‘Defragment' your business via Process Mining: gain speed, cash flow, and profitability in days
Do you remember the act of ‘defragmenting’ your computer? For those less IT-inclined, think of your computer playing perfect TETRIS on your hard drive: Every gap is closed, and files and sections are packaged neatly together. When finished, your computer runs quicker - as it should.
What would happen if we could defragment our business processes? Finding gaps, re-arranging processes, and getting our firm to run - as it is supposed to run?
Here is a real-life story of local country manager Nasir in a large firm doing precisely this:
Two years ago, the company's sales team in Nasir's country was constantly in arms since they were left in the dust by their competitors: Products were arriving late on the shelves, and the replenishment time was miserable. Customers fed up with waiting moved on.
The local country manager Nasir, incentivized on sales, was getting desperate. By accident, during a coffee break with the Corporate Head of Supply Chain, Nasir learned about a new operations process that they were testing, called: Process mapping: Seemingly, they used an external software to rummage through all databases and automatically find gaps, delays, and circumvention of defined processes (what in Lean you would call “muda”, Japanese for waste).
With little to lose, Nasir gave the needed instructions: Next day, the corporate supply chain folks had access to the local systems. They reviewed with the process mining software every activity performed for the products.
Two days later, the problem was found: Order entry of field salespeople was subjected to additional approvals by two local managers before order execution could even commence. When questioned, the managers argued: “We had issues in the past with wrong order entries. So we wanted to check first. Since we were understaffed, we believed that as long as we logged the orders in batches before the month-end sales report, no one would care…“. So orders were delayed internally by up to three weeks (!).
The supply chain and country sales team immediately changed from a pre- to post-control process, in which the order was now directly processed. Only one manager got the daily order reports to validate.
Since the delivery time from a regional warehouse was two days and the two to three weeks order entry process was now zero, the customers received their products now about 90% (!) quicker than before. This improved direct cash flow, and most importantly, customer buying behaviour shifted, increasing sales by 30% in just three months after the change. Later that year, sales stabilised 270% (!) higher than before the change.
Having smelled the roses, the Nasir let the software run through all order-to-cash processes and products, discovering hundreds of gaps and broken processes, which they fixed relentlessly.
The following spring, Nasir and his team were named „MIPs“ (the most improved players) on stage before the global management team. They had the highest sales and customer satisfaction increase ever recorded in the company. After dinner that evening, our Nasir was the most sought-after conversation partner by all his other country and divisional sales colleagues.
Process Mining is like digitalizing Lean and Six Sigma - bringing them into the 21st century.
How many non-documented exception processes are done by well-meaning employees daily in our companies? Without process mining, it isn't easy to tell. As a proxy, let's use the decades of lean process analysis done by thousands of companies: On average, value-add activities (= any action taken that increases the benefit of a good or service to a customer) requires only 20-40% of the fulfilment time. The rest of the time is used waiting for the next process steps, missing information, checking, re-planning, approval, error corrections etc.
All systems can be process mined. Transaction journaling maintains an audit trail of all system activities and can be used for troubleshooting, system analysis, and security. The journal entries provide a chronological record of all system transactions, including who performed the transactions, what was done, and when it was done. This information can be critical for identifying issues or errors, tracking system performance, and detecting security breaches or unauthorised access.
The applicability of process mining to increase revenues, margins, and customer satisfaction, is sheer endless. All it takes is
Data lakes/data warehouses filled with all available data along the value chain (or at least an ERP system)
The right capability of personnel (internal or externally hired)
The fitting process mining software provider (feel free to sign-up for my blog and podcast on helmigadvisory.com, and I will send you the list of companies I feel are the most relevant today)
As always in my blog posts, it is good to understand the status quo of your firm before setting out on the path to the future state. We invite you to look at the statement/questions to assess where you are on the spectrum regarding process mining.
How many of the below questions/statements can you support with a resounding, fact-based "yes"?
Process mining software is utilised throughout our company, and management is trained to interpret the results and take appropriate action.
We utilise cloud stacks such as Microsoft Azure for our products, customer interface, and internal operations.
We have created new job roles for data scientists and machine learning engineers who can translate our data and process designs into the cloud computing platforms side. They are located directly in the business and rotate in and out of IT to be tethered to our business processes.
We understand the distinction between data, information, and insights.
We have a zero-tolerance policy for any unapproved or "shadow" processing outside of our ERP, MES, and S&OP systems (as well as HR systems for good measure).
Bonus statement: We have reached out to our suppliers and customers to expand the data stacks with their relevant data to identify further optimisation potential
If you answered "yes "to most questions, great: you have your 21st-century data & process mining strategy under control. Congratulations! Do not read any further; better to focus on other topics.
Size of the prize
If you answered several questions with a "no" or are unsure, you can add significant cash flow and revenue to your bottom line. It is impossible to give a standard size of the prices calculations - but the benefits, if led from the top of a company, are revolutionary…after all, process mining is digitalization, which is called the 4th industrial revolution.
Please use these simple points below to establish a financial target:
What would a lead time improvement of 50% of your products mean to your cash flow, revenue, and margin?
What would pruning your product portfolio means for your complexity reduction in your production processes? What is your product derivatives' complexity, which currently caters to any whim of these customers?
What would pruning the profitability of the customer base means for your overdue performance?
And here is the sophisticated level: Let’s assume you could augment internal data analytics with macroeconomic data sets and could distil parameters that influence your overall business performance. If you then smooth out your revenue patterns with the new hind- and foresight and provide better forecasts…what would this do to your stock evaluations?
How to set up the process mining project?
1. Time plan: 24 months (depending on the lack of current focus)
2. Board Sponsor: CEO or COO
3. Lead: COO or senior project leader with IT and lean and/or six sigma background
4. Project set-up:
Board "show and tell" session with companies from the process and data mining space, best accompanied by C-level customer references.
Run a short pilot on company data. Establish data lakes, IT expert teams, and decide on a process mining software supplier ( I would not invest in replicating this internally; after all, it is their front-end, but your back-end).
Run first projects in sales, operations, procurement, finance, HR, and service - all tightly supported by internal and external experts.
Then, and only then: Set target state, develop a blueprint, set up an x-functional full-time task force (meeting daily in an agile approach) with clear objectives, monthly reporting on board level by COO with clear output KPIs. CEO reports quarterly to the supervisory board.
5. Sustain success: Integrate process and data mining to continuously improve employee "imprint" from when people join the company. Link this skill with the "analogue" skill of Lean and six sigma.
6. Digitalization/Automation opportunity: High - especially when combining process mining with digital twin supply chain set-ups. See my other blog post if interested: Operating at the speed of thought.
7. Risk: HIGH - if companies do not act and miss the train. Soon, most companies will start and improve so quickly that it will look again like magic for all other market participants.
8. Cost:
A company operating in over 100 countries with over 1 million SKUs has a digital twin data size of 10 terabytes. The cost of maintaining this digital twin is currently in the low million USD range. The further cost of software to perform the mining depends on the provider and the task but is overall not an issue.
The IT team of data scientists & machine learning engineers needed should be small but, if you can find them, filled with a few 10x performers (= they have ten times the output as their peers. They're hyper-performers…and, consequently, hyper-rare personnel). Listen in to my podcast on Diversity & Inclusion and GHG emission net-zero in 1'000 days to understand what Millenials, Gen-A, and Gen-Z look for in a company besides earning money.
Watch out for
'Black holes' in data transparency: data are manipulated in local excel and other databases before being batched into the ERP. No clean “single source of truth” in a data lake; put dirty data “puddles” containing local and functional doubtful information.
MRP runs are not used or duplicated outside of other applications;
Cover-ups when issues are found (Gaps have to be celebrated)
Regularly run repeat “defragmentations” with the process mining software, and consider swapping them out occasionally to get a different viewpoint.
Ensure the executive committee is reviewing the results as a quarterly agenda point.
Summary
Want to grow your revenues, response time to customer requests, and margins? Then play perfect TETRIS with your company's processes via Process Mining. Without leaving your desk, it shows you how your company was supposed to work and where the gaps are.
Stay safe. Be bold.
Daniel
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