The salesperson had worked hard for nearly
six weeks on the deal. The customer’s initial concern about the product’s
technical specifications had been laid to rest by a series of convincing and relevant
demonstrations. The quantities were now agreed. This was going to be a very profitable
sale and would have a beneficial ‘knock-on’ effect of increased manufacturing
volumes at one of the group’s currently well under-utilized plants. The order was
then passed to Credit Control for credit approval.
Eight days later the Credit Department
acknowledged receipt of the new, big order but due to unpaid, overdue invoices put the
customer on hold. Although that was the Credit Department’s view, the Sales
Department had a different view. This department knew that an invoice had been sent to the
customer a month previously for goods not yet delivered, and had informed Credit Control
of this two weeks ago. However the Credit Control Supervisor responsible for customer
returns and credit administration was on holiday. A deputy finally saw the note from Sales
after two weeks. No one really knew the precise status of the account.
Go deeper with GlobalData
Ten days later the customer, for whom
credit had not yet been approved, cancelled their order. The delay had given them time to
shop around and find an alternative product. However, Production Planning was not informed
about the cancellation and went ahead with the manufacture of the order. No replacement
customer was found and the product had to be destroyed as it soon exceeded its shelf life.
Is this a familiar scenario? It is not
based on an actual case: it does not need to be to resemble countless such occurrences in
companies all over the world. What went wrong in this hypothetical example? The major
failures were simply those of communication, IT system procedures not mirroring actual
administration practice, unclear role definition and the adoption of a departmental
‘silo’ mentality by the administrative departments concerned. In addition, a
lack of business and customer focus was demonstrated.
An analysis of the process
See Also:
Our fictitious company’s sales order
and distribution system had a control routine. This was run daily in batch mode, and
checked delivery details against invoice details that produced a printed exception report
showing ‘goods shipped, not invoiced’ and ‘goods invoiced, not
shipped’. This was a commendable internal control routine. However, when this report
was sent to the Sales Department Administrator it was read ‘when time and other
priorities allowed’. Failure number one: the IT system did not communicate the error
directly to the right person (communication failure). Failure number two: the person
concerned did not understand the potential criticality and ‘knock-on’ effect of
the errors highlighted in the report. IT was therefore given a low priority (role
definition and lack of business understanding).
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataOnce the non-shipment had come to the
attention of Sales, the department time was taken in investigating the problem before
alerting Credit Control, in order to eliminate blame. Failure number three: this approach
dictated that important information was not passed on until there could be no possible
‘blame’ attached to the department (‘silo’ mentality).
Once the error had been investigated and a
request for credit note issuance had been sent by Sales to Credit Control, the absence of
a key staff member resulted in a further delay in processing the correction. This was
compounded by the lack of knowledge and understanding of the next-in-line. Failure number
four: the procedure relied on a paper-based communication process (communication failure).
Failure number five: the delay was due to a lack of role understanding by the deputy and
the shortage of a system-based prompt that could overcome this (role definition and lack
of business understanding).
As an invoice became overdue, the
customer’s account was automatically put on ‘hold’, subject to an
authorized Credit Control staff member releasing the account or placing it onto a
‘credit barred’ status. A good, strong control measure in this company’s
cash flow-critical business environment. However, failure number six: the Credit Control
system automatically placed a supposedly delinquent account on ‘hold’ without
producing any report and informed neither the staff concerned nor the customer themselves
(communication failure).
The initial entry of the customer’s
order into the sales system triggered a demand forecast in the production planning system
without an assurance that the order had been accepted. The Production Department was
allowed to proceed with scheduling the manufacture of the product. Failure number seven: a
chain of events within the IT system was allowed to occur that was out of sequence with
actual business practice (IT and administration procedure not mirroring normal business
practice).
Certainly a set of procedures with many
inherent problems and weaknesses, but fairly typical of many found in companies of all
sizes.
Fig.1a A passive, non-integrated
system in process
Fig.1b an active, integrated system in
process
A solution
What can be done to correct the
situation and bring it into line with good business practice?
Obviously the matter of better functional
awareness through well-defined position descriptions and training is part of the solution.
In our example it would probably fall on both the Finance and Sales Directors to institute
such a program, so co-ordination would be necessary, possibly by Human Resources. One
problem is that natural staff rotation occurs and such training can be lost. Can the
necessary understanding of the need to communicate with the right functions at the right
time not be ‘hard-coded’ into the company’s procedures? Not only is this
possible but these procedures can be aligned to mirror the company’s business
procedures and cut across functional boundaries. What is necessary is a pro-active and
adaptable business system.
How can a system be pro-active?
How can a system be adaptable?
A pro-active system actively takes control
of the process or processes that it handles. Based on a best practice model it monitors
events, routes information and prompts action according to the status or circumstance of
each transaction. It is also an agile system that is configurable to the individual
procedures of different businesses and is capable of communicating with each individual
person in the business according to business needs. By focusing on critical actions or
activities and not on functional areas, such a system can break down departmental
‘silos’ and help to enable broad team working in a business and customer
oriented manner.
A pro-active system employs active agents.
These are intelligent monitors that can be set to watch, record and act upon problems
arising within the system before those problems threaten to damage the business. How do
they work? With work management techniques there is now the ability to see all the work
flowing through the system from the inside. This enables software observer programs to be
set up to watch out for problems. These programs can test for exceptions at multiple
stages in processes instead of just at the end. They can divert process flows based on
certain conditions being reached, and they can inform operators of the status of
situations based on their roles, locations or individual names. Active agents change the
whole premise of transaction processing from the passive, reactive and unidirectional
information systems of the past into investigative, proactive and multithreaded
intelligence gatherers.
The breaking down of software applications
into much smaller functional building blocks to mirror these business processes and
activities is now referred to as ‘componentization’ and its accelerating
momentum, the ‘component revolution’. The software components are linked
together using a special framework generator in such a manner as to match an
organization’s own procedures or a best practice model, or a combination of both. The
links can be changed to reflect changing organization structures and workflow.
How can an active solution
solve the business problems in the example?
The root of the problem, the invoice
generated without shipping the goods, will be detected by the system either as soon as it
occurs or as soon as the batch program is run (depending on set-up). The appropriate
person will have an urgent message placed on their desktop (system working environment).
The system will prompt the alternative methods of solution and will monitor for action. If
no action is taken within a defined period, a communication is sent to the next level
staff member and/or another department. This eliminates the weak manual communication
link. In addition, the system has ensured that resolution is achieved.
The request for credit note issuance is now
sent electronically to the Credit Department’s responsible person. Rules are set up
that also route the request to another person (the deputy in the case of our example) on a
temporary basis. Again the problem of communication failure is solved. Action is ensured
by making sure the right person, or their nominated backup, receives the request
immediately.
Before that ‘wrong’ invoice
becomes overdue, for example a week ahead of time, the relevant Credit Controller has an
electronic message placed on their desktop and an e-mail is sent to the customer. This is
a second route to alerting all concerned to the problem. Again the problem solved is
communication failure. The customer can initiate action from their end of the chain, as
can the Credit Controller.
Finally, rules can be set up to ensure that
the Production Department does not produce an order until the order is accepted (by Credit
Control confirming the order in the system). Further to this, Production will be
automatically and instantaneously informed of any cancellation of order (if our problem
has not already been resolved) as the cancellation is made in the sales order system.
Action can then be taken to stop production in time. Again the problem of communication
failure is solved.
What this article attempts to illustrate is
how the choice and implementation of an integrated, active and agile business IT system
can bring huge business benefits to a company. Such a system changes the way people work
and interact, for the better. As well as these aspects, because the system can be
configured to reflect real business processes and sequences, it captures and preserves
this ‘knowledge’ independent of the people using the system. This works until
the business changes its processes in response to its changing market environment. Then,
the system, possessing the necessary agility, is quickly and easily changed to reflect and
support ‘the new way’.
At JBA, Nick Lawrie is product
marketing manager for its financials set. His responsibilities include delivering the
company’s Go To Market Strategy, generating new business and sales, and liaising with its
solution partners. Prior to joining JBA, Nick worked for Becton Dickinson & Company as
the finance director for its Benelux operations.
