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Why Supplier Master Data Governance, part 1 of 2

In this 2-part posting, we will cover the basic importance of Data Governance in Supplier MDM, and HICX’s fundamental beliefs regarding a successful program. We will also discuss the need to understand the different types of supplier content, and the need to manage the resulting data in different ways. Furthermore, we will touch upon the need for organisational cooperation to harmonize tools, and processes while recognising departmental differences.

INTRO

When implementing a Supplier Master Data Management solution, the most important decision that must be made early in the process is the type of MDM strategy that best fits the organization’s needs: Operational MDM or Analytical MDM.

In Operational MDM, a golden copy of the Master Data is created first, and data is maintained through at the data master level, and then pushed to downstream systems as necessary. This ensures that data are created with the necessary standards and integrity and all downstream systems share the same data.

In Analytical MDM, the golden copy is created as the downstream process and data are aggregated from different the transactional systems. While the data are aggregated in the master database, this information is usually not pushed back into the systems where the data originated.

Both types of MDM support different needs. Operational MDM ensures that the data is consistent across the organization. Analytical MDM aggregates data from different systems to create a “single view” used to support reporting or data warehousing needs.

As one can envision, Operational MDM is more complicated, requiring not only investments in tools and technology, but also the implementation of organizational processes and responsibilities to manage the creation and modification of data. Further, within Supplier MDM (S-MDM), by including the supplier within the data collection and management adds additional challenges. Yet, these investments are rewarded with a high return in both hard cost savings and intangible value through better, consistent, and accurate data throughout the procurement organization and extended enterprise.

INTRODUCTION: SUPPLIER MASTER DATA GOVERNANCE

Operational MDM requires active governance to be successful. Just as a screen door on a submarine is illogical – and so is any Supplier Information Management (SIM) program without Master Data Governance. Supplier Data Governance is critical for organizations to ensure the quality of their supplier data model and realize the maximum value from their programs.

High performing procurement organizations use multiple levers to realize and sustain bottom line savings (Figure 1) – and accurate and timely supplier master data is foundational to all the procurement levers. Proper S-MDM ensures the quality and availability of this data.

SUPPLIER DATA: THE PROBLEM

The goal of any S-MDM or SIM program is to gather, maintain, govern, and disseminate supplier information regardless of source or system. Sounds simple, but there are a lot of moving parts as it relates to supplier information. Procurement processes that spawn global, local and cross-functional organizations yield a large number of variations within business needs for supplier data (Figure 2).

However, a complicated network of processes, systems, and customer requirements make it difficult for organizations to efficiently access and proactively capitalize on actionable supplier information.

What more, supplier data can quickly become stale, inconsistent, inaccessible, and unreliable. A quick check into the number of duplicate records within any ERP system illustrates this. Similarly, attempting to track down historical data for compliance requirements can be, at times, impossible when information is stowed away in folders and drawers across several departments. Even when data is available, they can be in different systems and disconnected, making it difficult to aggregate, compile, and draw meaningful results.

Some corporations use basic “data cleansing” exercises to correct, or “connect”, the data. But these exercises rarely go beyond addressing short-term or narrowly focused needs, such as spend reporting or compliance requirements. Without a “true” supplier repository, each procurement function or group ends up creating silos of data to address their unique needs. This results in supplier data discrepancies across functions and, shortly thereafter, outdated supplier data.

A true supplier repository or “single source of truth” – one that is able to provide consistent and accurate information across all the different functions and needs – can be truly strategic and help realize the full potential of value of supplier information management. Without that, procurement groups are unable to leverage the benefits of the information that they spent time, money and resources to collect. Invariably, in this case, business performance will suffer.

SUPPLIER DATA: TYPES OF SUPPLIER CONTENT

Traditionally, supplier content falls into four categories:

1. Master Data: The core supplier data, which includes information such as supplier name, address, banking information, etc. This data does not change often, and is common across all company relationships with a supplier.
2. Transactional Data: These are business transactions that occur over the lifetime of the supplier relationship. This includes orders, payments, returns, shipments, etc. – and the data simply grows over the life of the supplier relationship.
3. Informational Data: This data is supporting information that, while maybe not necessary for business transactions, is useful to develop a better understanding of the supplier, and your relationship. These could include news stories, industry events, product features, etc.
4. Documents: Various documents are collected through the course the supplier relationship. These are required to support the various business, regulatory, and compliance requirements and can span across the procurement organizations. Examples include: W9/W8 forms; Certificates of Insurance; Safety Evaluations; Contracts; Performance evaluations; etc.

SUPPLIER DATA: SUPPLIER VIEWS

Supplier content, in the raw forms described earlier, are of little use. Various combinations of the data are typically organized into “views” that provide context and structure to support the specific functional or system need. There are three types of views: Supplier, Internal Organization, and System (Figure 3).

1. The Supplier View: The Supplier view involves the supplier master data. This view is vital to enable supplier-enabled Supplier MDM, which engages the supplier in the maintenance of global supplier data. The optimal source for a supplier’s master data is the supplier. This view structures the data to simplify and optimize the data collection from the supplier.
2. The Internal Organization View: The Internal Organization, or relationship-specific, data is a business unit’s view of the data. While the master supplier data (such as legal name, Tax ID, etc.) do not change, a business unit’s “view” of that data may differ based on their relationship with the supplier. For example, a supplier: may require a different “Doing Business As” name for specific engagements; or may require different combination of ordering, payment addresses, contacts and banking information for different business units; or, have some data elements only applicable and accessible to selective divisions. Functional users do not want to have their data convoluted with that of other groups’ data and requirements – especially if it’s not relevant, or confuses their data and processes. Therefore, each business unit needs its own Internal Organization View of their suppliers’ data. Some examples of such “local” views of data could be things like products purchased, manufacturing locations, contacts, payment terms, etc. While there should always be a focus on centralizing more data elements, for a centralized solution to be deployed successfully, there will always be a need to cater to the specific local business needs.
3. The System (ERP) View: Transactional systems (ERP, eProcurement, eInvoicing, etc.) all have their own unique views and data structures that are appropriate to drive the relevant business processes. These views are very different from how business users, or suppliers, need to visualize the same information. In a large organization there may be multiple system views. Therefore, to permit the MDM solution to interface with as many systems as possible (or even one system), the resulting data model should be independent of the any one specific system. Each transactional system (e.g., SAP, Oracle, PeopleSoft, Ariba, etc.) stores supplier data completely different. A sophisticated MDM solution easily caters to, maps, and syndicates the data appropriately for each systems structure.

On Thursday please visit us for Part 2 of this posting, which will discuss why Supplier MDM is needed, Data Governance building blocks, and the Requirements for Success.