Accounting Errors Bog Down Supply Chains

Computerworld - Ravi Kalakota thought he had written the book on e-commerce.

But the author of books about Internet business got a surprise when running his own online marketplace. He found that he was plagued by a supply-chain problem experienced by brick-and-mortar businesses: transaction reconciliation.

He and others warn that the types of problems he faced at the now-defunct Hsupply.com, a marketplace for the hospitality industry, are about to become more prevalent as companies continue to build and expand online marketplaces.

"Suppliers make a lot of mistakes," said Kalakota. "When a marketplace is growing fast, it creates an inordinate burden, because the [Web-based] systems can't check the transactions automatically."

These errors take the form of price discrepancies, spelling errors, erroneous shipments, incorrect purchase-order numbers and more. To check for and clean up mistakes, Kalakota kept hiring more and more accounting staff, which was a financial strain.

According to market research firm Killen & Associates Inc. in Palo Alto, Calif., 20% of all business transactions have errors or discrepancies. These result in reconciliation problems and can delay payments 30 to 40 days beyond their due dates and financially "bog down the entire supply chain," according to a report Killen recently made public.

Cost of Inefficiency

Inefficient transaction-processing methods and excess working capital in the "financial supply chain" can cost a $1 billion-plus firm $32 million per year, said the Killen report.

Returned inventory and delayed payments can cost companies in the short term, but there are also long-term and hidden costs that can't be immediately ferreted out - such as when key delivery dates for manufacturing are botched, said observers.

There are companies offering transaction reconciliation services that claim they can help relieve this burden, such as Mountain View, Calif.-based Aceva Technologies Inc., eTime Capital Inc. in Sunnyvale, Calif., and New York-based TradeCard Inc.

Making sure supply-chain transaction data is correct is a "huge challenge," said Brenda Enney, director of e-commerce solutions at Miami-based Ryder System Inc., a logistics services provider.

Supply-chain fulfillment problems are often caused by bad data, she said.

"These errors have a drastic impact on the most splendidly designed supply-chain process," said Enney. "Many customers are on tight schedules and cannot afford delays in shipping or in delivery."

Ryder uses applications from messaging software maker Viewlocity Inc. in Atlanta to get real-time visibility into its orders from the time it receives them to delivery - which helps customers keep supply chains moving efficiently.

Perhaps the only way to weed out such errors is to create a special receipt processingmethod between a firm and its suppliers, said Deb Kunkler, procurement manager at Idaho Power Co. in Boise.

The firm is currently integrating its PassPort enterprise resource planning system from Indus International Inc. in San Francisco with procurement applications from Commerce One Inc. in Pleasanton, Calif.

Using a Web interface may make the errors easier to catch, but there will still be a need for human intervention, said Kunkler.

"Just because an order will go through our PassPort/Commerce One integration via the Internet, it does not ensure that all orders will be handled perfectly," she said.