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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.