Technology Today: 5.24.2010 (Guest)

Posted by TED Magazine on Monday, May 24, 2010

Busting the Net Pricing Quandary

No Silver Bullet for Net Pricing Issue

Part 1 of a 3-part series on solutions, challenges and the progress of automating net into stock pricing

By Sonia Coleman

Error-free. Automated. Synchronized. All without manual intervention...this vision is what drives electrical industry companies to invest time and resources toward achieving synchronized net into stock pricing. It’s the golden egg worth pursuing.

Cost Savings

According to Ron Schlader, former IDEA Chairman (2009-2010) and Vice President of Operations & Quality at Crescent Electric Supply in East Dubuque, Ill., this golden egg can equal massive operational efficiencies.

“EDI is a great tool,” he said. “It removes the need for manual intervention. Now when an invoice comes through EDI, if the quantities and prices match, then the system pays it; it’s not manual. Why have someone touch it? It goes right out to be paid, and it’s done.”

Schlader’s company receives approximately 60% of its into stock pricing through the EDI 845, and it’s had a visible impact on Crescent’s operations. With potentially different pricing agreements for each of its 124 branches, the issue of having the company’s into stock pricing data in sync has a huge ripple effect. Not only can Crescent react to price changes more quickly, but the EDI 845 also enables Crescent to be more in sync with vendor’s pricing. With some additional programming in the payable process, Crescent’s labor to process invoices was reduced drastically. As a result, it was able to reduce payables staff 70 percent, going from one person in every branch location to 34 over the course of a few years. Since the process became more efficient over time, Schlader says that the majority of payables staff positions were reduced through attrition: Crescent simply did not replace those positions as people left the company. Other payables staff moved on to handle other duties, enabling the company to become more efficient without laying off staff.

The benefits also serve as a motivator for smaller distributors, like Furbay Electric with two locations in Ohio.

“Automating net into stock pricing has made it easier to bring in the data. We don’t have to use multipliers in our system, so there’s less manipulation, and we save time and effort that way. Our enterprise system won’t allow us to accept EDI, but we’re able to use IDW with another custom data massaging process. I wish I could use it more, but with the way pricing is now, anything we can do to streamline the process is a benefit. It saves a lot of time that can be used on other areas of the business,” said Jeff Kutz, purchasing manager for Furbay Electric.

Joe Wallace, Data/Pricing Administration Manager for Van Meter Industrial with 12 locations throughout Iowa, said that his company has also achieved greater efficiency and a reduction in price discrepancies. He has overseen net into stock pricing implementation through IDW with seven manufacturers so far.

“With the spreadsheet, the file still has to be formatted so it can be uploaded into your system, so there’s manual hours right there. But having net pricing in IDW is very successful; it took a lot of time to set up the processes, but it works once it’s all connected and runs so smoothly,” said Wallace.

City Electric Company in Syracuse, N.Y. longs to see greater efficiency for its seven branches.

“Achieving automated net into stock pricing is important to distributors because it really would streamline the process, take costs out of our business, save errors, and put money on the bottom line too,” said Sandy Rosecrans, President of City Electric Co.

Improving the Process

As technology has evolved, companies in the industry have invested much effort and expense to overcome challenges, create standards and develop technology to achieve error-free, automated transmission of this crucial pricing data.

And yet, seamless electronic communication of net into stock pricing still hasn’t reached critical mass. What is the issue? How can the industry move forward?

According to industry insiders, implementation is currently the challenge.

“We’ve come a long way in this process,” said Wallace. “The security issues, the standards issues, and technology issues are now taken care of. But the implementation process needs handholding to be successful. If we can get the distributors on the same software systems coordinated, they will most likely have the same issues with how they need their data.”

Schlader agreed that implementation is where further solutions are needed.

“It’s a major task to maintain into stock pricing because the manufacturers have a massive number of different file formats that distributors have asked for. Although standards exist, like the EDI 845, distributors have to program that into their systems. This is a big issue because very little standardization exists between the way manufacturers can send it and the way distributors can bring it in,” Schlader said.

With a majority of its products with a net price, City Electric Co.’s Sandy Rosecrans is still pursuing a solution that will provide the automated data it needs.

“When IDW first came out, we got in the ground floor, because everyone said it was the way of the future, and it would take cost out of the channel. Now it’s been 15 years, and our staff is still working to make it happen. We know it needs to be there. We distributors need to find out: what is the motivation for the manufacturers to provide this to us?”

Seeking Solutions

With so much potential savings at stake, distributors have explored many ways to help move this issue forward.

According to Schlader, distributors and manufacturers have various capabilities with the file types they can send and receive, but these capabilities don’t always match. He sees an opportunity for IDEA to help distributors convert these files to what they need.

“If IDEA can come up with translation software that can convert these files over to what each distributor can accept, then we can accomplish the goal, which is to get our into stock pricing in sync with the manufacturer. This is the real need because if distributors can get these documents electronically at a master, into stock pricing, and SPA level, then manual intervention goes away,” said Schlader.

Likewise, Wallace would like to see IDEA become more involved with the implementation process, but he sees it being more of a coordination effort.

“I’d like to be able to pick up the phone and say to my account manager at IDEA, ‘I’d like to get net pricing with these 20 manufacturers. This is the way that I want to get the data.’ Then that person starts to work with the manufacturers to get this information pipelined through IDW through one of the four standards,” said Wallace.

“Instead each distributor going to one manufacturer at a time, IDEA could go to each manufacturer with a list of distributors who need net pricing in a particular format,” he said. “Then the manufacturer can sit down and do it all at once instead of working with each distributor one at a time.”

Through 34 customer visits, IDEA president and CEO Bob Gaylord has personally heard about the struggles that electrical distributors and manufacturers have had with automating their data.

“I’ve talked to people about their businesses, and we’ve been working with customers individually to overcome their impediments. We’ve been there from the beginning; automating net into stock pricing goes back to our core competency and mission: to drive costs out of the supply chain. This is an enormous step to drive costs out of the chain, but make no mistake about it, there is time involved for a distributor and a manufacturer to make this happen,” said Gaylord.

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Go here to learn more about this issue:  http://www.idea-esolutions.com/news-events/tag/net+price. To read more feedback from distributors and manufacturers on “Busting the Net Pricing Quandary,” watch for part 2 of this next month. Coleman is a freelance writer based in St. Louis.  Reach her at sonia@neuconcept.com.