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Your ERP System Is Leaking

How to Use a Time and Labor Data Collection System to Plug Holes Caused by Fraud and Waste

WHITE PAPER

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Table of Contents

Hidden Leaks 3

Plug Leaks with a Single Solution 6

The Kronos Method 7

Kronos: Easy to Implement and Support 8

Kronos: Ease and Reliability 8

Security and Efficiency: The Kronos 4500 Touch ID Terminal 9

Immediate Benefits of Kronos 9

Kronos Seals Leaks from Time and Labor Data Collection 10

About Kronos 11

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Hidden Leaks

Your payroll system is leaking, losing data and dollars by the minute, and you probably don’t even know it.

Maybe it’s a slow drip of mistakes. Perhaps it’s a weekly trickle of employee fraud. It could even be a broken main-line, the result of poorly designed interfaces, a flawed implementation, or an overextended ERP system.

If payroll were hermetically sealed within your ERP system, there would be no risk of leaking expenses. But your payroll system is only as good as the data that goes into it. Time and labor data1 collection is a common weak point in any corporate infrastructure, one that usually escapes detection and can leak hundreds of thousands, even millions, of dollars each year.

Even if one overlooks fraud and waste, considering that 30 to 50 percent of a company’s costs are people costs, time and labor data collection is a great place to look for quick payback. By attacking your time and labor data pipeline, you can streamline business processes and cut costs.

Labor costs represent one of the largest expenses for any company, yet collecting information about that expense — hours worked, shift differentials, work rules — is one of the areas least exploited with regard to a company’s ability to automate business processes.

ERP overview and challenges

Companies implement ERP systems to address big-picture challenges related to back-office systems: redundant data and systems, costly maintenance and support, and simplified reporting. But ERP systems are not a panacea to all an organization’s challenges. They can’t be everything to everyone.

As ERP systems move beyond the confines of corpo-rate headquarters, the more rigid and less flexible they become. ERP systems reduce TCO through automation and by simplifying business processes; but as everyone knows, a business process that works in corporate headquarters may not translate to the factory floor or warehouse.

It is when ERP systems are called upon to perform tasks outside of their “core competencies” that there is a higher risk of fraud and waste. One critical area where ERP systems frequently spring a leak is in time and labor data collection.

ERP systems work best when the workforce is homo-geneous: a majority of exempt employees, consistent payroll policies, simple work rules, and few (if any) collective bargaining units.

But most companies have a heterogeneous workforce: there are unions, local work rules, state labor laws, and other factors that require a more granular approach. For many companies, however, the need for flexibility to address complex work rules runs contrary to the philos-ophy behind an ERP system. And the point at which the need for flexibility meets the rigidity of automation and cookie-cutter business processes is where most ERP systems begin to seep dollars. In the area of time and labor data collection, you could be losing up to 2 percent of total labor costs to fraud and waste each year and not even know it.

1 Also known as time and attendance data.

Your payroll system is leaking, losing data and dollars by the minute, and you probably don’t even know it.

Considering that 30 to 50 percent of a company’s costs are people costs, time and labor data collec-tion is a great place to look for quick payback.

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How to know if your ERP system is leaking

If you don’t have the Kronos Workforce Central® solution, that slow leak may already be a rushing torrent (see Quiz below).


Quiz: is Your ErP sYsTEm LEaking?

Common Weak Points in Time and Labor Data Collection

Does your organization suffer from any of the following symptoms?

o Employees manually filling out paper timesheets

o Data entry clerks re-entering time and labor data, either from a manual system or from a time and labor data collection system that does not directly interface with your ERP system

o Frequent requests to finance or IT for detailed labor reports that are time-consuming to compile

o Project plans to replace or upgrade your ERP system (Note: Bonus points if the go-live date has been pushed back or scaled back more than once)

o Fractured time and labor data collection that results in a delay of two or more days between data collection and posting, or between data collection and payroll

o Managers who spend hours poring over data and spreadsheets to find errors, discrepancies, and attendance issues

o Repetitive review and approval cycles between payroll and other departments

o Occasional discrepancies between payroll and attendance (indicating that employees may be punching a time clock for other employees, better known as “buddy punching”)

o Overtime costs that are incurred days and sometimes weeks before your financial organization learns of them (too late, of course, to implement changes that would have prevented them)

o Complaints from employees about discrepancies in their paychecks (Note: If payroll is shorting employees, there is a good chance you are not hearing from employees who are getting paid too much.)

if you’ve checked two or more of these points, don’t look now, but your ErP system is probably leaking.

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After more than 20 years building tools for time and labor data collection, Kronos has identified several time and labor data trends that most companies overlook.

• unreliable data collection. Consider a company that has expended millions of dollars for an ERP system, and yet somewhere on a factory floor or in a retail outlet, an employee is filling out a timesheet with the stub of a #2 pencil. If he or she makes a mistake, the only protection is the manager who signs the timesheet (while reviewing a dozen or more) or the data entry clerk who types the information into the ERP system. In most cases, the mistakes are honest ones — inaccurate memories or “guesstimating” practices (always round up, for example). But in some compa-nies, there can be isolated pockets of unscrupulous employees who promote a culture of corruption, an accepted peer mandate to cheat the system. (“After all, everyone does it.”) With a manual time and labor data collection system, there is little protection from either honest mistakes or intentional fraud.

• Failed interfaces with other systems, and data trapped between them. The best ERP system in the world doesn’t amount to much if you struggle to get reliable, consistent, and timely data in or out of it. Every time and labor solution provider will tell you that its data can go into your ERP system. The problem, however, is not the data going in, but the lack of data coming out. A company can’t report against it, or it is so rife with errors that the payroll or reports coming out are useless.

• Expensive and/or complicated customizations. Some companies attempt to automate time and labor data collection by extending their multimillion-dollar ERP systems via customization. How many times have you seen a PC sitting next to a drill press or blast furnace, environments completely inappropriate for typing on a fragile keyboard? Or worse, these customizations are acceptable until you attempt to upgrade or modify your ERP system. You then have to customize your time and labor data collection all over again.

Lack of visibility.• With manual time and labor data collection systems and some automated systems, there is no mechanism to catch an error in timekeeping data until it is sent to payroll and paychecks are cut. Worse, long-term trends such as excessive overtime evade notice until the data is aggregated by the finance depart-ment, and even then, can escape detection if there is inadequate reporting against it.

on average, companies overpay employees by 1.2 percent because of payroll errors.2

2 Research Report H103, Nucleus Research (January 2008). Sponsored by Kronos.

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Plug Leaks with a single solution

To plug these holes, Kronos Workforce Central extends time and labor data collection into your ERP system by automating it, while at the same time improving reliability of the data and reducing costs. Kronos, when combined with your ERP solution, can reduce risks often incurred from complex work rules, payroll errors, and compliance breaches. With the Kronos solution in place, you can:

Reduce labor costs by automating time and labor • data collection processes, resulting in savings from employees on the front line and from those who process payroll

Increase productivity by giving front-line managers • real-time employee information and labor data to better manage workforce deployment

Expand visibility into labor and critical workplace • activities to drive better decision making from the shop floor up to the boardroom

In a recent study by Nucleus Research,3 companies achieved a greater ROI from using Kronos for time and labor management because they were able to deploy the solution faster, reduce their payroll error rate, and decrease application costs.

Unplanned OT vs Absenteeism % vs Deficient Punch %

%

real-time visibility. Pictured is a portion of a Workforce Performance Monitor screen displaying key perfor-mance indicators (KPIs) that are directly affected by implementing a Kronos workforce management solution. This on-demand, web-based dashboard displays KPIs for five best-practice workforce performance categories: overtime, absenteeism, productivity, scheduling, and timeli-ness. These categories represent areas in which many companies’ workforces frequently “leak” money.

3 Nucleus Research (January 2008).

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The kronos method

The Kronos solution automates time and labor data collection using a two-pronged approach:

1. Kronos 4500™ data collection terminals enable employees to easily and efficiently track their hours. The logon process is as simple as swiping a card. Adding the biometric finger-scan option further assists in preventing “buddy punching.”

2. Data is aggregated in Kronos Workforce Central, which manages complex work rules and feeds data

through approved interfaces to your ERP system. It requires little or no customization, and the system can be configured by nontechnical staff. The system can also generate its own time and labor data reports or feed the data into an ERP business intelligence (BI) system, if desired.

The combination of these two complementary products — the kronos 4500 terminals and Workforce Central — enables companies to boost productivity and increase compliance while at the same time reducing costs.


THE kronos aDvanTagE For saP CusTomErs?

For SAP customers, Kronos solutions are especially easy to implement and integrate. Kronos and SAP have-been partners since 1996 and together serve such companies as Peabody Energy, County of Santa Clara and Kindred Healthcare, Inc. Data generated by Kronos solutions can be imported into SAP® ERP or even into business intelligence (BI) solutions such as BusinessObjects™ or Cognos®.

For those customers who currently run SAP ERP, Kronos can easily replace an existing time and labor data collection solution and integrate quickly with the SAP solution. (Note: For those SAP customers who have extended their SAP solution through customization, Kronos can quickly be deployed and configured to address any complex work rules without the need of programmers or other specialized technical resources.)

For customers new to SAP who already have Kronos, the Kronos solution can easily be migrated. For new SAP customers who have no time and labor solution, you can implement Kronos even before your new SAP ERP system goes live. Kronos Workforce Central can work independently and then integrate seamlessly through SAP-certified interfaces when your SAP system is up and running.

Kronos offers a selection of integration methods designed to be as flexible as your needs require (see chart below). For those needing real-time tracking and reporting of time and labor data, Kronos has more than 500 XML-based APIs; for near real time, we offer an Integration Gateway adapter; and for batch or deferred data streams, we have our Workforce Connect™ integration.

integration Type method Description

Real-time XML/API Component-based: Over 500 XML-based APIs

Near real-time Certified Adapter Message-based: Field programmable

Batch or deferred Workforce Connect File-based: Uses APIs and user-configurable parameters

Kronos data collection devices will run on today’s communication networks, and they support the Dynamic Host Configuration Protocol to simplify network configuration.

Each data collection terminal also comes with its own fail-safe: should your network or SAP environment go down or lose connectivity, the terminals will continue to operate and store data until they’re reconnected.

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kronos: Easy to implement and support

A new ERP implementation is often a lengthy and time-consuming experience. The backbone of a company is a successful implementation — and with so much riding on it, it has to be done right.

The challenge for most companies is that the current time and labor data collection system continues to leak from fraud, waste, and mistakes, and if you wait for your ERP system to go online, you may still have another year or more before you get around to implementing business processes or a technical solution to address it.

Companies can implement the Kronos solution quickly and begin reaping its benefits before a new ERP system is up and running. One reason for this relatively quick ROI is that customers can take advantage of the vast experience and institutional time and labor knowl-edge of its service and support professionals. Kronos has a 30-year track record of on-time and on-budget implementations, effective training approaches, and award-winning support.

The repeatable and structured implementation approach of Kronos is supported by strong project management and flexible education offerings that drive projects toward completion and accelerated ROI. What differen-tiates Kronos is our ability to:

Understand your complex business needs•

Provide experienced implementation teams•

Use a proven methodology to reduce risk•

Drive employee acceptance and build self-sufficiency•

Foster close collaboration for deep, two-way • understanding

Add value with industry and labor management experts•

Given the Kronos solution’s ability to execute projects successfully, many customers have found that the payback from the Kronos system occurs before the ERP system goes live. Some have even been able to apply the

savings generated from plugging the leaks in time and labor data collection toward the ERP implementation.

Post-implementation support is another differentiator for Kronos. The Kronos Global Support organization provides 24/7 global support to tens of thousands of customers and in 2007 won its eighth consecutive Omega Manage-ment Group “NorthFace Award” for superior customer satisfaction.

kronos: Ease and reliability

Kronos solutions are specifically designed for on-the-go labor forces and the people who manage them. Managers can configure Kronos to handle even the most complex work rules. And users will find the data terminals intui-tive and easy to use, requiring little training.

Easy for managers. One reason companies avoid auto-mating time and labor data collection is that it requires technical assistance to implement changes to complex work rules. With Kronos, updating or revising complex work rules can be executed by nontechnical staff. A payroll clerk, for example, can easily update work rules that change as the result of a new collective bargaining agreement, or a manager can modify complex work rules relating to changing shift differentials.

Also, Kronos doesn’t require constant vigilance, but instead manages your time and labor data using excep-tion-based management. Kronos tracks variances and issues alerts to managers only when problems that require attention arise.

Easy for users. At the same time, users find Kronos solutions convenient for logging on and recording time and labor tasks on devices designed for the workplace. These devices are easier to use and require less training than PC-based solutions that are adapted from the office environment.

reliable for everyone. Kronos accurately tracks sick and leave days, preventing fraud by employees or mistakes by managers who award leave time incorrectly because of work rule complexity.

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Kronos security

While manual systems are vulnerable to costly employee fraud such as buddy punching, Kronos data collection terminals offer security features that make such fraud difficult — and in the case of the Kronos 4500 Touch ID™ terminal, nearly impossible. The terminal employs state-of-the-art biometric technology to distinguish one employee from another.

security and Efficiency: The kronos 4500 Touch iD Terminal

The Kronos 4500 Touch ID terminal brings the time clock into the 21st century. An employee punches in by placing a finger on a scanner that utilizes biometric technology to read the fingertip.

Once the Kronos 4500 verifies the employee’s identity, it records the employee’s time and labor data and reports it to the Workforce Central solution (and from there it is exported to the ERP system).

The Kronos 4500 Touch ID terminal includes the following features:

• Finger-scan biometric sensors. The terminal utilizes a silicon-based sensor that translates the unique properties of the employee’s fingertip into binary code. The sensor’s dynamic optimization process creates a high-resolution image that prevents false accep-tance rates and guards against abuse of the system from the use of fake fingers or finger-shaped objects. More important, employee privacy is protected because the system does not rely solely on fingerprints for identification.

• Configurable aTm-like user experience. Employees can easily navigate through the menu-driven interface with programmable soft keys.

automated data collection.• The Workforce Central solution collects employee time and labor data and manages the integration with the ERP system, including payroll functionality.

Employee self-service.• One of the strongest features of the Kronos 4500 Touch ID terminal is that employees can use it for many self-service business processes, including requesting time off and checking work schedules, leave balances, and their total hours worked. This can reduce or eliminate the need for installing extra PCs in the workplace.

immediate Benefits of kronos

The Kronos Workforce Central solution delivers accurate — and timely — labor data directly to your ERP system. There is no time-consuming reconciliation of data required, because time and labor data is collected directly and approved quickly, and it conforms to the complex rules that govern your specific workforce.

A recent study by Nucleus Research found that, on average, companies overpay employees by 1.2 percent due to payroll errors. What many companies fail to realize is that payroll errors tend to be evenly distributed between overpayments and underpayments (see figure 1). While underpayments are easily detected (by employees) and significant overpayments quickly make themselves evident, smaller overpayments often escape detection.

kronos 4500 TouCH iD TErminaL

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A major factor behind payroll errors is a company’s inability to manage complex work rules, specifically:

Work hours by task•

Wage rates•

Pay rules•

Leave time such as sick days and vacation•

Shift differentials•

Collective bargaining agreement stipulations•

Federal, state, and local laws and regulations•

Many companies turn a blind eye to charges related to specific work rules because their time and labor data collection systems lack the sophistication to address them. Sometimes it is easier to throw money at the problem. But when these companies fail to build the necessary processes and systems, they risk excessive overtime charges, union violations, government enforce-ment actions, and even lawsuits.

kronos seals Leaks from Time and Labor Data Collection

Companies that have implemented Kronos have seen direct savings on payroll and HR staff expenses — an average of five hours per HR employee per week.4 Equally important, the Kronos solution prevents bottlenecks in payroll processing workflows, because the data filters directly into Kronos and/or your ERP payroll solution.

By employing the Kronos solution to plug leaks in time and labor data collection, many companies have real-ized ROI within two years — and many within a single year. With the ease of implementation and peace of mind that result from a reliable and complete solution that enhances security, Kronos enables you to get the most out of your ERP system without requiring ERP to extend beyond its core competencies.

Companies that have implemented kronos have seen direct savings on payroll and Hr staff expenses — an average of five hours per Hr employee per week.

4 ROI Evaluation Report: Kronos 4500 Touch ID Terminal, Nucleus Research (2005). Sponsored by Kronos.

Underpayment Overpayment

Uncaught errorsCost payrollup to 2.4%*

Large overpaymentsare easily identified

and corrected

Employees alertpayroll to

underpayments

Payroll error is normally distributed

FigurE 1 Payroll distribution between underpayments and overpayments

Source: ROI Evaluation Report, Kronos Workforce Timekeeper, Document G45, Nucleus Research Inc. (July 2006)

* 2.4% comprises average payroll error rate, average payroll inflation rate, and average leave inflation rate.


©2009, Kronos Incorporated. Kronos, the Kronos logo, and Workforce Central are registered trademarks and Kronos 4500 and Kronos 4500 Touch ID are trademarks of Kronos Incorporated or a related company. SAP is a registered trademark of SAP AG. All other product and company names mentioned are used for identification purposes only and may be the trademarks of their respective owners. All specifications are subject to change. All rights reserved. 16402-40614

Kronos Incorporated 297 Billerica Road Chelmsford, MA 01824 (800) 225-1561 (978) 250-9800 www.kronos.com

about kronos

Kronos helps organizations across a variety of indus-tries manage their most valuable, and expensive, strategic asset — their workforce. How? By giving them the tools they need to help them control labor costs. Minimize compliance risk. And improve workforce productivity. The easy-to-own workforce management solutions from Kronos make complete automation and high-quality information a reality.

Our time and attendance, scheduling, absence management, HR and payroll, hiring, and labor analytics solutions give Kronos customers the edge they need to compete in the global marketplace. With thousands of installations in organizations of all sizes — including over half the Fortune 1000® — we’re proving workforce management doesn’t have to be so hard.

For more information about kronos solutions, please call (800) 225-1561 or visit kronos.com.

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