What is Vendor Master Data Management and Why is it Important?
An organization cannot be truly effective without knowing its vendors, as they are a part of every aspect of the business and the sum of their efforts equates to the brand. Allocating the time and resources to understanding vendors allows companies to improve all aspects of vendor management, such as sourcing, category management and payment processes.
As such, vendor Master Data Management (MDM) should be a top priority for procurement leaders to focus on, as it allows them to create a single version of truth for all data related to specific vendors. As Stephane Sacherer, Associate Director Global Procure to Pay at Mondelēz International, explains in a recent webinar, there are a multitude of departments outside of Procurement who have an interest in ensuring this data is accurate, from Quality through to Manufacturing, Finance, Accounts Payable, Tax, Legal and Compliance, among others. They will need access to different levels of information, both at a functional and at a global versus local level.
Vendor master data management also ensures efficient vendor management, which is essential for all companies as they will require multiple vendors for purchasing services, or goods, or raw materials. Due to the added efficiencies brought about by effective vendor master data management, it helps with strengthening vendor relationships and supporting them to succeed.
Why organisations struggle with Vendor Master Data Management
Within the industry, there is a disconnect between where many CPOs would like to be, and where they actually are in terms of managing vendor master data and related analytical information.
As the 2018 Deloitte Global Chief Procurement Officer Survey, as reported in The Wall Street Journal reveals, “The implications of this apparent gap between opportunity and action are considerable, given that 65% of procurement leaders report limited or no visibility into their entire supply chain and have yet to make the most of digital tools at their disposal that could help to provide a more complete view.”
It is apparent that tackling this lack of supplier master data and gaining an understanding of what is going on within the supply chain is essential for organizations who are serious about progressing. Without great data and visibility, it is difficult to make the right decisions that will help the organization to stay ahead of its competition. Companies currently thriving the most are ‘digital natives’ who live and breathe data.
On the other hand, there are often a number of hurdles. Common obstacles include:
- Issues with the vendor master data quality. In fact, this is supported by a research report Raconteur have compiled in partnership with HICX, Solving the Procurement Data Dilemma. A contradictory finding states that “ 55% of respondents who say their supplier data is best in class say they only have moderate oversight into it.” This begs question of how is it possible to know if the data is of good quality or not when there is only a moderate oversight into it.
- Too much overlap of data across multiple different silos typically used in large organizations
- Lack of effective data governance policies
- It is perceived as time consuming and costly
Similar points have been raised in our most recent white paper, How to Connect Data Silos. As per the paper, “Contrary to popular belief, connecting silos in order to derive consistent, accurate data sustainably is not a technology or a system issue. It is a data governance issue.”
When trying to manage thousands of vendors, within multinational supply chains it can seem tempting to simply focus on those vendors who seem to be most strategic and profitable to maximize on the ROI. However, all vendors and their master data should be included in the scope of vendor master data management.
What are the benefits of Vendor Master Data Management?
Despite the aforementioned disconnect, most CPOs and senior procurement professionals do understand the need for change. According to Gartner: “By 2022, 90% of corporate strategies will explicitly mention information as a critical enterprise asset and analytics as an essential competency.”
For example, in the same way that ERPs are essential for managing finances or CRM solutions for sales and marketing, supplier information management (SIM) platforms are key for enabling digitalization within Procurement. Implementing a vendor master data management system is a solution for many organizations, which comes with multiple benefits:
- Empowers organizations to manage 100% of their vendors and gain complete visibility over them, which helps in strengthening relationships between vendors and the company
- Helps in guaranteeing the quality of data and removes the risk of storing inaccurate or inconsistent information
- Enables data to be centralized and standardized across the organization, making it easier to complete critical tasks such as reporting, onboarding and integration of vendor data in back-end systems, and the identification of any duplicate records
- Allows for greater predictability and understanding of the entire supply chain
- Provides the ability to make strategic decisions based on accurate data
How Vendor Master Data Management makes reporting easier
By improving the data and managing it in an efficient way, using a specialized vendor management solution, you’ll be in a stronger position to report back to the business on questions such as:
- How much do you spend with any given vendor?
- How many transactions have there been between your organisation and that vendor?
- Is the vendor working with any other teams within your organisation?
- Is the vendor actually performing well and meeting your requirements?
- Are there any risks associated with the vendor that could have an impact in the future (e.g. location, labour practices, etc)?
It is important to remember that vendors are not simply pieces of data, but companies made up of real people. Establishing genuine relationships with them will only help in the future – and having good data remains the key route to achieving that.
Article updated June 2021