ERP Solution

Why you should optimize your claim management process.

Types of claims and why they are important for your business.

Within a business scope there can be a variety of claims. These claims are requests of compensation due to loss, damage or injury resulting from e.g. an accident at the workplace, property damage or product liability.

In the EU consumer complaints statistics, data from 2006-2018 is taken into account and it shows that the sectors that receive the most claims are consumer goods and financial services. The top classifications of those claims are:

  • Quality of goods: defective products, non-conformity with the order.
  • Contracts & sales: unfair commercial terms, contract cancelation, right to withdrawal.
  • Unfair commercial practices: price change, fraudulent practice, and even misleading advertising.

Why is claim handling important?

Like any error, claims cost money. They come in different magnitudes: from costs of additional transport fees or component replacement, to significant matters, such as operational or production loss, and even a personal hazard.

Monetary loss is just one part that is affected. There are other aspects impacted by receiving claims from customers, such as reputation damage and reduced customer loyalty. These damages are harder to measure in terms of financial losses.

Instead of only controlling the numbers behind the complaints, we should use the claims as a tool to improve our customer experience. Through a better understanding of the clients’ communication, as well as through internal errors and their sources.

Claim as an insight

1. Analyse what happend

Keeping records of claims and following them up is a must in order to fix issues and improve client satisfaction. Solving the customer’s issue quickly and satisfactorily will increase the chances of that same customer returning to us. However, how do we prevent issues from happening again and avoid accumulating costs from flawed processes?

Some claims can simply have a root cause in a human error. Still, we should review whether it is a single error or a repetitive one. For example, two shipments instead of one for the same order due to insufficient stock. If this error is recurrent and e.g. 10% of all the deliveries result in double shipments, there might be a problem with the underlying process.

Keep in mind, the area responsible for the error is not always that obvious. The logistics area might keep good inventory, but it might also depend on how the information is given to them.  What format the information is in, how to read it correctly or even how our ERP system is set up. The objective here is to find the bottleneck, the root cause, for all the future orders, but also all the pending ones that might be affected by it.

Some commonly used tools for these analyses are the 5 Whys, Ishikawa and the Fault Tree.

2. Fix the root cause

In case of a single error, this can be followed-up by a quick one-time action. However, if an error, or a cluster of errors occurs frequently, it may have to be fixed by modifying some aspects of the process. We call these corrective measures. Those can end up being a change in the internal protocols, implementing an additional check, or changing the process all together. Those actions are lengthy and come with a cost. So before implementing any major modifications you should review what solution is the most cost and time-effective.

3. Follow up

Having regular revisions of claims will speed up solving the issues and allow for a proper follow-up on actions. Consistency is key, it will help to make sure changes are implemented well and future errors avoided. Planning should consider the most efficient solution for the future but should not forget the orders or actions already underway that potentially bring the same impact. The investment spent on those activities might not be as clear (think reputation damage control), but it is also important.

4. Prevent

As we read the summary of the EU consumer complaints statistics, some of the most common complaints are about defective goods, price or contract changes and non-conformity.
Considerable attention should be given to the commercial terms and conditions and product warranties. Having a clear set of rules for all parties involved will both govern the orders and prevent (false) claims.


Digital Efficiency Tools

 Over the past years Enterprise Resource Planning (ERP) systems have developed very interesting solutions for claim management. If you don’t have an ERP system in place, there are also stand-alone tools that can be used for claim management.

Two of the biggest advantages of tracking claims in an ERP system are visibility and productivity.

Visibility is generated since the data is consolidated and stored in one place. The standardized data collection of the claim in the system assures its accuracy. It also provides the content necessary to tackle it and bring the most efficient resolution to the customer.

Productivity in the ERP system is a result of having a pre-defined process, that can be managed by different departments depending on the stage. This allows for every claim to be tackled in the same way, following the right flow and resolving issues on time.

Claim management and ERP

During the ERP set-up, it is possible to configure the options for claim intake. This allows for narrowing down of the possibilities of data entry. Which should be adapted to the company’s requirements and enhance process compliance.

Through the ERP system we can cluster all expenses related to the claim handling. This includes invoices paid to or by third-parties, intercompany trading and even keeping track of credit notes issued.

If the process or visibility are not an issue, but the quantity of claims is, you might want to think about implementing a Robotic Process Automation (RPA) solution. RPA is a form of business process automation that uses software robots (or just “bots”) to automate tasks performed by humans. This tooling can be developed and adjusted for your company’s process in as few as 10 weeks and can bring an ROI of over 25% in the first year of implementation.

In order to enhance the RPA solution even more, it can be combined with Artificial Intelligence for analysis purposes. It will reduce the time for finding the root cause, propose the most efficient solution and even learn to change the settings of the process at different stages to prevent claims from happening.

Nonetheless, even without the technological advancements, creating a stable process design that minimizes claims will be very valuable. Less claims means more profitability and a higher client satisfaction score.
Events leading to customers claims can have various origins, such as the planning department, manufacturing or logistics. The assessment aspect in our scheme should be robust enough to find the errors and their triggers, give an efficient solution and prevent it from happening again.