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About the Author

Richard Wilhjelm

VP, Sales & Business Development
Compliance Networks


Richard Wilhjelm currently serves as VP, Sales & Business Development for Compliance Networks, a supply chain performance improvement solution provider. Richard has over 25 years of sales and marketing experience in the supply chain software industry. His skills in sales management and field operations have yielded tangible results within recognized companies such as Logility, Inc., JD Edwards World Solutions Company and Prophet 21, Inc. Richard received his Bachelor of Science degree in Finance from the University of Florida and currently resides in Weston, FL with his wife and three daughters.

For more information, please visit www.compliancenetworks.com.


Supply Chain Comment

By Richard Wilhjelm, VP Sales & Business Development, Compliance Networks

November 21, 2013



Retail Margin Risk: Step 3 – Monitor ASN Accuracy Religiously

More Important Because Supply Chains are Getting Longer and Faster and the Customer has Plan B at the Tip of Their Fingertips


Wilhjelm Says:

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When you can have it now remains the traditional retailer’s best defense against the pure on-line competitor, it makes good sense to monitor both the accuracy of your inventory and the accuracy of your ASNs.
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I apologize, I missed one. In the series titled Retail Margin Risk: 5 Critical Supply Chain Steps to Ensure Merchandise Plan Execution, I inadvertently left out step 3 – Monitor ASN Accuracy Religiously. Wow, of all the ones to leave out (and they all are important), ASN accuracy could rank near the top. I could blame it on age, frequent travel in coach, or even my three daughters (two of which are teenagers if you catch my gist). But blame aside, it is too important of a topic to not cover in this forum. Why? Because even at the ripe age of roughly twenty years, I would argue that ASNs are now more important than ever. Let’s discuss.

What is an ASN?

Simply put, an electronic version of a packing slip. Commonly referred to as an EDI 856 transaction set, the ASN (advance ship notice) is sent from the vendor in advance of the physical shipment so the retailer can plan their receiving process accordingly. ASNs have been in existence for roughly 20 years and have gained widespread adoption among most retail supply chain participants. In a recent study authored by Auburn University, it was determined of the 60 retail supply chain management professionals (SCM) surveyed, 78% required their vendors to utilize ASNs in some format or another. But despite the widespread adoption by the retailers and the vendors, ASN errors are prevalent and can have a devastating financial impact to all parties involved. As I tallied up all the effects ASNs can have on the retail supply chain, I am reminded of an old (albeit cliché) Clint Eastwood spaghetti western, The Good, The Bad and the Ugly. I know, extremely cliché, but bear with me.

The GOOD – ASN Benefits

In my early days of working with supply chain applications, I was introduced to definition of supply chain frankly I don’t hear enough. The definition of supply chain is as follows;


“Trading inventory for information” – author unknown


Simple, descriptive, powerful and every CFO’s dream. Why? Because the paradox of supply chains is that they are getting faster and longer simultaneously. By substituting information which is relatively cheap for inventory which is extremely expensive, the retailer can mitigate the challenges of supply chains that now measure up to 9,000 miles in length. And the tool that enables this process is the ASN. When accurate, the ASN can provide the retailer with visibility to incoming shipments, the ability to control exceptions before they occur and the ability to manage and reduce costs such as labor and transportation. To the vendor, a consistent flow of parallel tracts, inventory and information, to their retailers can result in a greater brand presence based on performance resulting in greater sales. While vendors and retailers enjoy a common ally in accurate ASNs, they are also face a mutual enemy, ASN errors.


The BAD – ASN Errors

Some will say an inaccurate ASN is worthless to the retailer, with which I wholeheartedly disagree.  To me, worthless is equivalent to not sending one at all. In my humble opinion, an inaccurate ASN is detrimental to not only the retailer’s supply chain, but also increases margin risk as well as negative profitability implications. Like a salesmen who relies solely on his GPS to get him to his first big appointment with a potential customer, a retailer runs a similar risk by blindly accepting that the ASN matches not only purchase order, but the physical shipment as well. In both cases, the movie often doesn’t end as anticipated.

In the previously mentioned 2011 study conducted by Auburn University titled, Facilitating Supply Chain & Visibility Accuracy, An Analysis of ASN Benchmarks and Best Practices, the retailers surveyed concluded that 93% to 97% of all ASNs received from their vendors were accurate.  While it is not possible to list all possible errors in this venue, the three primary causes in the report include;

  • ASNs do not confirm to the information requirements
  • ASNs are unreadable by the retailer’s system
  • The ASN information is not consistent with the shipment.


The inaccurate ASN affects all parties involved in the retail supply chain. Whether you are the sender or the receiver of the 856, the financial impact can be detrimental which leads us to our final act, the UGLY.

The UGLY – Financial Impacts

If you are the retailer, the financial impacts are numerous. For example, let’s take the three possible scenarios of a physical error type. The first, shortages, can cause an out of stock (OOS) situation where sales are lost and the retailer brand is damaged. The second, overages and third, unexpected items if both accepted will create an unnecessary investment in inventory resulting in a lower return on invested capital (ROIC). The immutable law of retail states that in the presence of variability, there will be safety stock. So in the previous example, where the objective of the ASN was to reduce supply chain variability, an inaccurate ASN actually creates additional variability.

If you are the vendor, the financial impacts are obvious; in the near term, lost orders and chargebacks. Not only are the cost of chargebacks costly, but the staff required to research and dispute charges are expensive is well. In the long term, damage to the vendor’s brand can put future orders in jeopardy.

As the Auburn study concluded, retailers revealed that 93% to 97% of all ASNs are accurate which translate into an error rate of 3% to 7%. To some this may seem like an acceptable error rate or a “cost of doing business” (another cliché). But let’s say the retailers ASN error is in the middle at 5% and the retailer handles one million cases per year. At this rate, 50,000 cases will be affected and if the average value of each case is $100 then 5 million dollars of inventory will be impacted. Most retailers I work with do not consider this number inconsequential.


Best Practices

The previously mentioned study also highlights some of the best practices employed by industry leaders. While space doesn’t permit a detailed explanation of each step to mitigate ASN errors, here they are in summary;


  1.

Develop a formal audit process – I have seen audit percentages range from 2%-100%. This is a good topic for future discussion.

  2.

Quantify the financial impact – Better understand what the impact is to inventory, operations and customer service. Leading edge retailers make this a standard process.

  3.

Assess deductions – Are they popular? No. Are they effective at improving behavior? Yes.

  4.

Collaborate with vendors – As we previously discussed, over communicate to your vendor partners.


Now, More than Ever

At the beginning of the post I put for the premise that despite being roughly 20 years old, ASNs were now more than important than ever. I believe this to be true for a couple of reasons at minimum. First, as I alluded to earlier, the paradox of supply chains getting both longer and faster. Both characteristics add additional complexity into the supply chain with the risk of additional variability. As we previously discussed, variability gets expensive quickly. The second is that in today’s hyper-competitive omni- channel fueled environment, the customer has plan B at the tip of her fingertips at all times. And when you can have it now remains the traditional retailer’s best defense against the pure on-line competitor, it makes good sense to monitor both the accuracy of your inventory and the accuracy of your ASNs.


Summary

I highly encourage you to read the whitepaper titled Facilitating Supply Chain & Visibility Accuracy, An Analysis of ASN Benchmarks and Best Practices if you haven’t done so already. This report was written by Brent D. Williams, Ph.D. and Brian J. Gibson, Ph.D., aka, “the doctor”, both from Auburn University and heavily influenced this post.  If you are interested in the impact of supply chain variability on financial performance I recommend you watch our Supply Chain Digest on demand videocast, titled The Impact of Vendor Performance on Retail Inventory Levels – Unlocking the Mysteries.


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