IPO Business Case
When is a version change a really big deal? When it refers to version 2.0 of the Internet Parts Ordering standard
Everyone in the aftermarket supply chain loses money on every special order that gets placed every day. The number of out-of-stock emergency and special orders is growing due to continued parts proliferation and the pressure to carry enough inventory. An investment in 10,000 inventory items satisfied 85% of demand in 1988 – today those items meet barely 55% of the total demand. The out-of-stock items have to be sourced either locally or from the factory. And, that’s where we all start losing money.
Every day, tens of thousands of transactions are conducted in much the same way they were 25 years ago – by making and receiving multiple phone calls. The cost of the staff time and lost productivity devoted to making one or more inquiries about availability, quoting and confirming the order with the customer, and then placing the order with a vendor is not recovered with additional margin on an emergency order. Typically, these sales are made at the negotiated margins and terms. In the time it takes to pick and pack a 30-line replenishment stock order, staff all along the supply chain work to complete a single-line special order transaction. No one is making any money under those circumstances.
The road to handle these essential transactions profitably is paved with technology. But over the last decade multiple competing and proprietary solutions have evolved. Service retailers, Jobbers, parts retailers and distributors all have to place their bets on one e-commerce solution or another. And in most cases they are limited to view parts availability and order from only those suppliers on the same technology platform. This closed architecture is only marginally more efficient than the days of playing telephone to order parts. And, it fails to capitalize on the ubiquitous nature of business services distributed over the Web.
The AAIA Internet Parts Ordering (IPO) standard is a collection of Web Services which orchestrate the conversation between the business systems of a buyer and a seller. The IT folks like to say that web services conduct business across loosely coupled applications. That means that the buyer doesn’t need to know the technical details of how to communicate with the business systems of his supplier. In fact, he doesn’t even have to know which supplier he will communicate with for a particular transaction (assuming they have a business relationship). All that’s required is that he communicate with the predefined web service which will bridge the space between the trading partners. Likewise, when the seller has engineered their systems to communicate with the standard, they can be connected to any number of buyers through a single interface.
IPO is a way to take a business transaction which is growing in volume exponentially and convert it from a money drain to profit center. A single standard that joins trading partners in a many-to-many fashion is the most logical way to perform special order transactions electronically. The alternative of supporting multiple competing technologies adds as much cost as the telephone cycle it replaces.
Successful examples of how this model can be applied are all around us in the world of e-commerce fulfillment. Imagine the impact on the aftermarket supply chain if distributors could have visibility and easily gain access to slow-moving inventory regardless of who owns it or where it is located.
AAIA recently published the Internet Parts Ordering (IPO) standard version 2.0. This technical specification is noteworthy in three significant ways from the previous version. First, the volume of computer code that has to be exchanged in the course of a transaction has been reduced by over 25%. This simplifies IT development and speeds the online communication of the transaction. Second, the standard messages are composed completely with elements shared between the other AAIA standards such as ACES and PIES. This means that IT developers get a lot of efficiency and re-use from an industry-specific language of e-commerce data. Finally, IPO version 2 is the most thoroughly tested and documented specification ever published by the Technology Standards Committee. Development cycles will be shorter and results delivered faster because of the extensive documentation and sample code included with IPO version 2.0.
As an open industry standard IPO is available to all software developers anywhere in the distribution chain. This allows any number of previously closed business systems to interoperate.
Every year millions of emergency and special orders are placed. As the tail of the automotive demand curve gets longer and a greater number of slow moving parts are relegated to factory shelves, the ability to locate, source and order these parts quickly and cost-effectively will be critical.