Add $1+ million dollars back to your business with three-way match, with supply chain automation

by | Aug 4, 2015

By Scott Bolduc and Shivani Khanna Stumpf, SPS Commerce

Want to add a million dollars to your bottom line, without making any drastic changes? Traditionally there are two ways to add to your bottom line; increase sales or reduce expenses.  Increasing sales could mean raise prices, take on new products or open a new store. Many companies have infrastructure in place for using supply chain automation to address the ‘reduction of costs.’ Using automation, you could see dramatic improvements to your bottom line.

Supply chain experts estimate retail organizations spend an average of $120 – $150 per purchase order managing inventory errors, missing paperwork, paying fraudulent or incorrect invoices, inventory delays through manual receiving processes, inadequate visibility, incorrect pricing, and payment terms.

If your organization sends 100,000 purchase orders per year, that’s $12 – $15 million lost due to these errors. If you could save just $10 per purchase order, by using one new accounting procedure, that’s worth $1 million.

But if you could eliminate even half of those $120 errors, you’re looking at as much as $6 million in savings.

Enter the Three-Way Match

The three-way match is an accounting procedure that applies 1) the buyer’s PO to 2) the supplier’s invoice, and 3) the inventory receiving sheets delivered to the buyer’s warehouse. Together, the comparison of these three documents can prevent payments to incorrect and fraudulent invoices, as well as substantiate valid invoices for immediate payment.

For most retailers, 70% of all invoices pass the three-way match without any problem. When used in an automated Accounts Payable system, the three-way match process will pass and pay the invoices without human intervention.

It’s the other 30% that cause problems. Based on our own research and observations, these discrepancies usually deal with price, quantity and payment terms — 15% of the issues are related to price, 12% to quantities, and 3% to payment terms.

An efficient way to solve these discrepancies is through advance visibility of potential terms or price issues using the EDI Purchase Order Acknowledgements (POAs) and through receiving automation on the buying side and fulfilment validation on the selling system using the EDI Advanced Ship Notifications (ASNs).

One of our retail customers told us they used to have 15 full-time employees who managed their invoices for their stores and warehouses. Once they began automating their system and adopting the three-way match, they reduced their accounts payable staff to five employees, and grew their business by 7% year-over-year.

All in all, this saved over half a million dollars per year just by reducing staff and eliminating documentation errors. Let’s look at how this happened:

The POA — Purchase Order Acknowledgement — does several things:

It can reconcile discrepancies. Suppliers can confirm products, quantities, and prices before the first case is even shipped. This eliminates almost 15% of mismatches related to pricing.

  • It helps close out purchase orders much more quickly, which makes the supply chain more nimble.
  • It helps the retailer know when they can expect their orders to arrive, can make more accurate sales forecasts and can determine if alternate product sourcing is needed.

The ASN — Advanced Shipping Notification — performs similar functions:

It lets the retailer know when the orders will arrive. This lets retailers plan for resources and equipment needed for receiving.

  • If the supplier scans items as they pack, and uses a barcode inventory system, warehouse shipping staff can scan boxes they unpack and double-check the order against the ASN and POA. Automated receipt of cartons against the ASN by the buyer’s warehouse receiving staff reduces the number of miscounted products. With each party doing their part of supply chain automation, this eliminates the 13% of discrepancies related to quantity.

Finally, by automating purchase orders, invoices, and ASNs, suppliers can close out their invoices much more quickly than if everything is done by hand. One of our supplier customers was able to close out millions of dollars in open invoices by automating their supply chain and helping their retail partners effectively use three-way automated matching.

For suppliers and retailers that want to add hundreds of thousands, or even millions, of dollars to their bottom line, the secret is in automation and adopting the three-way match procedure.

By doing everything in a cloud-based system, and using barcode scanning and even RFID technology, companies are able to find savings and additional revenue with supply chain automation. Want to learn more? Contact SPS Commerce today.

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

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