Vendor Master Data Management
Your “vendor master data management” process and your “vendor master file” (VMF) are two key, foundational elements in your Procure-to-Pay (P2P) process. Vendor data drives every P2P transaction and facilitates a wide range of critical operational and compliance activities from accurate financial withholding to spend analysis to company-wide reporting.
Accurate vendor files are also used maintain regulatory compliance as well as to provide an accurate and complete data framework for profile completion. Vendor master data management is the baseline of many Key Performance Indicators (KPI’s) and supports the adherence to contract terms and corporate policies. With so many critical elements hanging in the balance, it is important to realize that vendor master data management is a process, and not a simple one-time project. It is an ongoing effort and it impacts P2P agreements, transactions, analysis, and reporting. In this short exploration on the topic, let’s review a three pillars model for establishing your process for maintaining vendor master data.
The Three Pillars of Vendor Master Data Management
There are no hard and fast steps that a company can follow in order to achieve a first-rate vendor master data management process. But there are three fundamental pillars of understanding which are required to mature processes, support supplier collaboration practices and other business decisions. Take a look.
Sanitizing the VMF Process
- Identify, inactivate or merge all the duplicate records.
- Correct invalid data.
- Complete the missing data and update the old data.
- Create new controls to govern your VMF process
Stabilizing the VMF Process
This is a process to establish new norms which includes:
- Naming standards.
- Segregation of duties.
- Effectively changing the management controls.
- Establishing rules to ensure correct and complete recording of data.
- Profile completion.
Optimizing the VMF Process
This is the process to ensure proper compliance of policies and regulations. It includes:
- Validating the supplier data at the time of on-boarding and ongoing
- Mitigating vendor fraud and avoidable risks
- Supplier self-service and attestation
Sanitize: The First Pillar
In order to start your vendor master data management process, you need to clean your data and data management process. Firstly, recognize all the duplicate vendor accounts that regularly bring in duplicate payments and fraud; gather missing data and update old data and inactive accounts. Likewise, work to better comprehend suppliers; related parties; parents, categories; supply risk management etc. A good understanding of these factors will help you support analytics, consolidate spending and leveraging negotiations. If the vendor data is clean and updated regularly, you can easily prevent losses due to fraud.
Stabilize: The Second Pillar
After sanitizing the vendor master data, you can begin to stabilize it and further develop normalized and standardized controls in order to support business processes. The VMF stabilization process focuses primarily on the following areas:
- Comprehending errors
This involves understanding why the errors occur and how it can be avoided in future. Based on this understanding you can
- Minimize the possibilities of human errors;
- Centralize the ownership of VMF where it is possible,
- Utilize one VMF instance and
- Implement standard operating procedures.
- Identification and Implementation of best practices
- Standardizing VMF data points and naming conventions
- Segregating duties for file access
- Designing a normalized workflow for VMF additions and updates
- Defining a complete vendor profile for consistency and completeness in vendor master data
- Introducing formal change management tools
Optimize: The Third Pillar
In order to optimize vendor master data management efforts, one needs to drive support throughout the organization and all its value chain partners with a clean vendor master file stored in a controlled environment. While optimizing the vendor master data management process the following 6 principles must be followed:
- Achieving a Stable Environment
- Thorough Compliance
- Supplier Collaboration
- Change Management
- Examination and Spend Management
- Strategic Leverage
Regardless of where an organization is within the spectrum of the Three Pillars Maturity Model, it is necessary to think about what you can do to move yourself to the next level. You have everything to gain; optimizing your vendor master data management process will empower your organization to engage in formalized spend management practices such as: strategic sourcing, spend consolidation, price and contract renegotiation, and SRM (Suppler Relationship Management). These all improve and enhance the entire value chain. Leveraging quality supplier information is limited only by the ability to effectively manage the data and its supporting processes; that, and the imagination of those who own and use it.