What would you rather do, process 600,000 paper invoices each year, or 600,000 electronic invoices?
For many years Owens Corning Corp. has supported the former approach, manually scanning or keying-in the majority of invoices from its suppliers. Now the building materials manufacturer is aiming for the latter.
“We want to get to a 100 per cent paper-free settlement process,” says Mike Mendoza, global e-procurement leader at Owens Corning.
Getting there will be a lot easier than it would have been five years ago, because a new breed of service providers offers Internet-based, electronic data interchange translation and project management services to suppliers of all sizes. Advanced Data Exchange (ADX), SPS Commerce Inc. and Internet Commerce Corp., are among the start-ups offering translation services. They face competition from established EDI vendors, including GE Global eXchange, Sterling Commerce Inc. and Peregrine Systems Inc.
There are labour and productivity advantages to be gained by automating invoice processing tasks. But today only a handful of Owens Corning’s largest suppliers can afford to use EDI – the standardized method for electronically exchanging business documents, such as invoices, purchase orders and receipts. Start-ups such as ADX are targeting a wider market with lower cost and faster deployment as incentives.
Owens Corning hired ADX to sell its services to the manufacturer’s suppliers. But Mendoza doesn’t expect 100 per cent participation overnight. ADX will start by recruiting the top 500 of Owens Corning’s 20,000 suppliers. Of this group, which is responsible for about 65 per cent of Owens Corning’s total transactions, 80 per cent are expected to be trading electronically by the end of July, Mendoza says. Meanwhile, to get just one vendor up and running the “old way” – via EDI value-added network (VAN) providers – often took six to eight weeks, he says.
In pre-Web days, companies that wanted to trade electronically first purchased proprietary EDI translation software from vendors such as Sterling and then paid transaction fees for document distribution over the VANs’ private networks. Yet after all that, there was no guaranteeing participation on the part of suppliers – many of which couldn’t afford VAN set-ups. For their small and midsize suppliers, companies still had to maintain parallel paper-based systems, says Geoffrey Bock, senior consultant at The Patricia Seybold Group.
Enter the Web, followed by Internet-based exchange providers such as ADX. Rather than building out a private network, these start-ups use the Internet as their transport mechanism. And instead of a complex pricing model based on transaction times and sizes, Internet-based exchange providers charge predicable monthly fees as low as US$50.
“They are the new and improved VANs, except without all the baggage and overhead,” says Carl Lehmann, vice-president of “e-business strategies at Meta Group Inc.
For Owens Corning, project management services was a key reason for selecting ADX. The service provider will handle supplier recruitment, deployment and ongoing management – an operational chore that would have seriously taxed Owens Corning. “We clearly don’t have the experience with that type of a rollout to do it on our own,” Mendoza says.
Owens Corning also chose an Internet-based provider because it complements the EDI infrastructure and business processes the company uses with its existing EDI-enabled partners. “It all can stay in place, and we don’t have to support two different approaches,” Mendoza says. And if XML catches hold among its suppliers – something Mendoza doesn’t expect to see in the short term – the ADX service can easily handle XML traffic.
So what’s in it for suppliers? For one, protecting their business with Owens Corning.
The company will strongly encourage suppliers to participate, Mendoza says, but stop short of delivering an ultimatum. There will be some suppliers that are enthusiastic about using ADX, and others will need convincing, Mendoza adds. “Our success will depend on how well we can overcome the objections of those that resist,” he says.
Another incentive for suppliers is that the ADX model can jump-start their electronic trading initiatives, not just with Owens Corning but with all their customers, Mendoza says.
“While many times we’re going to be pushing our suppliers down this path, at some point they’re going to need to trade electronically with other customers,” he says. “And this is an enabler for them to do that.”