Innovation mindset Process mining

Innovation mindset

Process mining

Analyze the process – Case 1

Overview

BW Fishing Inc. (BWF) sells fishing supplies mainly to businesses across the country. The company has grown steadily over the last 10 years. BWF found a strategic niche in taking orders and fulfilling them immediately around the clock. Since BWF’s customers order supplies at unusual hours, BWF’s “always open” mantra has received customer praise. This practice, along with competitive pricing, has allowed BWF to build a loyal network of customers.

BWF uses process mining to visualize data about its order-to-cash cycle. Several functional areas use process mining, including:

  • Internal Audit Department: to understand process flows, evaluate internal controls and inform risk assessments
  • Corporate Accounting and Finance Departments: to look for process improvements, understand the costs of different activities (in terms of dollars and time), etc.
  • Information Technology Department: to see if enterprise resource planning system processes and controls are functioning correctly

Your tasks are to understand the basic process at BWF and then perform the basic analysis that each functional area listed above would perform.

Order-to-cash cycle at BWF

BWF has previously documented its typical order-to-cash process in a narrative and flowchart, as covered in the EYARC Innovation mindset – Process mining – Document the process case. These have been provided in Appendix 1 and Appendix 2, respectively, for easy reference. Carefully review this information so you have a full understanding of the standard process that BWF’s management wants all employees to follow for the order-to-cash cycle.

Process mining dashboards for the order-to-cash cycle

A special process mining data analytics team prepared several dashboards for a set of BWF’s transactions. You can assume that the team competently extracted all data from the BWF system and included all transactions for your review. The team extracted the first 1,000 transactions for you to review.

Dashboards can be viewed in a Celonis cloud environment at this link.

The team created the following dashboards:

  • Overview: This dashboard provides general statistics about the data in the order-to-cash cycle. For example, the dashboard reports the number of sales, the total dollar values of the sales, the percentage of sales that were denied, the number of times different activities were performed, etc.
  • Variant Explorer: This dashboard allows the auditor to investigate every variant in the process. A process “variant” is a sequence of process activities with a start event and a final event. At BWF, the starting event is always “Create Digital Purchase Order.” The ending event can vary depending on how a specific transaction is completed, thus resulting in multiple variants in a process. This dashboard is useful because it shows the events that are processed as expected and, more importantly, events that are processed outside of the expected process.
  • Transaction Details: This dashboard allows a user to see the individual details about each transaction for each recorded activity in the data set.
  • Customer Details: This dashboard shows basic details about all customers in the BWF system. Note that not all customers have made sales; rather, this shows all customers for whom BWF has information (e.g., it contains those who made sales in the past or prospective customers).
  • Conformance: This dashboard performs a conformance analysis comparing the data against a model of acceptable variants. The team designed acceptable variants as all variants other than those that are missing the “Email Sales Invoice to Customer” activity. Basic statistics are presented about conforming and nonconforming variants.

Guidance on the functionality of the Celonis dashboards:

  • Be aware that the resolution of your computer can influence what the dashboard shows. That is, the dashboard tries to intelligently scale for different screen resolutions. Be careful that your screen resolution isn’t cutting off important information. If it does, you will have to adjust your resolution.
  • Depending on the dashboard layout, you have the ability to select, search, sort and filter. Be aware that some of these actions carry across to other dashboards, as described further below (depending on how the dashboards are built); therefore, it is important to always clear these actions after you’ve viewed the results you are seeking.
    • Select: If you have made a selection, you will see that selection appear in the top ribbon bar and the selection will be highlighted in blue. To deselect it, you can click the X in the ribbon bar or undo your selection. Selections carry across to other dashboards. For example:
      • Transactions Details dashboard: Selection of the Create Digital Purchase Order activity.
      • Transaction Details dashboard: Select a transaction ID for one activity.
      • Conformance dashboard: Select start date of 2021-01-01 and end date of 2021-01-02.

Note that the Timeframe shown here is Custom. Keep in mind that the other standardized options that are available (e.g., Last 30 days) are based on the current date and, therefore, they are not appropriate for use in the case.

  • Search: Columns will show a magnifying glass icon as you hover over the title. Click this icon to search. Search windows for numeric columns will start so an operator is able to select less than (<), greater than (>) or equal to (=). Once you have engaged the search, the icon will turn blue and the results will appear (essentially, applying a filter on the data). A search does not carry across to other dashboards until the results are selected. To clear the search, click on the icon and then click on the X. For example:
    • Transaction Details dashboard: Search for transaction ID 30021.

 

  • Sort: You can sort by clicking on a column title. Once you click, you will see the sort icon appear with a 1 next to it. The data then will be sorted in alpha order or numeric order. If it is showing as ascending, you can click again and you will see it change to descending order and vice versa. Note that the arrow in the icon does not indicate ascending vs. descending. Once you have completed your first sort, then you can move to another column to do another sort and then a number 2 will appear, etc. For example:
    • Transactions Details dashboard: Sort ACTIVITY column alphabetically in descending order and then EMPLOYEENAME alphabetically in descending order.

A sort does not carry across dashboards. To remove a sort, click on the sorting icon until it no longer appears.

  • Filter: You can filter by clicking the Filter buttons provided. The filter will be based on your selections. These selections can be seen in the top ribbon bar. Clear the filter (selection) using the X. For example:
    • Variant Explorer tab: Select Most common variant from the drop-down list. Click on the Filter button.

Required

Review the Celonis dashboards and answer the following questions.

  1. The following questions test your basic understanding of the process and the process mining visualizations. For these questions, consider all purchase orders.
    1. How many sales are included in the data?
    2. What is the dollar value of all sales included in the data?
    3. How many different path variants are there in the given data?
    4. The happy path is the most common path that transactions follow. What percent of transactions do not follow the happy path?
    5. How many activities are there in the second most common path variant (note that the Process Start and Process End nodes do not count as activities)? The second most common path variant can be seen on the dashboard Variant Explorer by selecting the number 2 in the pane on the right.
    6. What is the time stamp of the first activity included in the data set? What is the time stamp of the last activity included in the data set?
    7. What was the dollar amount for purchase order 30333 (hint: search for 30333 in the TransactionID column)?
    8. How many customers are located in the city of Coeur d’Alene, Idaho (note that the code for Idaho is ID and the system uses a space instead of an apostrophe in the name of the city, Coeur d’Alene)?
    9. How many cases do not conform to the email policy during the month of January (remember the data is for the year 2021)?

 

Management has significant concerns about invoicing customers because recently there has been an increase in customer complaints about billing. Management has asked the Internal Audit Department, Corporate Accounting and Finance Department, and the Information Technology Department to look into the issue around customer invoicing. Each department is examining different aspects of this issue. Recall that descriptions of how each department uses process mining visualizations was provided earlier in this case. You are required first to answer general questions about the invoicing process and then address the specific questions each department would investigate.

 

General customer invoicing questions

 

  1. Invoices were not emailed to customers for how many purchase orders? Exclude from the analysis orders for which the credit was denied. As a hint, this is most easily done using the Variant Explorer dashboard and filtering.

 

  1. What is the total dollar value of the purchase orders that were not invoiced? Make sure to exclude all transactions that did not include an email activity and also those for which credit was denied.

 

  1. How many unique customers were not invoiced (note that this is not asking about purchase orders, but unique customers)? Remember not to include transactions if credit was denied.

Internal Audit Department questions

The process for billing customers at BWF requires the accounting clerk to review the sales invoice before the system emails the invoice to the customer. This is done to keep customers happy by billing them correctly the first time. It also saves BWF from managing customer inquiries. Internal Audit has been asked to look into the compliance with this procedure.

 

  1. Report the transaction ID and the name of the employee for any sales invoices that were approved after the customer received the sales invoice.

 

  1. According to BWF’s documentation, who should review all sales invoices? Use the dashboards to examine and summarize who actually reviews sales invoices. Do your findings suggest an increase in the risk of misappropriation of assets or of misstated financial reports? Do your findings suggest an increased risk of poor operating performance? Provide any recommendations based on your findings.

 

Corporate Accounting and Finance Department questions

Management is concerned about the costs, in terms of time and money, associated with not sending invoices to customers. Address the following questions related to this issue.

 

  1. Consider the transactions you found in response to question 2 (i.e., purchase orders for which no invoice was emailed). For how many of these transactions does BWF not have record of a payment? For each nonpayment, record the transaction ID and the dollar amount of the invoice. What is the total dollar amount of all nonpayments?

 

  1. How much longer does it take for customers to pay off their purchase if they do not receive an invoice via email? Report the following about the average number of hours it takes for the entire order-to-cash process under these two scenarios. (Hints: Exclude from the analysis any transaction where credit was denied, but do not exclude any transactions for which the review and approval of the invoice come after the payment is received. Use the Conformance dashboard to help with this analysis.)
    1. The customer does not receive an invoice emailed to them.
    2. The customer does receive an invoice emailed to them.
    3. Report the difference between these two numbers (with a positive number indicating it takes longer for customers who do not receive an email).

 

  1. BWF has a very tight cash situation. BWF has a line of credit that charges 14% annually. If BWF uses credit to finance any collection time, how much money is the company losing due to financing for the extra time to collect invoices? Answer the following questions to address this question (without using the dashboards).
    1. What is the percentage of money lost per hour due to financing (do not round your answer and use 365 days in a year)?
    2. How much money has the company lost during the time period based on the purchase orders for which customers were not sent an invoice (from question 8), and use the estimated loss (from question 3)? Round answers to the nearest penny.
    3. Given the current losses for the first three months of the year, estimate how much the company is likely to lose by not sending invoices for the year because of the extended financing costs. What is your annual estimate (assume this is not a leap year and there will be no more sales during the month of March)? Round answers to the nearest penny and use the rounded answer for computations from the previous question. Also, use the number of days to compute this and not quarters (since the first quarter has fewer days).

 

Information Technology Department questions

 

The Information Technology Department is tasked with understanding why customers are not receiving emails. To that end, investigate the following questions.

 

  1. You learn that some emails “bounce” when sent to customers, and the system records these transactions as not having been emailed an invoice. Investigate if any of the bounced purchase orders are caused by having “dirty” or problematic email data, meaning their emails were null, contained corrupt data, etc. Identify the company names and email addresses for any customers that are dirty. (Hint: For this analysis, you only need to examine customers who did not receive an email and were granted credit from question 2). Provide recommendations for improving this process so that emails do not bounce for this reason.

 

  1. A second reason emails may bounce is a bug in the system. Bugs are errors in the system that can cause incorrect or unexpected results. They can often be identified by patterns in the results. That is, the bug usually identifies all transactions with a certain attribute as having the same error, and other transactions that don’t have this attribute will not result in that error. Identify the bug in this data. (Hint: To find the bug, investigate any unusual patterns in the activity immediately preceding the Email Sales Invoice to Customer activity, i.e., the Review and Approve Sales Invoice activity, for customers who did not receive an email and did not have any dirty email data).

 

 

Order-to-cash process at BW Fishing Inc.

BW Fishing Inc. (BWF) sells fishing supplies mainly to other businesses across the country. The company has grown steadily over the last 10 years. BWF found a niche in taking orders and immediately fulfilling them around the clock. BWF’s customers work at unusual hours and it has been able to build loyalty with its “always open” mantra. This practice, along with competitive pricing, has allowed BWF to build a loyal network of customers.

BWF processes most sales digitally; yet, employees still perform a valuable role in the process. The sales process at BWF involves employees working in four different roles: sales clerks, sales managers, inventory clerks and accounting clerks. There are multiple employees who function in each of these roles, and all employees in a role can perform the activities related to their role. Because the process is highly digitized, it is common to have many different employees perform the tasks related to one transaction.

The process begins when BWF receives an order from a customer via phone or online. For a phone order, the sales clerk enters the customer information into the computer system and then the system automatically creates a purchase order and logs the information in the sales database. For an online order, the customer’s information is digitally captured in the computer system, then the system automatically creates a purchase order and logs the information in the sales database. Most of BWF’s customers are businesses, so it does not collect payment at the time of the order. Instead, BWF bills them after the customer receives the inventory they have ordered.

The sales clerk reviews the order and determines whether the customer’s credit should be approved by the sales manager to make the sale. The credit approval process requires judgment. All sales more than $3,000 must be approved by the manager. Sales less than this threshold may require approval, depending on the sales clerk’s judgment.

If the order needs sales manager approval, the sales clerk digitally sends the order to the sales manager. The sales manager reviews information in the sales database and uses their professional judgment to decide if the customer’s credit is sufficient. If the customer does not have sufficient credit, the sales manager updates the digital purchase order to show that the order is rejected (which is logged in the sales database). The sales manager then notifies the customer that the credit is not approved and the process is ended.

If the customer’s credit is approved, the sales manager digitally signs the purchase order in the sales database. The system then creates a digital picking ticket. If the customer did not need credit approval, the system automatically creates the digital picking ticket upon the approval of the sales clerk. Once the picking ticket is created, the sales database is automatically updated.

Inventory clerks in the warehouse receive notification of the digital picking ticket and use the digital picking ticket to pick and package the inventory. The inventory clerks open the digital bill of lading and print a copy of the digital bill of lading and packing slip, which are included with the inventory sent to the customer. The inventory clerk digitally signs off that they performed the task. If the warehouse does not have all of the ordered inventory, the company ships the goods it does have and the system creates a new digital picking ticket for the non-shipped items. The company then fills the new digital picking ticket once the inventory is in stock.

Once the inventory clerk has finished entering their information into the sales database, the system automatically creates a digital sales invoice. An accounting clerk reviews the digital sales invoice for completeness and accuracy by comparing the sales invoice to the purchase order and the picking ticket. If the information does not match, the accounting clerk notifies the sales manager, who investigates and corrects the problem. If the sales invoice is accurate and complete, the accounting clerk digitally signs that the review is complete. The system automatically sends the customer the approved sales invoice via email.

The process continues when the customer pays for their order. Customers can make an electronic payment (automated clearinghouse or wire transfer) or pay with a check. When the customer pays with a check, two accounting clerks open the mail and immediately endorse the check as “for deposit only” and then enter the check details and the information from the remittance advice into a digital cash receipts pre-list, which is stored in the sales database. Two clerks open the mail together to prevent one clerk from misappropriating assets, creating a kiting scheme or other fraudulent activities. If the customer pays electronically, the system automatically enters the information into the sales database. The accounting clerks also scan any remittance information, which is stored in the sales database, and the physical remittance document is shredded. Scanning and shredding are noted in the database when they are completed.

All endorsed checks are sent to the sales manager. The sales manager prints a deposit slip and takes the deposit slip and endorsed checks to the bank on the same day the cash is received.

Daily, the bank sends an email acknowledging all deposits for the day. The sales clerks verify that the bank deposit amount (excluding electronic deposits) matches the amount on the cash pre-list. If it does, the sales clerk adds their digital signature that they reviewed the match. If it does not, the sales clerk immediately notifies the controller for further investigation and follow-up.

 

 

 

 

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