Why bad master data affects your bottom line
Master data is defined as sets of data which provide context for business transactions. This is a very complex way of saying it is the information that a business keeps about people, places, things and ideas. Examples of people data that a business would need include customer, supplier and employee information. Place data would include office, warehouse and factory locations, as well as customer and supplier locations. Examples of things that a business would keep data of are product information, bill of materials, machinery, equipment, and other asset information. Business data around ideas would include hierarchical information, contracts, financial terms, policies, warrantees and procedures.Master data sets are the most basic building blocks of any business. They determine how products are made, where to buy from, whom to sell to, and at what price. This is why, when your master data is a mess, your business will suffer. Think of it as if each bit of data is a brick in your business building, and if the bricks are different sizes, broken, or even just misaligned, your business walls will be crooked and unstable.So, how can your master data be wrong, other than simply being incorrect? Information could be missing, records could be duplicated, the data could be linked incorrectly, or data can be entered inconsistently.
The problems
Any of the above issues will cause problems that have a direct impact on your bottom line. For instance, if your hierarchical structures are wrong, your sales and debtors reports per region would be incorrect.Slightly more serious is if you have duplicated data: to which account do you send financial statements to and are these statements complete? And, if their accounts are up-to-date, have you assigned this correctly? Even worse, what if you invoiced against one account, and recorded the payment against another account?While the above can be corrected, there are also serious results that can cause a write-off of goods, such as if there are mistakes on the bill of material. Not only may the incorrect raw material be purchased, but the final product may be useless. All of this also has a secondary impact on stock holding and manufacturing efficiencies.Another serious problem is if you keep delivering to a customer, even though their account is overdue. This could be related to entry duplication, or incorrect financial terms.
Fixing your Master Data
The first step to ensuring that you have good clean master data is to decide where the single source for each data set is – hence the term “Master Data”. Any other systems must link back to this source, so that any changes or updates that need to happen only happen at the source and are then carried through to all other areas.The next step is to determine who has access to the data, and what type of access they will have. In other words, who can enter data, who can change data, and who can merely view the data. These roles need to be clearly defined, both for data security purposes, and for the next step: master data processes.Each step in the master data life cycle must have a documented process. The first would be capturing new master data. This process should include steps such as validating and vetting information, specifically data such as credit limits. There must also be processes for changing master data, including change approvals; for putting records on-hold, retiring data records and, finally, for archiving records. There should also be a process for measuring master data quality, so that improvements can be made and tracked.
These processes can only work if they are supported by clear business rules. These business rules include:
- How data is entered, e.g. street number, then street name.
- The format of the data, e.g. street numbers are always numeric, and lane is abbreviated to ln, road to rd and avenue to ave
- What symbols may or may not be used
Benefits
Having good master data processes and guidelines means there is:
- Better consistency – everybody knows where the single source of truth is
- Improved efficiency – as there is a single source of data, there is less duplication
- Increased effectiveness – good master data is entered first time, saving time and further ensuring consistency
- Improved trust – customers and suppliers know their information is accurate
- Improved bottom line – less mistakes have a direct positive impact on the bottom line
- Better positioning to automate master data management
Often, when we think of processes, we think in terms of transactional information – such as how to manufacture, store, and sell goods – but we also need processes to create, manage and close-off our master data. So ask yourself: are my master data processes written down? Are my business rules clearly defined? And, do I measure my master data integrity?
These processes can only work if they are supported by clear business rules. These business rules include: