What Are The Five Key Business Processes For Supplier Master Data Management?
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What is Supplier Master Data Management?
Supplier master data management is a technology-driven approach to ensure that the cross-functional data and information that needs to be captured as part of those processes is documented in an accurate, consistent and legitimate way. This differs from supplier management which relates to identifying, qualifying, acquiring, onboarding and managing suppliers who are essential for the operation of a business.
It is therefore important to view Master Data Management as being tightly linked to process – Master Data Management involves installing workflows to guide the steps in a process, as well as capturing and storing the necessary data.
5 Key Business Processes
There are five core business processes that each initiate specific workflows and that correlate to requests that are submitted due to an event in the relationship between the organization and the supplier. These five requests are essential to adhere to in order to follow supplier master data management best practices which are:
- Create Supplier
- Extend Supplier
- Update Supplier
- Deactivate Supplier
- Reactivate Supplier
1. Create Supplier
Commonly referred to as Supplier Onboarding or in some cases Vendor Onboarding, ‘Create Supplier’ is the process of how an organization commences a new business relationship with a supplier or vendor that is new for the entire enterprise.
The process should be defined in collaboration with the line of business requesting the supplier. This could be marketing, research, supply chain, finance or others.
A typical workflow might include the approval of the initial request: a business identity check against a third-party database, such as Dun & Bradstreet; a deduplication check; a risk assessment with tools such as Riskmethods and Ecovadis; approval; collection of information from the supplier and data enrichment; a compliance review; data check and approval; and finally business approval and activation into target systems (for example ERP, P2P, GRC, etc).
The technology solution should provide a method of easily creating configurable workflows that can track the end-to-end process, initiate checks and approvals at relevant stages and automatically call on the appropriate stakeholders to join the workstream for those aspects for which they have responsibility.
2. Extend Supplier
If the supplier is already doing business with one of the enterprise’s organizations, the same process as above applies, but in this case, it is technically a supplier extension.
This process should facilitate the extension of existing information where appropriate and determine whether to use new or existing information.
3. Update Supplier
This is the process of making any change to an existing record.
This could affect both global or central data, which is shared, and therefore will require some form of global governance group to do this efficiently. For example, having every team that uses a supplier to approve a change to their name is not going to be an effective approach.
There will also be instances where the data is purely local, for example, the payment terms, bank account or reconciliation accounts used for a particular company. A divisional or local team should manage this.
Changes could be initiated internally or externally by the supplier or vendor through a portal.
Over time, this process should go beyond just vendor data management and cover changes to other types of information such as Health & Safety, Information Security, Social Responsibility, or other relevant areas.
As many different areas are implicated, a solution must allow for fine-grained data governance rules that reflect business reality. For example, whereas a supplier’s tax ID is unlikely to change, adding a new plant location is much more common. Being able to recognize these as global or local data attributes enables you to implement the necessary controls over which members of staff can change what and under what circumstances.
4. Deactivate Supplier
This is also referred to as Supplier Offboarding. It starts from the point at which a user makes a request to deactivate a supplier. Two main elements in this process are:
- The subsequent approval; and
- updating information to block it appropriately in the relevant ERP and/or P2P systems.
5. Reactivate Supplier
The process for reinitializing a relationship with a supplier after a hiatus.
It is likely that much information has changed during the time of dormancy, which is why this process is similar to Supplier Onboarding – it requires ensuring that all data and certificates are up-to-date and valid.
By far the most important and complex process of all is the Supplier Onboarding process. It is much easier to complete all necessary tasks and capture all required data upfront. To start assessing compliance and risk, for example, once you have started a business relationship is counter-productive.
What are the benefits of supplier or vendor Master Data Management?
Supplier Master Data Management (SMDM), often also referred to as Supplier Information Management (SIM), is essential and goes beyond simply maintaining accurate vendor data. It allows the business to use data to answer important questions and influence other parts of the organization due to the insight it provides.
Supplier master data management helps businesses build better relationships with their suppliers and increase productivity by allowing them to:
- Record supplier data that is more consistent and of a higher quality from the outset, meaning downstream users can focus on using the data rather than trying to fix it
- Track active suppliers and reduce the amount of time spent collecting and managing information about vendors that are no longer relevant to the organization
- Standardize their supplier master data across the board and make their vendor master data management processes more efficient as a result
- Make the supplier onboarding process more efficient
- Use their time more effectively and focus on finding the right suppliers for their needs
[Related: 4 core aspects of a successful data integration project. Supplier Data Integration is fairly easy to define, as it’s the process of drawing together and combining data from different sources to provide the user with a unified and accurate view of the information. Click here to read this blog in full.]
The video below by Intricity provides an overview and explanation of how common data problems can arise, why MDM is so important, and the basic requirements for any Master Data Management initiative to be successful.
Best Practice Advice for Supplier Master Data Management Business Processes
Why is a flexible supplier master data model important?
Supplier Master Data Management depends on a supplier data model.
The supplier data model in any organization must continually evolve as new systems and new use cases are introduced. This means that new data and information need to be continually integrated into the structure of the model as these use cases arise.
In order to manage these ongoing changes effectively, a centralized, flexible Supplier Master Data Management (or SMDM) solution is required, which is able to capture and store in a retrievable way new content and new fields of data, rather than attempting to adjust the data structures in ERP and P2P platforms to fit around new requirements.
A truly flexible supplier master data model will accommodate the changing and unforeseen requirements that all the systems, teams and processes across the business might have of supplier data.
In other words, for supplier master data to be truly valuable to the business, it cannot be limited to a handful of ‘global’ fields designed around accommodating the needs of the ERP. Instead, a three-layer data model that takes account of the specific local buyer / supplier relationship at business unit (BU), plant or any other location level is essential.
What does supplier master data cover?
Supplier master data (or sometimes vendor master data) includes any attributes that may identify or categorize suppliers or be used across multiple functions or systems within the business, such as:
- Legal name, legal address and country of incorporation
- DBA (or ‘Doing Business As’) name
- Company information, such as telephone number and email
- Bank and payment information
- Details for contacts at the company
- Locational information, such as local plants and offices
- Supplier type and supplier category information
Naturally, this data can change, some of it very regularly, and as that occurs across thousands or tens of thousands of suppliers, it means that an organization’s data can quickly become outdated or obsolete. Therefore, recording and storing supplier data cannot be viewed as a one-time exercise, so the above processes must support ongoing data changes and enrichment.
There is a tendency to ignore that aspect and to reach for hot fixes, such as data cleansing in order to overcome data quality issues. However, the focus should be on control of the data, not cleansing data. A supplier master data management technology solution must have the ability to support business processes in a way that ensures all new data and any changes come through a ‘single front-door’ to maintain data quality permanently.
It is only through this approach that an organization can avoid six of the most common data quality issues: namely, inconsistencies, inaccuracies, invalidities, incompleteness, redundancies and non-standard entries.
[Related: what are the pros and cons of data democratization? Data Democratization is the process of taking the overall control of data out of the hands of the few who have previously acted as its ‘gatekeepers’, and making it accessible to a much wider group of people across an organization. Read the blog in full here.]
Supplier Master Data Management (SMDM) is crucial for maintaining supplier and vendor data quality over the long term and for avoiding the issues caused by bad data.
Standardizing the supplier name and supplier ID might tick the ‘MDM’ box, but it won’t transform the business.
How does master data relate to lifecycle?
Master data relating to these requests represent lifecycle components that must conform to the business’ rules for creating, reading, updating and deleting such information and will therefore reflect the informational output from various stages of a governed business process.
For example, in the same way that the CRUD (create, read, update, delete) lifecycle applies to managing customers, a comparative example exists in relation to suppliers. When a brand acquires a customer, the customer does not simply come into existence. In order for the definition of ‘customer’ to be reached, a brand will require that certain criteria are met.
This might simply be the customer providing payment details and agreeing to terms of sale. Another organization, on the hand, may require far more information, and an organization may insist on specific channels of engagement as part of its customer creation process.
How do master data requirements impact technology solutions?
The precise requirements are dictated by the needs of the business. It’s only when the pre-determined steps are satisfactorily completed with the correct data that we have a customer. The systems used will be built around the processes and workflows required.
For instance, this could be a form fill on a website page that follows the required logic and dictates mandatory fields, followed by a verification method. Supporting technologies are chosen based on their ability to handle these needs.
The same is true for a Supplier Master Data Management or Supplier Information Management platform. The technology solution needs to support not only the capture of data, but also the (often very complex) workflows and steps that are essential for correctly handling various different components of the lifecycle.
Article Updated October 2022