Avoid an unsuccessful master data management structure

From failure to success with eight key takeaways.

We are rolling out a new global ERP system, thereby streamlining the entire IT portfolio, which today consists of more than 100 systems worldwide. This is the business case in a major international manufacturing company.

The Nordic countries are the third wave in the rollout. Apart from a couple of months’ delay, the company goes live as planned, which at the time seems like a great success – until its customers start calling ...

It takes 18 months and costs a double-digit million amount to correct all the master data errors and make the system stable. In retrospect, several alarm bells should have rung:

Firstly, it almost sounds too good to be true that the management has decided that the four Nordic countries should go live at the same time.

Secondly, one of the two preceding pilot countries is very complex and far from stable when Denmark goes live.

Last but not least, the ERP implementation is driven by a central team with minimal input from the users of the current systems.

"By anchoring master data in your processes from the start, it becomes a valuable part of your ERP solution."

Five challenges and consequences of great significance

Consequently, the company experiences several challenges after go live:

1. Invoicing

The first thing you check after having gone live with a new ERP system is whether you can invoice. That’s possible. But the invoice is on paper and typically 200 pages long, and often both the volume and the prices differ from the customer's expectations.

2. Pricing

Often, the basis for pricing in a manufacturing company is the purchase price of raw materials. If the master data is incorrect, the pricing becomes incorrect – and ultimately also the invoicing and value of the stock held. It’s a vicious circle that doesn’t stop until the master data errors have been corrected.

3. Inventory volume

The company has product inventories across the country. All product movements in and out of the inventories are made using nominations in the ERP system. These nominations are based on contract master data, client master data, and product master data. This poses great challenges, as even the smallest error in master data can block the process and affect the recording of inventory volume inflow and outflow.

4. Valuation

The master data setup has a direct impact on the calculation of the product valuation. To be able to close the books, corrections worth 250 million DKK are made in connection with the first quarter-end closing on the inventory.

5. Reporting

At month-end and quarter-end closings, an enormous amount of time is spent making manual corrections to adjust the accounts to the actual movements and to take account of all the errors. Especially the challenges with the inventory value, which changes over time on open posts, cause significant financial write-ups and write-downs.

Of course, the master data issue isn’t the only reason for all the challenges. But since inventory management and product pricing are major parts of the ERP system, the company is hit hard by the many dimensions that depend on master data.

When things look their bleakest, the company has an outstanding amount of almost 2 billion DKK in unpaid bills. Therefore, large capital injections from the parent company are needed to keep up the cashflow. A large group of employees locally, centrally and offshore are needed for almost a year to analyse the errors, correct the master data, and re-invoice all clients before the system is reasonably stable.

From failure to success with eight key takeaways

What can you, after all, learn from the above example:

1. Always involve the business in the project to ensure local anchoring and ownership. This limits the dependence on often limited central resources when handing over the system after go live.

2. Create local anchoring and involvement in the work preparing legacy data for conversion. It makes it easier to find the errors quickly if something doesn’t work on the other side.

3. Implement an end-to-end master data structure and control right from the start. The structure should, as far as possible, manage all changes centrally with access control for critical changes in master data.

4. Use workflow applications in the master data management control body for your own benefit.

5. Implement a centralised master data management model for your own benefit.

6. Ensure master data ownership in the company – both in the business and in Finance.

7. Use ‘neutral’ master data stewards as the primary contact for users.

8. Maintain and update the master data model continuously to avoid outdated data.

There’s no need to be intimidated by the many potential challenges of implementing a new ERP system. If the business case has been carefully prepared, and your company can see the potential, then you just need to get started.

Additionally, consider it an obvious opportunity to clean up master data, while at the same time giving some thought to how your company wants to manage master data in the future so that it becomes a driver rather than an impediment.