The Unrecognized and Underestimated Potentials of Master Data Quality

In a globalized business world, companies operate within an area of tension created by margin pressure, customer satisfaction, as well as speed and quality standards.

Reliable information as well as high process efficiency and safety are some of the most important factors responsible for the success of a company.

Thus, master data of high quality are today a fundamental prerequisite for effective and efficient business practices.

Master Data in the ERP System
Companies are often not aware of the importance and impact of a high quality of their master data. We find this situation again and again in the field while we accompany our customer during the implementation of ERP projects.

It is not unusual that the collection, the maintenance and also the cleanup of master data is considered tedious and not a value-adding activity. Accordingly, the company subsequently entrusts individuals with this task that are limited in their ability to assess the implication of low-quality master data. In addition, this problem is often compounded by a lack of established and proven maintenance processes-the actual essence of master data management. The fateful consequences are duplicated master data, a lack of consistency, insufficient timeliness and/or missing information.

Particularly in ERP systems, the master data are an indispensable prerequisite for the ability of companies to carry out their business processes in a correct and efficient manner. These data are virtually the centerpiece of the business processes. A systemic approach now assists the user in conducting the processes allocated to him within the defined structure and in the least amount of time. Ideally, this business process should also be coordinated and harmonized with preceding and subsequent work steps.

 

A Practical Example

Let’s look at a classic sales process in an ERP system.

In a sales process, master data from three levels play an interconnected role: customer and article master data as well as the prices and conditions stored in the system. While the customer and article master data comprise important objects for the subsequent analysis of performance indicators, the prices and conditions form the basis for the amount that the customer is invoiced. Presuming the price list conditions used are not up to date or inadequately maintained, the amount listed on the customer invoice will be incorrect. In addition to the risk of possibly annoying the customer, the necessary correction leads to additional work and a loss of time. If worst comes to worst, the company could even face a loss of earnings in case the customer was indeed undercharged.

Incorrect article and customer master data can too lead to tedious and time-consuming credits and corrections, but incorrect codings and allocations in the master data are even worse. Besides the fact that, for example, erroneous CRM data about the customer can also lead to incorrect marketing activities, inadequate customer or article attributes in the area of controlling can result in wrongly calculated analyses like contribution margin accounting. Even if the master data are subsequently adjusted and/or corrected, it will take at least another two years before the company management will be able to again obtain actionable key indicators for comparison purposes.

These evaluations and analyses provide an important basis for business decisions and actions. This means that there is really no room for compromises. Only companies that know their customers and value streams in minute detail will be able to operate successfully! This is a first indication of the importance of master data for a sustainable business success.

 

Preparation for Digitalization

Studies show that especially in the manufacturing industry and in trade a series of preparatory activities have to be completed before the digital transformation can be successfully executed. This includes the modernization of the existing IT systems for the purpose if integrating digital solutions, the automation of business processes as well as the development of data-centric business models. Master data will also be crucial in this respect. While many resources in the form of time and money are invested in the expansion of the IT infrastructure and in new business models, an effective master data management still suffers from a wallflower existence.

Without an adequate quality of the master data (complete, up to date, consistent), the development of digital business models is doomed to failure. This means that it does not help a company to have complete but obsolete customer records because this scenario could lead, for example, to the provision of information about a sports car for a young family instead of a spacious station wagon. The effectiveness of marketing activities will then be diminished with little benefit.

 

Master Data Become Global
For over 10 years now, companies have driven collaborative B2B or B2C scenarios. We expect that the exchange of data, in particular master data, between business partners will continue to increase rapidly in the near future. Companies-both suppliers as well as customers-all over the world could benefit from identical and redundancy-free master data along the entire value chain. Or imagine for a moment that your preferred wine merchant would, starting tomorrow, provide you with the article master data of your favorite vintage. Based on this information, you could manage your private wine cellar in a completely different form by yourself. For the wine merchant this opens up the opportunity to see customer loyalty in an entirely new light. The prerequisite for this is, again, an excellent quality of the master data.

 

Conclusion and Solution Approach

It appears that while the sizeable investments in technology were necessary, many companies neglected to change their structures and processes to guarantee a sound management of master data. Without an excellent quality of the master data, the entire digital transformation, including Industry 4.0, Logistics 4.0, Internet of Things and other digital business models, rests on a shaky foundation.

It is very important for companies to recognize the need for optimization in the area of master data administration and to systematically integrate the management of master data into the organizational structures and processes. In addition, a centralization of the master data management within the corporation, in combination with clearly defined tasks, competencies and responsibilities, also provide companies with a robust, accurate, and up to date data repository.

An excellent quality of the master data represents a crucial competitive advantage and a strategic success factor for a company-with regard to the digital transformation but also for other areas.

Back to all news