How bad supplier data undermines organizations’ decision making
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We know bad data causes inefficiencies and creates vast extra costs for organizations. It can also lead to inconsistent or bad decision-making. This is arguably one of the most dangerous consequences, as it can result in some of the costliest mistakes that remain hidden – or potentially unaddressed – until it is too late.
Omera Khan, professor of supply chain management at Royal Holloway, University of London, explains: “Too few organizations appreciate the costs of incomplete, out-of-date, or low-quality supplier data. If they realized their vulnerabilities in fraud, compliance, supply chain risk and purchasing performance, more would invest in better supplier data management,” she believes.
Supplier data accuracy is now more critical than ever for efficient operations. The COVID-19 pandemic and geo-political events since the turn of the decade have further highlighted this with the consequences of bad supplier data becoming increasingly evident.
This article will delve into the multifaceted impact of poor supplier data on the ability of organizations to make fully-informed decisions.
Research by HICX offers insights into why this problem exists. It showed that 80% of procurement and IT leaders plan to use unfit systems for managing supplier data. Of those, 59% plan to use Enterprise Resource Planning (ERP) systems, while 21% are opting for purchase-to-pay (P2P) and source-to-settle (S2S) solutions. ERPs are primarily designed to manage transactions like invoice payments and financial records. They are not well-equipped to be the master system of record for supplier data, not least because they only hold a subset of data related to each supplier.
Operation Efficiency & Business Continuity
Organizations that continue to rely on unfit systems have a fundamental weakness. These systems are prone to not only inaccurate supplier data but also diminishing operational efficiency.
Inaccurate data can occur due to several reasons, including:
Human Error: As the data is entered manually, it is prone to errors such as typos, misspellings, or data being entered incorrectly.
Outdated Information: Just like any other form of data, supplier information changes over time. This includes contact details, pricing and offerings to the market. Manual systems may not be updated regularly, leading to data becoming outdated.
Inconsistent Data Management: Various stakeholders across departments will inevitably be involved with data management. A lack of standardization processes can lead to different individuals and departments entering or managing supplier data differently, resulting in inconsistencies.
Lack of Integration: Manual systems are usually not well-integrated with other business systems, causing discrepancies in data as it is transferred or shared between systems.
Giles Breault comments, “Most organizations only realize when it is too late that poor data, specifically poor supplier data, is causing them to make inferior and ill-informed decisions. Realizing this after-the-fact has broad downstream implications that can run from lost value all the way to impacting the company’s reputation. The problem is, that this is a vicious cycle; poor data drives bad decision-making and that drives a heightened lack of trust in overall data integrity leading to lower levels of trust in subsequent decisions.”
Financial Implications
Inadequate supplier data can lead to financial repercussions, resulting in increased costs and diminished quality. This also has a knock-on effect on suppliers and can lead to the organization’s relationship with suppliers deteriorating. Suppliers are then less likely to cooperate with the organization, impacting revenue for both parties.
Supplier Relationship Dynamics
Supplier data quality is closely connected with the nature of supplier relationships. Poor quality data is often a result of problematic practices such as too many entry points for data, too many requests for data or too much administration associated with keeping data and information up-to-date.
Again, this leads to tension within the relationship between the organization and the supplier, leading to frustration and impacting profits. The vendor will likely be disengaged, only focusing on meeting the basic contract terms, leading to the organization losing a competitive edge within the market and losing market share.
This is a sharp contrast to solid relationships built upon foundations of trust and mutual respect, providing substantial benefits for both parties. Suppliers become more willing to assist the organization beyond the regular contractual obligations, including investing in new technology and offering reduced pricing. Organizations that provide an optimal supplier experience by focusing on creating the conditions that let the supplier thrive, results in mutually beneficial success.
Technological Solutions & Data Management
Poor-quality supplier data has a considerable impact on organizations’ strategic decision-making. This impacts each aspect of business operations, including financial performance, compliance, supplier relationships, end customer satisfaction, and, ultimately, profits. Organizations must take a proactive approach to supplier data quality management and use the technology available to mitigate risks.
Accurate and reliable supplier data is crucial for organizations’ day-to-day operations and plays a key role in strategic planning and long-term success. Those organizations that invest in proper supplier data management systems and practices will avoid the excessive hidden costs caused by bad supplier data.
Giles Breault concludes: “Most organizations realize that they have some level of data confusion when they look into their supply chains. While this awareness is useful and may be the impetus to overhaul the entire supplier database, distrusting the data drives decisions that seek to cover or nullify the lack of knowledge. These decisions are made on the back of personal or tribal knowledge and often lead to poor and unexpected outcomes. Yes, lack of awareness about poor supplier data is bad, but sometimes even having a little awareness of the data problem can be equally bad.”
He adds: “In my experience, often suppliers understand the buying company’s purchasing behavior better that the purchasing company. Lost value opportunities abound in global supply chains.”
Article updated October 24
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