The Value of Supplier Information Management for IT
Convincing IT to get used to a different platform, other than say an ERP or internally developed legacy system, is somewhat like a Gordian Knot. And like many of us who’ve experienced the drama between Business and IT in a typical organization, the politics of replacing a coveted IT system makes it difficult to convince the need for change, even if savings is an underlying result.
In this regard, an organization’s commitment to supplier master data management has a lot to do with the IT organization’s attitude towards how they apply supplier information approaches. A quote from one of our previous blog posts demonstrates that –
“Master data models support the development of information systems by providing the definition and formatting of data. But from what we see out there, most enterprise systems and interfaces cost more than they should, to build, operate, and maintain. Why? Most supplier platforms from ERP to source-to-settle providers continue to use database structures that limit how relationships and behaviors can be rendered. Adding customizations (e.g. adding fields and behaviors for managing changes in supplier information) thus requires a lot of up-keep for IT on the back-end for tracking database changes and performance”.
By working with solutions that can’t support supplier master data management, the extra time IT spends aggregating data and/or spent configuring unique modifications to handle special supplier data requirements, makes supporting the goal of a “harmonized supplier management approach” almost near impossible.
Therefore, building the argument on “the value of supplier management” targeted at IT, key considerations related to the time element of managing these various systems should be made. Some of the questions related to time wasted on current efforts should include –
- How much time is spent on the search and aggregation of data across the various systems?
- How much time is spent on manual efforts of cleansing and augmenting data?
- How much time is spent on ERP, or other current system, modifications (e.g. ABAP, Java programming, etc.)?
- What is the time it takes to implement and support processes and surveys?
- What special considerations are needed for managing any On-premise versus SaaS platforms?
The next set of questions relate to sunk costs – in other words, how much effort has already been put into training, and or for managing other systems and the custom supplier data interfaces on these existing systems. Considerations here include –
- How many systems are used for supplier information management today?
- How many resources are allocated to these systems?
- What is the cost to maintaining additional ERP functionality?
- What is the cost to maintain additional supplier related or proprietary systems?
- How many of systems could be marginalized or potentially be displaced with one platform?
These questions become paramount for understanding what it truly costs your business to manage your existing IT infrastructure as it relates to supplier information, and understanding the value of adopting a supplier information management system to improve it. Since a picture is worth 1000 words, finishing with the XYZ example again can help complete the scenario we started with a few blog postings back.
As part of the justification for supplier information management, XYZ has considered all the business considerations, but is now in the final stages looking to IT for assistance, guidance and justification in their effort to implement the platform. Though IT has been reluctant to change, they looked into the potential waste in time and resources on the current supplier information related efforts. As a result –
- XYZ is looking to reduce the time spent on aggregating data reporting and collection efforts (e.g. supplier reporting across downstream systems) for various business requirements across multiple systems. XYZ has 2 FTE resources for managing this effort. At an average fully burdened cost of a $110,000 per employee, and an average time on supporting this effort for these resources at 12%, it costs XYZ $26,400 annually in time spent aggregating supplier information from various systems.
- ERP systems require an additional effort to configure and customize to the unique supplier requirements for onboarding suppliers or managing data into downstream systems. While there are trained resources supporting wider ERP efforts, the extra time it takes to manage these modifications is burdensome in reviewing and supporting the changes, particularly when it comes time for the ERP upgrade. In this regard, XYZ has one dedicated resource for managing SAP modifications where 10% of their time is spent with supplier-related ABAP modifications, and/or database changes, in SAP alone. At an average fully burdened cost of $175,000, XYZ estimates it costs them $17,500 for this resource to manage changes in code due to the various unique supplier information requirements that arise.
- Finally as a result of the traditional misalignment between IT and business in the past, there are a number of systems being managed separately containing supplier information, but where XYZ is considering to displace them – these are namely two stand-alone SaaS systems: One is for contract management and the other a supplier diversity portal. In fact IT would be happy to see these systems go since their preference is to keep the software on-premise. The former system is costing them $80,000 for the license and services. The latter system, used as part of their efforts to open up the competitive business playing field to qualified diversity suppliers, is costing them $15,000.
Supplier Information Management adding value
Now imagine in using a supplier information management solution, XYZ realizes that many of the IT redundancies can be handled by the new supplier information management platform. By laying down a foundation for supplier master data management, there is a newfound ability to integrate data from multiple systems onto one platform. This demonstrates potential savings from both time and sunk cost from software investments. For instance –
- First, in the new system, now when supplier information is needed, and whether the information resides across various systems, the information can be readily available and accounted for by the relevant business relationship, in one system. By reducing the need of internal IT resources to manage the aggregation efforts for areas like reporting, XYZ estimates a time efficiency for their IT resources of about 70%; that translates into $18,480 in savings.
- Secondly, with the new platform, the time spent on managing ERP modifications has been reduced or eliminated. In this regard, the resource dedicated to ABAP programming spends much less time on modifying code for enhancements in accommodating new supplier information requirements. By reducing the need for an SAP resource to manage customizations, XYZ estimates the same time efficiency of about 70%; that translates into $17,850 in savings.
- Finally, based on the new system’s functionality, XYZ considers moving all buy-side contracts to the new supplier information management system that gets associated with the wider supplier profile. This eliminates the need for the stand-alone contract management system generating a savings of $80,000. The same goes for the use of stand-alone supplier diversity tool, where the diversity profile information can now be collected as part of the wider supplier profile in the supplier information management platform. By eliminating the need for the diversity tool, XYZ can save $15,000.
Summarizing the overall benefit, XYZ looks to save a total of $131,330 in IT costs alone as a result of using a supplier information management system. It is easy to look at investing in a new supplier information management platform as an IT decision. However, in looking back the other areas of analysis, it is also clear how savings get derived from several other business areas in time efficiency, cost reduction and cost avoidance.
In the end, our effort here is to demonstrate that due to the ubiquitous nature of supplier information, justifying a supplier information management system is not a simple one-sided decision. Unlike other areas like eSourcing or eProcurement, where stakeholders are clear and distinct, a number of business unit stakeholders have a vested interest.. So as organizations continue to look for ways at improving savings, supplier information management may be one of the remaining frontiers that can act as a catalyst for savings. Furthermore, a strong argument could be made where other supplier related activities, like procurement or sourcing, cannot be truly successful without increased supplier visibility from supplier information management.
Again, due to the importance of the topic to our customers, prospects and practitioners at large, we plan to dedicate a white paper on this topic of value, with a guideline of measureable savings areas, that can be utilized to assess if it is time to consider an alternative to today’s “business as usual”.