Doing Well by Your Stakeholders While Doing Well by the Environment and Future Generations
It’s not often when the choice is this simple. Pursuing a reduced supply chain carbon footprint through outsourcing B2B actually helps improve your bottom line. Three primary drivers, error reduction, transportation improvements and IT optimisation come together in a mature B2B program to both reduce costs and provide significant environmental benefits.
Automating Sustainability’s Business Benefits
If you are like most businesses, many of the orders you send and receive are still exchanged manually. One study estimates that only 20% of all orders in the retail supply chain are fully automated while another 20% are sent electronically, but need manual intervention on the supplier side. Similarly, almost every other industry has limited automation when it comes to their supply chains. And this applies to both direct and indirect purchases. Both goods used to produce products and those used to sustain operations are ordered manually. Often, those orders are changed after the initial order is placed and almost always those change orders are handled manually, reducing the effectiveness of automation endeavors. The more documents you automate, and the more trading partners you automate with, the greater the maturity of your B2B programme. But orders are just the tip of the iceberg. Ship notices, invoices and other business documents are too often manually managed transactions.
Why is automating your B2B transactions important? The average data entry error rate ranges from 2% – 5% depending on the skill of the entry staff and capabilities of the software being used. What this means is: if you enter 10 items that are 10 characters long, equating to 100 keystrokes, you will have between a 10% and 50% error rate. This is because the keystroke errors can all occur in the entry of one item or be spread across up to five of them.
Even a low keystroke error rate (2%) can equate to a massive overall effective error rate of 20% when using 10-character fields. If the fields are longer, the effective error rate will be even higher. In the US, these errors are significant contributors to the compliance penalties paid by retail suppliers, penalties that average nearly 2% of gross sales.
It costs one automaker £11,000/minute when their assembly line is shut down. These costs are passed on to the supplier whose shortage caused the shut down. Suppliers that are not co-located with the manufacturer must expedite parts─often via air─to avoid the penalties.
Keystroke entry, and other manual efforts such as receiving, pick/pack/ship, and comparing receipts to invoices, lead to costly problems. Depending on your industry, you may face:
- Compliance penalties costing 2% or more of gross sales
- Out-of-stock rates of between 8% and 15%
- Expedited shipping to avoid stock outs
- Shipping loads that are not optimised
- Unnecessarily high inventory levels
- Slow settlement when paper invoices are sent via mail (increased Days Sales Outstanding)
- Inability to take advantage of early pay discounts
These manual efforts are also associated with the release of harmful CO2 from:
- The use of air freight instead of more optimal shipping methods
- Routes that are not optimised
- Paper production necessary for various manual internal processes
- Fuel and other impacts associated with mailing paper (invoices, for instance)
- Fuel and other impacts associated with shipping paper from factory to original point of use
Automating your supply chain transactions can reduce carbon waste while also reducing the business costs associated with manual transactions. For example, transportation costs are significant for companies─up to 20% of annual revenue for some─and the opportunity to optimise those costs is an opportunity to put money straight to the bottom line. Imagine decreasing transportation costs by 1% of annual revenue. That’s an increase in the bottom line of 1%; and if you have 20% margins, that’s increasing your margins by 5%.
Here is a matrix of the business and environmental benefits of automating documents and processes.
Quantifying the Environmental Benefits
The question on everyone’s mind at this point is: how can we quantify the environmental benefits of a mature B2B programme? The answer is that some aspects are relatively easy to address while others are a bit more challenging. For example, paper reduction is a pretty well-known and documented benefit process today. The US Environmental Defense Fund has a “Paper Calculator” they developed in partnership with the timber industry. This calculator helps companies determine the direct environmental benefits of using more recycled paper, or eliminating paper usage altogether for some processes. GXS has analysed supply chain transactions and determined the positive environmental impact its customers have experienced by choosing to automate documents instead of using paper for their supply chain transactions.
We have also determined the positive ramifications if all supply chain transactions were automated. These benefits can be seen in this chart:
Paper is just one aspect of the cost of doing business. Improvements in transportation optimisation, stemming from improved B2B processes, can result in significant decreases in fuel consumption. Transportation improvement calculations are unfortunately unique for each company based on factors such as miles traveled, equipment used, freight and weight, etc. One way to determine environmental impacts of transportation is for a company to measure their annual road miles before starting an environmental initiative and then measure the results afterwards. Any road miles saved can be turned into equivalent CO2 savings if they know the estimated CO2 per road mile for their trucks. Even if you can’t measure the environmental benefits, the good news is that optimising your transportation will result in less fuel used, reduced use of air freight for expediting, less wear on vehicles and tyres, and other positive benefits─regardless of your current transportation expenditures. All of these improve your bottom line and the environment’s bottom line as well.
Finally, you may not think of your B2B infrastructure as part of your supply chain, but it certainly is. All B2B transactions that drive your supply chain must go through this infrastructure and many companies still run their B2B environment on costly mainframes. If these are older machines, the carbon footprint is especially significant. Even when running in a client server environment, B2B infrastructures are often highly inefficient and these B2B systems are usually not the first place companies look when pursuing IT infrastructure changes. Yet, improving the B2B infrastructure can yield significant energy savings while improving overall productivity and bringing even greater benefits to a mature B2B programme. Use of blade servers and other optimisations can reduce energy usage nearly 75%.
If you are still not sure, consider this.
Research shows that using B2B technology can have significant effects on both your top and bottom lines. Mature B2B programmes can increase revenue and improve perfect order performance. They can also reduce costs, increase turns, and help optimise overall supply chain performance. TMS and WMS applications do better when they are fed timely and accurate information from mature B2B systems. Research has also shown that the more mature the programme, the greater the benefits. Stanford Global Supply Chain Management Forum showed that outsourcing B2B greatly increases the maturity of the programme (between two and four times the number of trading partners integrated electronically when compared with in-house B2B programmes).
Outsourcing your B2B will speed the financial benefits of supply chain automation and decrease your carbon footprint at the same time. The reason is that the mature B2B infrastructure is already in place and just needs to be tapped. This means your company doesn’t need to worry about staffing and supporting a global B2B infrastructure and all the challenges that entails.
- Foreign language support in both systems and staff? Yes
- Availability worldwide? Yes
- Integration with global shippers? Yes
- People on the ground in China and elsewhere around the globe? Yes
- Community management team ready to onboard trading partners? Yes
- High availability with multi-continent fail-over? Yes
What more could you want? The choice IS simple.