choose or already have within your own supply system, that’s down to individual choice. For M&S, we wanted to work at a detailed level so all messages on the M&S side are fully integrated into our ERP.
We’ve been working with GXS for approximately 20 years, so we did have some experience with EDI in the general merchandise space. We have an established way of working with some of our long standing suppliers where they advise to us how much stock they’re holding by EDI, and we call off that stock. All of our food orders were sent to food suppliers by EDI as well, and actually, EDI is certainly much more highly used within the food retail business than it is on the general merchandise side.
We implemented two solutions for EDI, B2B EDI, and a web EDI solution, GXS Intelligent Web Forms. We also developed a decision tree to help to find out which suppliers will adopt which solution. This was based on a number of factors; the level of business they do with M&S, their level of IT maturity, the level of risk, the time scales we had for the project etc. You can pretty much matrix that out to determine which solution and try to guide the suppliers onto which solution they should or shouldn’t be taking.
We exchange up to eight messages with our vendors. The first thing we do is we have a contract in place, which gives them a guide to the frequency with which we want to buy and also a commitment to the price. Next we have a purchase order and that is our commitment to buy the product, which will have a delivery date and the price on it. Then there’s a further message of a purchase order amendment, which is a different message type that we use.
For food only, we use a delivery message; we don’t do this in general merchandise, because of the way the general merchandise process works. Similarly with invoices, we ask all suppliers to submit an electronic invoice and we chose to put in an early invoice acknowledgement. That was the one place that suppliers really wanted to get information back from us to confirm, get some reassurance, that we had received the invoice and it was being processed successfully.
That invoice acknowledgement will tell them that the invoice is being processed. It won’t tell them it’s been paid but it will tell them it’s being processed successfully, or it has failed and give them the reason why it might have failed.
Depending on the delivery, and this is part of our terms and conditions with our suppliers, we then make debit and credit adjustments to our supplier accounts if we find that the goods received information doesn’t match with the invoice we’ve received or the original purchase order that was sent out. So as an example, if we raise a PO for £10 and a supplier sends us an invoice wanting to pay us £9 for a garment, we’ll pay the £9 and we will credit the account with the difference. It doesn’t mean that the supplier can come back and invoice the difference if they want to at any point in the future, but you see in principal how that works.
With some of our more trusted suppliers, and particularly in general merchandise, really it’s a question of them trusting us as we have a self-bill invoice process. So those suppliers don’t submit invoices to us, we submit their invoice to them and tell them what we are going to pay them based on the goods received information. That is based on a huge amount of trust in years of working with these vendors.
I’ll explain the two solutions and this is where GXS fits within the picture for us. So basically we’ve got the B2B or business-to-business EDI solution, and we send the message out to GXS. GXS acts as a message broker and effectively passes on that message. They don’t open it, don’t look at it, they’ll check it’s in the right sort of format, but they won’t do anything with the message content itself, and will pass that message onto our supplier. Our hope then is that the supplier will integrate that into their own systems, and largely that’s the demand of the suppliers wanting to do that.
Earlier I said one of the criteria was about IT maturity within the vendor. There are a number of our vendors, a huge tail of vendors in the general merchandise business in particular, that don’t have any IT experience. In fact a lot of their billing systems are just run on Excel or very, very simple systems.
We did not want to exclude those vendors, so we put the Intelligent Web Forms solution in place, and all that requires is the supplier to have access to the Internet. They can log on and view our orders in a nicely presented form. They click on a couple of buttons and create what’s called a turnaround document to make that purchase order into an invoice and so then click a submit button, fill in the relevant details, submit it back to us.
It doesn’t make any difference to us whether it is a B2B or an IWF supplier and that was really the beauty of having these two choices in place and probably one of the key things in enabling us to achieve 100% onboarding.
There are a number of benefits associated with the move to EDI. So it’s important to focus on what it is that’s driving the requirement from the outset and ensure that you deliver those objectives.
For M&S as there were two main reasons why M&S wanted to implement the new supplier integration solution. First of all it was about driving efficiency in invoice processing. Invoices were submitted manually into our shared service center. When I say manually, they were in some instances manual invoices on paper and in others; they were PDF files that were sent via email.
All of those have to be opened and manually processed, manually keyed into the payment system, and that would generate a huge amount of errors as well workload of having those people in place with the manual keying. We wanted to remove the possibility of errors by putting in EDI and to gain the benefits of reducing the number of people that were performing that activity.
Secondly, SAP works at a much more detailed level, and historically our invoices were matched at invoice total level. So if we had five different products on an invoice from a supplier we would look at the individual line item detail. We would check the total. If the total matched, we would pay the invoice and as far as we were concerned, we were happy. In practice that has huge implications in terms of our stock integrity, but also our payment integrity and everything else. So for example, if we are selling a range of garments, and let’s say we’ve got ladies size 10, 12, 14, 16, 18, if the supplier has delivered a large quantity of size 10 and we wanted a balanced drop of all of those different sizes, but they’ve delivered a large drop of size 10s and a very small proportion of size 18s against what we wanted, we would still pay them effectively for what they invoiced us for.
So this enables us, because of electronic nature of doing this, to match everything at individual SKU, stock-keeping unit or UPC, unit product code reference level. So at the very, very lowest granular level of detail, we can match now and understand where we are from an integrity perspective with our vendors.
The Business Foundation program was not based on a huge business case; it was about supporting the growth of the business. But if we had wanted to get to this level of detail, we would have had to put a huge headcount into the business to be able to operate at this level without being able to do this electronically.
To give you some idea of the scale, we now process over 2 million invoices a year, and every single one of those invoices is processed at that detailed line level. Some of those invoices will have literally tens and tens of line items on them.
Our objective was to have a first-time pass rate for invoicing of 95%. What we mean by first-time pass rate is that the invoice comes in and matches. We do a three-way match, with the purchase order, goods receipt, and invoice, so if those three documents match within the system first time without anybody looking at them, then that’s what we consider to be our first-time pass rate.
As we stand today, we have a first-time pass rate in excess of 97%, and again that’s way higher than the industry norm. I think it’s because of the level of detail we’ve gone to and the commitment from our vendors.
Just to touch on what this meant to our suppliers. We needed to ensure that all our suppliers were on the EDI solution prior to us going live with the Business Foundation program. Some of the suppliers using our B2B solution extended their existing EDI capability to map the new messages. We used the EDIFACT standard, and the food business tends to use TRADACOMS so we kept that in place also.
Some suppliers needed to create new maps in their own system to be able to take our new messages; some needed to develop EDI capability from scratch. We had some suppliers who, because we wanted to work at this detailed level, wanted to move their game on a bit in terms of their IT infrastructure and put new capability in themselves. So the testing was comprehensive with every supplier, and that really shouldn’t be underestimated.
The work involved with your EDI partner, and for us this was GXS, included test accounts and setting up all of the relationships with those test accounts. So whilst we might already have a production mailbox in place with some of our vendors, we need to think about having those test accounts set up making sure that everything was working, running through GXS, and was all working correctly.
The other thing to consider was that not every one of our vendors was a GXS customer. Some of them were working with other third-party EDI suppliers. What I chose to do there was to pick the top four or five key ones and work with them and take them on the journey with us as well to make sure that they understood what was happening. Now my relationship in essence wasn’t with them. My relationship with M&S is with our supplier, with our ultimate supplier. So I had to drive the supplier into making sure that their EDI vendor was doing everything that they could do to support them.
The other key thing is considering the expertise of the team that you’ve got and how you manage your solution within your own and within your third-party businesses is absolutely critical. For suppliers using the IWF solution, this is really straightforward. Effectively all they have to do is to register on the system, so they log on to an IWF web portal. They can register and set up their payment details. All we needed to do was to train them on how to use the web solution and talk to them about regular – and we were advocating daily – online checks to make sure that they received new orders that were coming in and they were submitting invoices to us in a timely manner. With the IWF solution they receive an email alert and can set up the email to go to various people when any new messages come into their account.
The reason why the IWF solution is much simpler is because we proved the system internally first. So that’s the first thing is to invest a bit of time in the IWF solution, make sure you get the forms right and the structure and the layout and the system right, and then you can test that yourself.
You can ask GXS to create the test account in IWF and so we could act as a vendor ourselves. We could send messages to ourselves, have a look at them, turn them around into invoices, send them back and process them to check everything’s working. In a sense we did the testing and that meant that we didn’t have to test with every single vendor. I was very confident that once it was working for us, it was going to work for every single vendor, and that proved very much to be the case.
In terms of the onboarding process itself, again this is something that I would encourage you to make sure you focus on and make sure you get the process right to start with. We partnered with GXS to deliver the IWF solution and manage all supplier onboarding processes with our B2B vendors. All the vendors were contacted by GXS and completed a survey we put together, on their current EDI capability. So we had an understanding of what the suppliers knew and the mix between the two groups of B2B and IWF. We ended up in general merchandise with a long tail of very small vendors, at about 30% B2B and about 70% IWF. For our food business, it’s very much the other way around. That’s very strong in B2B EDI, and therefore you have 70% / 80% full B2B and only about 20% / 30% IWF for the food business.
GXS guided the suppliers through all the onboarding processes, and that included providing the specifications of the interfaces required through the compliance testing of the solution. M&S defined those specifications in the first instance. We put together the specs that we wanted, we defined the interfaces we wanted with our vendors, and we put together all of the documentation for that.
For IWF, this is quite simple, because it basically meant directing them to the online training material. GXS hosted a microsite for us and we jointly developed a microsite which contained all the engagement material we had with our vendors. So all the comms material, all of the specifications, everything was uploaded onto the microsite which enabled suppliers to look there for answers to any questions they might have.
Some suppliers may have objected to paying for delivering this capability to M&S and if you’re starting on this journey now, this is one of the key things you’ll think, “Well how on earth did you get to 100% suppliers?” One of things we put in place was that we insisted that EDI was a core capability for trading with M&S and we escalated any non-compliance straight away. The key to this is having strong sponsorship at the most senior level in your organisation. You’ve got to make sure that you’ve got the people at the top saying that there are no exceptions to this, that they are bought into the process and therefore when the escalations happen, they’re backing you up as a team. We had tough conversations with only one or two vendors, I’m glad to say. M&S would have to say “Well I’m sorry, if you’re not going to operate this way, then you’re no longer going to be trading with M&S.” Fortunately, that never happened. We never lost any suppliers as a result of this process. We are their customer and they wanted to help. So do remember if somebody is invoicing you, the chances are that you are their customer and therefore you are on quite a strong footing to be able to push that message through.
I think no matter what the scale of your business, I would take that confidence that from a customer perspective, you can push that message, and as you’ve seen a solution is relatively simple.
I just want to wrap up with some key lessons learned from the exercise that we went through.
Make sure you’ve got the sponsorship in place. That’s both to unblock any internal issues, but also to provide a consistent new ways of working and don’t deviate. The impact of deviating from the solution has a huge impact. For us if we make one small change, that suddenly impacts 3,500 vendors.
Building the right team is obviously critical and I was very fortunate I had some very, very good EDI experts working with me. We had some third-party teams in M&S supporting us on the development side and also on the testing side, and we worked with GXS, who have got a huge amount of experience on EDI.
Get the process right first of all. I’m pleased to say that when we did the final stages of testing with GXS, testing of implementation with a food business last year that they’ve got their expertise in place. So get the on boarding process right. Document that workflow, in terms of how you’re going to go through that. It is absolutely key to stick to that workflow. Understand who all the people are and who your resources are within that process.
Secondly, get the business process right. Be very, very clear about how the business process is going to operate. So for us, how is the order going to be generated, how is that going to get through to the vendor, how do you deal with any queries against that order, what is the right time for the vendor to invoice, how do you deal with invoice queries, making sure you’ve got the right support infrastructure in place — and I don’t mean technical support here, I mean business support. We have a vendor support team in our Shared Services area on hand, ready to deal with any queries that vendors might have.
Keep communication simple. Our original pack was in excess of 100 pages of PowerPoint. I’m a detailed person, thinking, “Well that’s all the information they’re ever going to need, so they couldn’t possibly have a question.” Clearly that was far too much information for them to take on. Keep it really, really simple in terms of the communication.
And the other thing is, face-to-face communication is often better, so make sure you allow some time for that and include overseas offices. I have seven regional offices around the world, so I educated those guys and they were then able to offer language support and bring our suppliers into our offices overseas and to speak to them and get them on board, in terms of what we were doing.
Make sure enough time and resource is given to testing. The testing piece is absolutely critical if you are doing B2B. That is the one thing that you will fall down on with vendors. I would advocate testing with every single B2B vendor as we did. We uncovered all sorts of errors as a result. You can write the clearest spec you think possible, but it will always be open to interpretation. Somebody will misunderstand something somewhere or they will skip a step or miss it and that will generate errors.
The last thing you want is to impact the business when you go live with a solution. So make sure that you give enough time to that to get all the resource in place. That shouldn’t be underestimated, depending on the size of your supply base.
Finally, don’t hesitate to escalate where necessary. So if things are not working right, escalate both internally and externally. We did have issues with GXS, but I’m pleased to say when we did escalate and we escalated right to the top on a couple of occasions, we were taken very, very seriously as a customer and things were put right. We were listened to and were then able to push forward.
Don’t hesitate. Don’t sit in the background thinking they understand what it is that you’re trying to do. Be it the supplier or your EDI vendor or whoever it might be, get on the phone, talk to people and escalate where necessary if things are not working.
Hopefully that’s given you a good insight into the program that we went through and the EDI on boarding and how we managed to achieve 100% on boarding. Thank you very much for taking the time to listen.”