What is Vendor Master Data?
In Deloitte’s 2021 global survey of Chief Procurement Officers, some surprising trends emerged. The procurement landscape has changed as a result of the pandemic, but high performers who have been able to adapt share one key feature: agility.
“Procurement agility masters excel at risk mitigation, actively monitor fast-moving stakeholders and supply markets, and decisively orchestrate internal and partner resources to nimbly respond and transform the upstream supply chain,” wrote Deloitte, summarizing its findings.
Gaining the agility necessary to adjust and adapt to a fluid market requires visibility. Notably, the Deloitte survey also found that high performers were 50% less likely to have low visibility into their tier 2+ suppliers and 90% more likely to have high visibility into tier 1 suppliers.
Where does this visibility come from? Vendor master data records are one important source. Vendor master data management is a high-value activity that procurement teams can undertake to build supplier relationships, gain visibility, and ultimately become more agile.
What is vendor master data?
Vendor master data, also known as supplier master data, is a record of key vendor information that includes general data, such as the vendor name and address; company code data, such as the payment transaction data; and purchasing data, including the terms of payment, the currency used to order from the vendor, and important contacts.
Vendor master data is a complete record of the supplier’s relevant information. As such, it should capture everything from procurement history to information about the goods and services sourced from the vendor, inventory data, contract records, purchasing records, and more.
Vendor master data is typically co-managed by the accounting team and the procurement or purchasing team.
What are the benefits of vendor master data?
Research published by MIT Sloan found that poor data quality is costing companies 15-25% of revenue — which costs the US economy an estimated $3.1 trillion each year. When vendor data is riddled with error, incomplete, or outdated, it can cost companies time, money, and damage supplier relationships.
Well-maintained, up-to-date and accurate vendor master data can significantly improve a company’s operating margins. With the right data, companies can make smarter decisions by evaluating the performance of their supply chain partners. This allows organizations to maximize the cost-effectiveness and efficiency of their supply chain.
Other benefits include the better use of internal resources. Accurate, clean vendor master data allows for the smooth implementation of technology and integration among ERP and e-sourcing tools. It becomes easier for employees to maintain vendor accounts, track the digital supply chain, and stay compliant with tax reporting and other regulations. And, vendor master data helps companies be more agile in emergency situations — like an unexpected pandemic.
How to collect and manage vendor master data
Managing vendor master data should follow a set process that’s followed regularly to ensure records are kept up to date.
Vendor master data management starts with supplier onboarding. When the organization enters a new agreement with a vendor or renews an existing agreement, it should collect a standardized set of data from the supplier. Delegate a specific department — procurement, sales, or finance, for instance — to be in charge of supplier onboarding. They should collect the vendor data, review and double-check for accuracy, and add it to the ERP, P2P, etc.
On a set schedule, the organization should check with vendors for any updates to their master data. This process must also be clearly delineated. Making updates to an existing record requires some form of governance: not every team that has access to vendor master data should be able to make a change. Keep records clean and organized by limiting access to vendor master data and only allowing changes to go through an approval process.
Deactivate or “offboard” suppliers as needed, too. When a relationship closes, make sure the vendor master data is deleted from the ERP and other systems. This cuts down on the risk of someone accessing the record and making an unapproved purchase directly from the vendor — helping to mitigate the risk of rogue spend.
Finally, your vendor master data management should include an option to reactivate suppliers as needed. Imagine that you decide to work with a supplier with whom you have not worked for five years. That vendor master data record is likely well out of date. But, you also don’t want to create a duplicate record for the same vendor. Create a reactivation process that mimics the supplier onboarding process and ensures that all data, certificates, and agreements are newly updated.
Vendor master data offers a true competitive advantage to those organizations that collect, organize, and use it well. But few organizations can claim that advantage, even in 2021. “Our research found that very few CPOs (18%) were formally tracking the risks that existed in their direct (tier 1) supplier base, and only 15% had visibility beyond that,” wrote Deloitte.
It’s important to find a tool that makes vendor master data management seamless and easy. By automating other parts of the procurement process, such as sourcing events, procurement professionals can spend time on the higher-value task of vendor data management — an activity that has a clear impact on competitiveness and profit.
For more advice on managing suppliers and using data to make better procurement decisions, check out Fairmarkit’s blog, The Source.