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Electronic Transaction Flow Management
Definition
At the heart of Electronic Business Flow Management (EBFM)
is Electronic Transaction Flow Management (ETFM) and the associated business
rules that govern its use. ETFM is
best described as the physical representation of a business transaction as
defined by its data elements and their interrelationship to the overall business
process model.
The structure of the ETFM data transaction is dependent on the business process
being defined or controlled. A
standard purchase order transaction would consist of relevant data elements such
as:
- The
entity issuing the order to purchase goods or services.
- Identification
of the goods or services.
- Pricing,
packaging and shipping instructions.
- Delivery
timing and transportation mode.
- Payment
mechanism (COD, EFT, Check).
These data elements will be captured, validated and stored in the receiving
company’s data base for processing. Once
stored, the data will be maintained as determined by the business process model
and external change orders that may impact the transaction (in the case of a
purchase order, this could entail delivery dates, quantities, addition or
deletion of items).
Business
Process Problem
Many companies focus on individual transactions and not on the overall impact
that an individual transaction may have on the entire organization.
Any transaction (Purchase Order, Inventory Movement, Invoice, Cash
Receipt, etc.) usually triggers activities (as defined in the business process
model; whether formal or informally defined) that can impact the entire
organization. Without a detailed
understanding of each and every transaction processed by an organization, the
management of that organization cannot properly direct and guide the business
either strategically or tactically.
This is where a proper understanding of ETFM and the overall
EBFM model of an
enterprise can give significant leverage to an organization.
A thorough understanding of the complete impact of each and every
transaction executed by an organization provides the ability to manage the
business process model and make adjustments that allow the organization to meet
competitive challenges and financial goals.
While knowledge of the business process model is generally
understood by the organization’s management, a corresponding understanding of
the ETFM process is seldom the case. Detailed
transaction knowledge tends to be compartmentalized in an organization.
Financial transactions are managed by the Finance Department, Inventory
transactions are managed by the Inventory department, and Manufacturing &
Supply transactions are typically managed by the Manufacturing Plant.
Each of these operational units function autonomously and only interact
at the senior management level for strategic decision processes.
While this compartmentalization has been used for many years by corporations, it
begins to fail when a company enters the Electronic Business Flow Management (EBFM) era. While companies have
gained operational leverage by implementing Enterprise Resource Planning &
Control systems throughout their organizations, the lack of understanding of the
business transaction interrelationships (ETFM) between organization units has
caused significant additional costs due to inconsistent data models and data
flow relationships. These additional
costs are incurred due to transactional data deficiencies in separate but
related business activities.
Since the majority of all business transactions have some (and growing)
electronic component, each of the transactions have inherent data elements.
Whether the purchase order is entered into a word processing program and
then printed/mailed/faxed or generated by a materials resource planning system
and transmitted via an Electronic Data Interchange transaction (EDI),
ultimately the data elements of that transaction are indeed entered into an
electronic data processing system (ERP, CRM, MRP, etc.).
Once entered into an electronic system, the transactions become part of
the ETFM process. Since most
business transactions have some interrelationship to other business transactions
(i.e. purchase orders related to subsequent invoices), all data elements also
have common relationships and linkages in the organization’s data base (items
ordered are items invoiced).
These transactions now begin to impact the business process model and once
captured and executed have wide impact on the organization.
Purchase orders trigger fulfillment activities (picking, packing
shipping) and may even cause a manufacturing process to be initiated (i.e. just
in time production). Inventory
movement transactions for raw materials, sub-components or even packaging
materials will be initiated. Eventually,
once all internal processes are completed and the goods or services are
delivered to the customer or trading partner, a request for payment is initiated
(typically an invoice is generated).
This delivery and subsequent payment process can entail several related
transactions concerned with delivery and receipt processing controls determined
by the trading partner. Special
packaging and labeling requirements may be demanded by the trading partner as
well as advanced shipping notification (with full bill of materials and handling
information). Much of this trading
partner information is often transmitted with the original (or subsequently
modified) purchase order. These
outside data components are defined and controlled by the trading partner
initiating the external business transaction (i.e. purchase orders).
These external trading partner transactions have data elements and data
components that may be foreign to the company’s data base; they also may be a
critical component to the trading partner’s ability to process the
transaction.
This is the point where the compartmentalization of an organization may cause
difficulty. As was indicated before,
most companies process transactions by department.
Purchase orders are handled by an order entry department which is tasked
with capturing data sufficient to product the goods or services defined on the
order. This isolated view of the
data inherent in a trading partner purchase order often results in the failure
to capture sufficient data required by subsequent business processes.
For instance, packaging or shipping data not related to the production of
goods or fulfillment of the order may not be captured.
While this has no impact on the manufacturing of fulfillment process of
the order, it can drastically impact the company’s ability to ship the goods
and generate an acceptable invoice.
If data (transmitted with the purchase order) required by the trading partner is
not available to the company’s shipping or accounting department (such as
trading partner vendor identification or package labeling specifications),
shipments or invoices may be rejected.
If not rejected, incomplete invoice or package labeling can result in
significant ‘charge backs’ or penalties that will be assessed by the trading
partner (and deducted from subsequent payments).
Not only does this negatively impact the relationship with the
company’s trading partner, it can significantly impact the profit and loss of
the company’s operations. Failure
to correct issues may result in loss of future business.
Recommendation
In order to solve the current problems and avoid future issues, it is imperative
that every business organization completely understand and has documented its
business process model and the related Electronic Transaction Flow Management
process. Irregardless of current
legislative issues (i.e. Sarbanes-Oxley
Act of 2002), embracing the concept of Electronic Business Flow Management can
lead to better organization and ultimately increased profit to the company.
The EBFM model with its inherent ETFM functional
model can help communicate and document the business process to the
organization. Furthermore, implementation of the ETFM process model in
conjunction with an understanding of the overall EBFM
process will reduce potential exposure (both internal and external) of audit and
control issues. As with any
organization, communication and information flow is critical to overall business
success. Data management and control
are essential to any business operation.
Solution
Implementation of the EBFM process and understanding of
a company’s Electronic Transaction Flow Management (ETFM) model (it exists
whether understood or not) is not an easy task.
While there is nothing magical about these management disciplines, they
are often overlooked or ignored by a company’s senior management (or worse,
assumed to be in place).
Complete identification of all data elements inherent in an electronic business
transaction is required to implement the EBFM process
and the ETFM model. This requires
identification of both internal as well as external (trading partner) data
elements. In most cases, some
accommodation of the external trading partner data model will need to be
integrated into the company’s data model.
Because this is often extremely complex (especially when dealing with
hundreds or thousands of external trading partners) it is often best to utilize
outside expertise to initiate the process and train internal company personnel.
An integrated approach to this data gathering and data modeling is where Management
Systems Consulting, Inc. can be of assistance.
Through many years of analysis, we have gained an understanding of how
business rules impact the organizations ability to process transactions.
Our experience with electronic transaction processing, provide a solid
basis for analysis of your company’s requirements.
Even though your business seems to be processing orders and business as
usual, there are dramatic improvements (both operationally financially) that can
be gained. If your company is
considering a new data processing system (financial, operation, inventory or
distribution), we can assist by consolidating the data requirements and
documenting the business process as implemented with the EBFM
process.
              
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