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Source: The Electrical Distributor, October 2001

Imagine you run a Fortune 500 company, or even a small machine shop. Think of all the products you would need on a daily basis to keep your business running ... paper products for the cafeteria and restrooms, cleaning supplies, power tools, bearings and electronics for the finished product ... the list could reach into the thousands.

Now imagine a world without integrated suppliers. Think of the thousands of suppliers you would need to maintain relationships with -- the paper products distributor, the janitorial supplies distributor, the tools distributor, the bearings distributor, and the electronics distributor to name a few.

Without integrated supply, an end user must interact with each distributor supplying the items needed to run their business. This can result in needing to maintain 1000s of individual relationships.

Historically, dealing with all of these suppliers has created high transaction and logistics costs.

Fortunately, there is integrated supply. With integrated supply, all the paperwork for transactions flows through one lead distributor. A process flow might go like this:

The end user orders products from the lead distributor (integrated distributor), who then processes the order and passes it on to the appropriate distributor (fulfilling distributor). The fulfilling distributor then ships the product directly to the end user and sends an invoice to the lead distributor who processes the paperwork and invoices the end user.

This is a big win for the end user who now buys from one supplier instead of 1,000. In the past, an end user who needed one product from each of his 1,000 distributors would have to cut 1,000 Purchase Order's (PO's) and process 1,000 invoices and payables. With integrated supply, he cuts only one PO and deals with only one invoice and payable.

Integrated supply enables end users to work with just one distributor for all their supply needs.

While this certainly streamlines the process, the costs have merely shifted from the end user to the lead distributor. For example, the end user wants to find the price and availability for a product that does not come from the lead distributor. The end user calls the lead distributor who then calls the appropriate supplier to check product price and availability. The lead distributor then calls back the end user. This is even more complex than what the customer went through in the past.

But if the distributors integrate with the lead distributor through the use of technology, information can flow from one distributor to another with no human intervention, saving time and money.

By connecting their inventories over a private trading network, the lead distributor's computer system could show the price and availability of all the products the other distributors carry to service the end user. Now when the end user calls for price and availability, the lead distributor can answer without having to make any phone calls. Better yet, the lead distributor can give the end user access to a Web site that will give them all the information they need for all the distributors they use and the end user never knows that they are dealing with more then one distributor. And the distributor's computer system would integrate all the back end transactions.

The introduction of technology to the integrated supply chain streamlines processes, reducing costs and eliminating the risk of errors.

When it comes to item codes, end users and distributors each have their own terminology and coding for each item, often making communication difficult and confusing. Internet trading networks solve this problem by rationalizing item codes enabling each partner to use their own terminology and have it "translated" automatically for use by whomever they are communicating with.

Technology also eliminates costs by automating transactions. When the lead distributor receives a transaction, it is transmitted electronically in real time to the appropriate distributor. The distributor sends advance ship notices and invoices to the lead distributor the same way. The lead distributor's computer system then aggregates all the transaction back into one to match the end user's original PO. All the expensive transactions that the end user had to deal with previously disappear and the quality of the interaction vastly improves. With everyone integrated in the supply network, the accuracy of shipments and paperwork eliminates costs that end-users may never have known existed.

Thanks to technology, integrated supply is easier to implement then ever before. The Internet and a secure Virtual Private Network (VPN), allows distributors to connect with each other cost-effectively and efficiently.

With the Internet, a good Internet trading network, and the support of back-end distribution software, distributors can very easily pull costs away from their customers and provide true value-added service.

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