How Procurement Can Add Value To Supplier Master Data Management

di Vishal Patel

Master supplier data doesn’t just matter to Procurement. It plays a role in a number of necessary business functions and is a key enabler of automation throughout the Procure-to-Pay (P2P) process.  Accurate supplier data is the fuel that drives critical business processes that impact the bottom line. Some examples include: 

• Spend analysis — Improves negotiation position and leverage and increases contract compliance by correctly aggregating spend to the appropriate parent supplier.
• Order communication — Reduces lost orders and orders sent to incorrect email addresses.
• Currency and country exposure — Decreases financial risks by accurately tying projected spend to the correct currency to facilitate hedging strategies.
• Tools for business optimization and risk management (including AI) — Improve business planning accuracy and decision making frameworks.
• Terms and conditions — Applies the appropriate terms to the supplier  when it has multiple business entities and contracts.
• Communication with the supply base — Business-critical communications can occur more quickly and effectively with suppliers and various internal stakeholders.
• Reduction in cost of supporting other master datasets — Supplier master data can overlap with datasets with other datasets creating multiple sources of truth that require maintenance and can become disjointed causing errors. Supplier data improvements can reduce these costs and minimize the opportunity for error.

Who Should Own Supplier Master Data?

Inside the modern enterprise, a variety of groups use supplier master data, including not just Procurement, but also: 

• Finance
• Treasury
• Planning
• Risk management
• Logistics
• Legal
• Operations

Gartner covers this in a recent report: Gartner Supplier Master Data: Gain Control Over Your Supplier Master Data Before It’s Too Late

Of the teams on this list, Procurement is typically the only group consistently involved from end-to-end in supplier relationships and is traditionally responsible for supplier performance, which provides a unique perspective on:

• What data is needed?
• When and where data is collected?
• How the organization uses it?

Additionally, Procurement’s involvement in data collection and how it is used makes them uniquely qualified to create a comprehensive supplier data model and identify the necessary source and destination system.  Based on these points, Procurement is generally the lead in many successful supplier master data programs.   

In contrast to Procurement, Finance, although a key stakeholder, has visibility into a much smaller part of the overall process. (See Figure 3 in the Gartner Report for some excellent visuals on touchpoints in the supplier lifecycle.) So, while Finance is the team that has owned the accounting system the supplier master file, they lack the strategic view of the entire process. 

Procurement Owns the Process, But Not All the Relationships

While Procurement leads the overall supplier relationship process, they don’t always directly interact with every supplier, nor should they. For example, Procurement would probably not select or manage the company’s tax advisor or specialized legal services. Nor does it interact with or consume every piece of master data required to build the complete data model. Procurement doesn’t need to know the bank account numbers of its suppliers as only a select few individuals in accounts payable should have access to this to ensure key business controls are in place. Still, someone has to be the process lead when it comes to supplier master data, to set a consistent and efficient process with the necessary controls.  This leadership role is critical and Gartner identifies ownership as one of seven obstacles to success with master data.

Why Supplier Buy-in for Data Management is Critical

Application leaders that support the master data management should work with the Procurement team to establish metrics for tracking data completeness and the frequency of updates. These metrics should be included in a supplier performance management program and this data should be included when evaluating how a supplier is performing.

By integrating these metrics and this process in the supplier performance program, supplier will come to understand that accurate, up-to-date data also benefits them.  

Suppliers who don’t maintain their data take a direct financial risk. Examples include:

• Suppliers can’t assess fees on late payments caused by incorrect data.
• Terms changes may be applied to the supplier if there’s no response within a notification window due to missed correspondence.
• Failure to comply could lead to lower performance scores precluding inclusion in future sourcing opportunities. 

Use Data Management to Guide Supplier Screening and Selection

Suppliers who are unwilling to help with managing their data may also be unlikely to engage with other process improvement initiatives. That could be a red flag for that relationship. Some vendors may have enough market power to balk at the request, but rejecting this relatively simple request is often a telling sign of future cooperation. Suppliers unwilling to assist with managing their data are also unlikely to engage with other process improvement initiatives.

So where does this leave you on your procurement journey? Find out easily with this self-assessment tool from Forrester.  Get insights not only about your supplier data management, but other areas where you can take your procurement team to the next level.