The Impact of ERP Data Challenges to Your Organization

By Vikram Chalana on May 11, 2017

In the last few postings, we’ve been talking about the different causes of data quality challenges in ERP such as usability and complexity or data entry. We also talked about some common data management challenges like mass data maintenance and data collection.

In this post, we’ll focus on the organizational impact of these challenges.  Organizations that don’t enter and maintain data properly pay what we define as the “data management tax.” This tax has two components – direct cost and indirect costs.

Direct Costs

Direct cost is the cost of all of the resources necessary to manage data, including people who enter data and change the data in a timely manner. The time and cost of entering and updating data during any business process as shown in the figure to the right is one component of this direct cost. Manual processes that input data into the ERP system are both time ERPand resource intensive. This represents a direct cost to the business; specifically, the cost of the resources who enter data into the system, plus any costs associated with the subsequent correction of data quality issues.  Manual processes also have a cost in terms of time, and often lead to longer business cycles such as a longer month-end closing time.

Obviously, part of this is related to the necessary time spent on the execution of the business process; for example, entering a new purchase request or updating the purchase request to create a purchase order.  However, in addition to time spent interacting with the ERP system, there is a lot of avoidable effort spent in managing ERP data such as duplicate entry from spreadsheets, mass data maintenance, system-to-system integration, and data collections and approvals.

Some companies have addressed these direct costs by outsourcing their business processes to developing countries with lower labor costs through shared service centers or third-party service providers. Other companies are addressing these costs by implementing technologies such as application data management (ADM), robotics process automation (RPA), and data integration.

Indirect Costs

Manual data entry and manual processes cause data quality issues. Data quality issues in ERP can manifest themselves in many ways for business operations.  According to a recent article in Harvard Business Review, poor data quality has an annual aggregate cost of $3 trillion to the U.S. economy! I’ve outlined some of these reasons below.

Data quality errors resulting fromERP manual processing can lead to interruptions and delays in completing a business process. For example, if a customer address is entered incorrectly, then a shipment to the customer may be returned or lost, interrupting the order-to-cash cycle. Incorrectly pricing a finished product in the system can lead to inaccurate billing, or even worse, diminished customer satisfaction.

Incorrect data entered into the system eventually need to be found and fixed, which leads to wasted time and effort in subsequent rework costs. One company reported that 80% of its ERP helpdesk tickets were related to data quality, where poor data blocked normal business processes.

Bad data can cause organizations to purchase too many raw materials, leading to warehouses full of excess inventory and materials that eventually become obsolete. This scenario can cause a business to write off billions of dollars of excess inventory.

Data quality issues can also lead to other significant business opportunity costs like those described in an article about Target Canada. They can also lead to reporting mistakes and poor decision making. For example, if your company uses cost allocation data and sales data to determine the pricing of your products, then any inaccuracies in data can lead to bad pricing decisions.

Over time, as the amount of data in the organization increases, both direct and indirect costs will continue to get worse.

About the author

Vikram Chalana

As Winshuttle’s Chief Technology Officer, and Co-Founder, Vikram has been focused on empowering people to transform their ERP-based businesses since Winshuttle’s humble beginnings. He is passionate about technology that allows people to improve their lives and the way they run their businesses. Outside of work Vikram likes to spend time outdoors running, hiking, kayaking, and skiing.

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