Alleviate Spend Management Pain: Gain Control of Your Vendor Master
Spend analytics is a critical piece of the spend management puzzle, because it can help procurement teams solve many current pain points in their day-to-day -- including high costs, lack of visibility, data silos and out-of-date information. To many supply management professionals, these are barriers to success, but there is a solution.
In this second of three articles on the topic, we’ll look at how to master your supplier data with spend analysis, and why not doing so can cost you in the long run.
Every company collects and manages data every day, and for procurement organizations, this process is increasingly complex. It involves not only supply-related information, such as contracts, cost centers, spend categories, and lower-level commodities, but also managing a larger universe of data that includes products, customers, KPIs, and regulatory and compliance requirements.
Managing – and mastering -- that data presents several challenges for procurement teams. For example, suppliers may be listed multiple times under different variations of the same name, making it difficult to detect duplicate vendors. This creates an opportunity for unlawful vendors to circumvent controls and commit fraud. Contract terms might be inaccurately recorded or missing from the system, making it difficult to leverage price discounts. Approval processes may not be automated or well implemented, making it easy for suppliers to be added without proper supervision or inspection. And data changes constantly. According to Gartner Research, more than 25% of critical data within large businesses is inaccurate or incomplete in some way.
Master Data offers the best opportunity to overcome these challenges. Strong Master Data, using spend management and analytical capabilities, can accelerate enterprise Master Data initiatives and drive greater consistency and accuracy of data, as well increase supplier governance and compliance. Doing so will increase competitive advantage and reduce unnecessary waste.
Integrating Master Data into procurement processes
Procurement organizations currently manage and track supplier information through multiple systems, which often don’t talk to each other. Siloed data decreases speed, accuracy and efficiency during Extract, Transform and Load (ETL) or during data refresh processes. Additionally, data update procedures may vary across line of businesses or geographical locations, creating data governance issues across the entire business enterprise. That will generate errors and increase manual re-work, due to data inconsistencies.
Integrating Master Data into procurement processes requires extending data governance models to efficiently and consistently incorporate oversight into suppliers’ metadata (management of information about data), taxonomies and hierarchies, while synchronizing information from multiple data sources. This can be achieved by implementing advanced spend management capabilities such as extract intelligent agents and scripts that enable users to quickly download and aggregate disparate data from different systems and simultaneously cleanse, categorize, and enrich supplier information. Doing so will provide the proper governance and management oversight necessary.
Spend analytics can also enhance data stewardship and matching processes by increasing transparency and visibility throughout the lifecycle of the supplier’s relationship. That enables procurement organizations to validate, associate and augment suppliers’ information; and to arrive at a reliable data set that can become the point of reference not only for procurement, but for other parts of the enterprise.
Navigating through Master Data adoption
Supplier information and master vendor management is not just about technology though; it’s about managing change. The constant flow of updated information and the high frequency of data changes demand it. Quarterly or monthly data refreshes are not enough to keep up with new data coming into the systems. They also do not provide real time access and visibility to enhanced supplier data to create more accurate information for decision-making. It is estimated that, on average, 0.1% to 0.05% of invoices paid are duplicate payments, and 30% of duplicate payments are the result of duplicate vendors and vendor coding issues, according to The Accounts Payable Network.
Through advanced spend analytics, procurement can implement customizable solutions to manage supplier information on a multi-tier data level. That enables supply professionals to create dynamic feedback loops to incorporate organizational knowledge and update Master Data on-the-fly. And doing so improves data governance by establishing a clear and auditable set of rules that can be managed across the entire operation.
Establishing Master Data for regulatory compliance
As regulatory requirements and compliance needs evolve, suppliers’ risk profiles also need to be re-assessed to incorporate changes to external data, such as country risk, sanctions, financial, operational, and geo-political risk. Changes to regulatory requirements obtained through different data sources, such as updates to corruption risk indexes, environmental social governance (ESG) standards, diversity metrics, and internal policies and procedures need to be captured and added to a supplier’s Master Data.
In addition, updates to expanded suppliers’ Master Data intended to be used as part of regulatory compliance programs -- such as changes to an entity’s corporate structure and beneficial ownership information -- as well as supplier-provided data captured through surveys and self-assessed questionnaires (SAQs), also need to be integrated as part of the supplier’s master data record.
Organizations can implement rules and parameters through spend management systems to establish on-going monitoring and automatically incorporate data updates and systematic data refresh processes that pull this information from the system of source as soon as a change is detected. Responses captured through suppliers’ SAQs and other input forms can also be aggregated by creating additional dimensions and categorizations through pre-defined rules and parameters. This process can help procurement professionals create risk scores and customized reports, coupled with user-dynamic dashboards, so that they have real-time access to updated information.
Without proper master data governance and stewardship, there is limited transparency, accountability and ownership of data, which can generate and increase compliance risk. That will most surely lead to higher expenses and lost revenue. In fact, according to Ovum Research, poor master data management quality costs the typical company up to 30% of revenue. Procurement teams can take a leadership role in establishing Master Data best practices by implementing advanced spend management systems and analytics to effectively manage and control Master Data across the entire enterprise.