Continuing Professional Development: Making the paperless office a reality...

Continuing Professional Development: eTrading

•  What is eTrading?
•  How it can benefit construction companies
•  Issues that need to be considered

The CIOB requires members to assess and fulfil their own CPD needs. Members can therefore choose to study the CPD articles published in CM as a valid part of their personal record of CPD activity. 

Click here to be taken to the online CPD test paper for the October 2011 issue

Electronic trading is bringing about huge changes in supply chain management and cost reduction for many construction companies. Tim Cole, divisional director of Causeway’s Tradex division, reports

Within the last two years there has been something of a quiet revolution in the way buyers and suppliers exchange data within the purchase to pay process.

So-called “eTrading” enables supply chain partners to avoid the waste associated with manual handling and improves process controls. For the purposes of this article, eTrading means the exchange of documents, such as invoices and orders, without the need for printing, posting or manual re-typing.

The reported cost benefits from avoiding manual processing of invoices alone typically range from £2 to more than £7 per document. There are even greater savings available where orders and other documents are also exchanged electronically.

Within the UK construction sector many companies are already reaping the benefits. Carillion, for example, was reported in the Sunday Telegraph to have projected savings in excess of £80m through the introduction of electronic invoicing; McNicholas has moved more than 90% of its supplier invoices to an electronic system (see box overleaf); and Speedy has more than halved its accounts payable costs while improving supplier payment processing.

There is growing pressure from the EU for this type of eTrading. It has identified savings in excess of €240bn, leading the European Commission to push “to see e-invoicing become the predominant method of invoicing by 2020 in Europe”.

It is also important to note that eTrading can deliver benefits to both buyers and suppliers.

Take an electronic invoice as an example. The supplier saves the time and cost of the printing and posting process while also gaining confirmation that the invoice has been received and, often, confirmation that it has passed key validation checks. This should mean a reduction in the number of queries and fewer payment delays.

For buyers, they no longer have to manually re-key documents and can automate the rejection of invoices that contain obvious errors. Accounts staff only need to deal with invoices that have passed these initial quality checks.

What’s more, a buyer that also sends electronic purchase orders can implement greater levels of validation and automation. For example, implementing more in-depth validation against the purchase orders’ details or extracting internal codes from them to enhance the invoice data imported to the accounts system. Ultimately, with the co-operation of buyer and supplier, the process can extend to achieve the auto-matching of invoices.

eTrading, therefore, requires the exchange of document data in a file format that can be automatically processed through the data exchange platform and imported by the receiving application. However, there is no one single data language. Consequently, to achieve the desired automation, today’s data exchange platforms, commonly referred to as “hubs”, have to connect each company individually and then be able to facilitate exchange generically.

There is still a way to go but, with moves to facilitate exchange between hubs under the Hub Alliance (www.huballiance.org) initiative, it is becoming easier for companies to build large communities of connected trading partners.

At the same time, pioneering hubs are making it easier for companies of all sizes to become connected. eTrading is no longer confined to a few large companies and is genuinely accessible to all. It is also possible to adopt eTrading and connect your entire supply chain within a very short period of time.

eTrading can be broken down into three key elements which, collectively, enable the main cost, time and environmental benefits to be achieved by any business. Although preferable, it is not essential that both sender and receiver are connected to the same level. The objective is to unlock the maximum possible benefits and so all trading partners need to be included.

Element one is that a document sender needs to be able to create a data file that contains the required information for the receiver to be able to process the document. For companies sending a small number of documents, this could be by keying details into an online form to create the required data file.

For companies dealing with larger numbers of documents, this is best achieved by exporting the document as a data file from the back office application. It does not need to contain everything that used to be on the paper document, as some hubs are able to add static data, such as addresses and VAT numbers.

Element two is that the electronic document needs to be received and processed successfully. For small volumes of documents, this could be a view only option, such as a PDF. For larger volumes this is best achieved by importing the data file directly into the back office application. Often, the application only requires a small percentage of the data provided. However, the ability to view the full information is essential to support the wider operational processes. A hub, therefore, should provide both a data and a viewing option.

Element three is the exchange process itself. There is much that can be facilitated by an eTrading hub to support document processing but, at its centre, a hub provides the ability to upload documents from the sender, convert them into the format required and then to download them to the receiver. 

Costs are typically incurred in establishing an initial connection and based on the number of transactions exchanged. There may be additional costs for specific services that are adopted to enhance the exchange process. eTrading does not come with “recommended retail prices” and there are models that charge the sender, the receiver, or both. Set-up charges could be around £500-£1,000, or more for a custom connection. Transaction costs normally reduce as volumes increase, but 20p per document is a reasonable estimate.

Savings vary depending on circumstances. Smaller companies may adopt eTrading to improve visibility, such as to gain confirmation that invoices have been received. There is also an element of customer service that may motivate some suppliers to connect, but eTrading hubs should offer a value proposition to all companies. This could be a free connection option for low-volume users or ensuring an integrated connection can be used for all customers.

When comparing costs to savings, the benefits are wider than saving paper, stamps and envelopes. The reduction in time spent creating, posting (or emailing), receiving, checking, re-keying, manually matching, approving, resolving queries and chasing payments all need to be taken into account. Companies that have implemented eTrading soon look to expand their connected community, as the cost is a fraction of the savings available.

Implementation is not as challenging as many people fear. Given the advantageous cost:benefit ratio the question is often asked: “Why hasn’t everyone not adopted eTrading?” The answer is that adopting eTrading does involve an amount of “change”. However, with a growing number of companies that have taken the plunge, confidence is rising and many more companies are following suit.

To become “connected” an IT person will need to set up the import (or export) together with the communication link that allows the receipt (or sending) of the electronic documents. In addition, someone should manage the checking and sign-off of each new trading partner connection. With larger projects, initial testing should rapidly diminish once the first partners have been connected.

Training is not always essential, but is highly recommended as it will ensure you gain the full benefits of your connection.

Pitfalls are rare but they do exist. Building a weak connection that doesn’t include sufficient information is one potential pitfall, as trading partners may ask you to provide additional information, so the time-saving benefits are reduced.  A good check is to verify the sent file contains the same details as would have been on the paper copy.  Another pitfall would be connecting to an eTrading hub that does not support open exchange as this either reduces your scope for growth or imposes additional costs on your trading partners when they have to establish multiple connections.

Once you have established a viable and scalable connection you should be in a position to drive the roll-out process as best suits you.

Clearly, then, it is important to choose your hub carefully. Three good tests to apply are that the solution is competent, cost effective and open. Competent, in that it can deliver a solution with the range of services you need. Cost effective, in that you understand the cost model and how your trading partners will be charged. Open, in that you will almost inevitably need to be able to connect to companies that have built an eTrading capability around a different hub provider. Make sure your hub agrees to reciprocal exchange with any other provider — or it is a bit like having a phone that can only connect to people who have a phone contract with your chosen network.

Whether viewed from a technology or business perspective, what has been achieved over the past few years will not be reversed — eTrading is good business and great for the supply chain.

For further information go to www.causeway.com/tradex

‘I’d recommend it to anybody’

McNicholas has improved efficiency by integrating 90% of its supply chain

Leading construction service provider McNicholas has transformed its supply chain operation by removing 90% of paper invoices, with the help of Causeway’s Tradex eTrading solution. This also saves time and money and minimises queries by automating basic checks, improving visibility to suppliers and removing manual data re-keying.

“The key to this success was to follow Causeway’s advice and be bold within a supportive framework,” recalls finance director Andrew Kerr. “Suppliers need to believe you’re serious about the implementation project. Actually explaining this position and being co-operative with our suppliers, rather than dictatorial, was integral to the process. We held open days and seminars and even had a helpline for suppliers, which was run in conjunction with the Tradex team. I recommend it to anybody. It’s certainly the way forward with a high volume of transactions.”

“Tradex integrates very well with our finance package and really was the best route to go,” adds IT application and development manager Steve Payne. “It was the obvious choice to make, offering a flexible range of solutions to meet the specific needs of our suppliers, many of whom were already existing Tradex users. Tradex eliminates the need to print, handle and manually key in invoices, which reduces the amount of paper that both suppliers and McNicholas use.”

There are also plans to achieve even greater efficiencies with Tradex. “Having implemented invoices through Tradex, we will be looking at orders and start tying the two together to give us the real benefit of matching orders to invoices,” Kerr explains.

“We are also talking to Causeway regarding Tradex supporting the automated matching of orders, invoices and, potentially, goods received notes in the future. We are keen to achieve 100% adoption of Tradex among our suppliers,” he adds.

CPD test paper: eTrading

To access and complete the October 2011 CPD online questionnaire, click on the link below. Select your answers, fill in your contact details then click “submit”. If all five questions are answered correctly, you will be invited to download and print a PDF document confirming your successful completion of the questionnaire. If one or more questions is answered incorrectly, please reread the article and try again, pressing “submit” to resend the amended form.

www.construction-manager.co.uk/construction-professional/cpd-questionnaire/18/

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