Inefficient processes cost you money: here’s how to gain control

Inefficient processes cost money in hours spent on corrections and reconciliations and in delayed decisions, because errors at handovers between departments only surface in finance.

You gain control when every process and every type of master data has an owner in the business. Measure how the work really runs before you change it. An enterprise resource planning (ERP) system helps once that foundation is in place.

As a CFO, you often have one major frustration: delayed decision-making due to unreliable data. Information arrives too late, data is incorrect, or figures from different departments contradict each other. Jack Martens, Consultancy Manager at Eqeep, explains why an ERP system alone does not fix this and what the organisation itself must arrange. We add how the posting rules in IFS Cloud play into this, and how to measure a process.

Where does data go wrong between departments?

At the handover from one team or system to the next. Many organisations still work with fragmented systems. Sales uses a CRM, logistics works with Excel sheets, and finance uses different applications again. That means manual input, duplicate work and a higher risk of errors.

Look at three places:

• Handovers. An order moves from sales to the warehouse and then to invoicing. At each step someone retypes or completes the data.
• Master data. A customer, part or supplier exists in two systems, with two versions of the same payment terms or catalog group.
• Manual steps. A correction in Excel or an approval by email is not recorded in the ERP system, so the process leaves no trace there.

This fragmentation means that, as a CFO, you lack the reliable data you need for strategic decisions. How an ERP system supports the handover between departments is covered in our article on communication and collaboration with ERP.

Why does finance only see the error at the end?

Because the general ledger is the last link in the chain. Finance owns the figures but creates little of the data itself. In IFS Cloud, a large share of financial postings is created automatically from business events such as an inventory movement, a receipt or an invoice.

The posting rules (posting control) decide which account and code parts such a posting receives. According to IFS, those rules use data that belongs to the object of the posting, such as the part or the customer. The documentation gives catalog group and inventory type as examples. If a rule follows the catalog group and logistics picks the wrong one for a new part, the posting lands on the wrong account.

If a posting fails on a missing value or on clashing rules, IFS says only the posting stops. The business transaction itself goes ahead. The erroneous posting waits in an analysis view until someone corrects the rules and reruns it.

With an inventory movement, the part has moved but the posting is not yet in the general ledger. Until someone reruns that posting, stock and ledger will not agree at month-end.

So agree who clears that list before every month-end close. IFS lets you change the default posting rules before the system goes live. That makes them a design decision, with finance at the table. How to set up reporting and the close is covered in our article on financial reporting.

Why does one central source make the difference?

Because nobody retypes data between systems any more. An ERP system provides one central source for all company data, and the processes are integrated. This lets a finance department decide faster and with less risk.

One source also spreads a wrong master-data field just as fast, right into the ledger. That is why every type of master data needs an owner.

Who owns your processes and data?

Someone from the department that runs the process, because that department knows the data. Implementing an ERP system alone is not the solution.

The organisation must be ready for it. Departments need to know their responsibilities. There must be ownership of processes and a proper division of tasks, responsibilities and authority. Only when these organisational conditions are met can you realise the full benefits of an integrated system.

We advise two kinds of owner. A process owner is responsible for a process from start to finish, for example from order to cash. A data owner is responsible for one type of master data, such as customers, parts or suppliers. That owner decides which fields are mandatory and who may change them.

Give each type of master data to the department that knows it in practice. Finance sets the requirements for the fields the posting rules use, such as a part’s catalog group and inventory type. You decide who becomes owner and what authority comes with the role.

What do integrated processes change for a CFO?

You get reliable data for crucial decisions. That becomes visible when you combine this organisational foundation with the technical capabilities of an ERP system. You can manage cash flow, budget and forecast better.

You see what is coming and which costs to expect. That gives you a solid basis for strategic decisions. Which indicators to track is covered in our guide to KPIs and metrics.

How do you stop ERP becoming an IT-only project?

By letting process owners from the business lead the project. Unfortunately, companies often implement an ERP system without involving the organisation. Then it becomes an IT-only project, and the financial benefits fall well short. So involve your people in the process.

How to secure adoption after go-live is covered in our article on the barriers to ERP adoption.

How do you measure how your processes really run?

With the data your systems already record. Process Intelligence takes data from ERP, field service management (FSM) or CRM systems and builds event logs from it. An event log is a record of all activities. From it comes a process model that shows every step, every time it was performed.

According to Microsoft, process mining needs at least three items per step. They are a case ID such as an order number, the activity name and a timestamp. A correction in Excel or an approval by email has no timestamp in the system, so it is missing from the process picture. A long wait between two steps can point to work being done outside the system.

Process Intelligence works on the systems you already use, such as Microsoft, SAP, IFS, Oracle, Salesforce or ServiceNow. So you can measure before you choose an ERP system. We start with one clearly defined process and test the business case with your team. Download the white paper on the fundamentals of Process Intelligence.

Where do you start improving?

With one process on which departments quote different figures, for example order to invoice. By improving that process first, you lay a solid foundation for digitalisation.

You don’t have to wait for a complete transformation to make progress. With a phased approach, you can achieve results quickly. We recommend this order:

1. Measure how that process runs today.
2. Appoint a process owner for it, and a data owner for each type of master data it uses.
3. Fix errors in the master data or the posting rule where they arise.
4. Then automate the repetitive steps in that process, so finance makes fewer manual corrections.
5. Measure the same process again and compare it with the first measurement.

A new system won’t solve everything either. If your figures disagree because departments define revenue or margin differently, that is an agreement to make, not a system fault. If you run many separate finance applications, read how to bring a patchwork of financial administration into line.

Questions about inefficient processes

How much do inefficient processes cost?

Count the hours spent each month on corrections, reconciliations and double entry, and multiply them by the hourly rate of whoever does them. Add the cost of decisions that wait for figures. We know of no reliable general figure. A process measurement shows where those hours arise.

Who should own master data?

The department that knows the data in practice, for example purchasing for suppliers and sales for customers. Finance specifies which fields drive the postings. You decide for each type of master data who may make changes.

Do you need a new ERP system to improve your processes?

Not always. First measure how your processes run today; Process Intelligence also works on the systems you already have. If the errors come from data being retyped between systems, one integrated system helps.

Which process will you tackle first?

Tell us where you stand with IFS. After one conversation you will have a clear next step. Bring the process on which your departments most often quote different figures. Discuss your IFS question