Your supplier database is a legacy mess:
When you look at your supplier base, you think: what a mess, and the mess is growing everyday!
And your colleagues all have different way of thinking what is “the right data”…
There is hope :-). First because you realised you have a problem. And second, because the solution is not that complex. You just need a plan. A 5 steps plan.
I have been going myself through this plan several times. Not because i was permanently losing my data, but because my company was permanently merging with other companies: and i had to start almost all over again.
Why cleaning your supplier base and master data?
Having your supplier data clean and consolidated in single location is important and give key benefits. You can:
- Monitor easily your data quality
- Have a solid ground for effective supplier management and supplier reduction
- Recognize critical suppliers and determine their financial position
Data such as contact information, pricing and contracts is crucial to keeping procurement and sourcing processes efficient and costs optimized. You can only consolidate supplier data when it is clean. But just because data is available doesn’t mean it’s always useful and truthful.
During times of disruption, the quality of your supplier data is critical. The quickest to react has a clear competitive advantage.
Why reducing your supplier base: the 80-20 rule
One of rule of thumb I have seen my entire life is:
- 80% of the suppliers account for only 20% of the spend
- 50% of suppliers have less than two purchase orders a year
This is very bad: inefficiencies in ordering and inventory management by the book.
So this is great: you have a wide ocean of opportunities for substantial savings by consolidating suppliers. And you will start to see those once you proceed to supplier data scrub.
How to reduce your supplier database?
The root problem is that many companies’ data is fragmented and stored in different systems making it hard to consolidate, maintain or even update. Supplier base reduction is the one of the most shared targets in procurement. Now, while there is no magic wand, there are methods to reduce a supplier base. Let’s deep dive together on the very first step: cleaning a supplier database.
Projects to reduce supplier bases generate internal resistance and objections. The long list of why not doing it will be looping internally: price, service capability, history with a supplier and put your initiative in danger. Less measurable argumentation will be in your way: perceived risk of switching suppliers, personal friendships between supplier sales representative and some of your colleagues. Do not underestimate those.
That is where the buy-in of your management might be necessary to overcome those roadblocks. They are largely outweighed by the savings from reducing your supplier base to a clean conslidated spend clustered around strategic suppliers, a couple of integrators and monitored by a SRM. If you supplier base is not that long, having a primary supplier completed by a dozen selected secondary suppliers is also a winning strategy.
But before even thinking about reducing your vendor base, you must understand it. And there is nothing more difficult to understand than a mess. That is why the very first step is cleaning. These are the next 5 steps. Only when you will have reached step 5, you will engage en supplier reduction.
Step1: install a standardized creation process
Even if your past is a mess, ensure that your future is cleaned! Start today to at least create new data in good quality. And the best tool to do this at this stage, is the brave Excel. No need of fancy tools: those are steps 10+.
If you start with a complex tool, you will focus wrongly on features and reporting etc… before you even have something to report. First things first. This very first step will not only stop the bleeding, but as well be your first alignment challenge and your first process introduction. This is almost the most painful.
Why ? This is painful, because you will face the usual “we always did this way” and the “this is a great idea, but does not apply to my very very specific situation”. Look at the listing below, and find out what can be too specific to prevent from doing this. I haven’t found yet.
Stop wild creations of suppliers and supplier information:
- Defined required fields
- Ensure a process which avoid duplicates (e.g. only one person can create a new supplier)
- Enforce the choices with your colleagues
This can be as well the right time to introduce a Supplier Creation Form if you do not have any so far. You will need to define a set of criteria for decision-making. Once you know which rules framework needs to be applied to build your list, just start.
You may look at our product templates here if you do not know where to start.
The most difficult part of this step:
To align with your colleagues and enforce a process that people shall respect. Get senior management buy-in and stakeholder support if needed.
Especially on the “avoid duplicates” part. Nobody, but absolutely nobody wants to wait while he is creating a supplier or have additional work such as checking for similarities. This is already a dreadful task in itself, why making it worse?
Step2: Clean and harmonise Core Data across business entities
What is core supplier data and Supplier Information?
We mean such general information items as:
- Supplier Name
- Supplier Code
There is no truth here. If you have import activities, you will need much more core supplier data than a standard national business. Fields such as Customs classes etc… will be mandatory. This is important to clean a supplier database.
The definition of mandatory field is: everything you need from getting a quote, to placing an order, to receiving goods and until full payment.
Real-life tip: a good source of truth to start with is accounting department. A vendor you never wire money to is probably a vendor you do not need in your base. This is the right timing to decide not to import suppliers which weren’t in use for the past 2 years for example.
You may want to build a supplier hierarchy structure if you have several vendors belonging to same corporate group. It helps to identify double accounts and to structure your vendor reporting for future consolidation.
This can be as well the right time to introduce a unique vendor number if you do not have any so far. You can build your own, or go on such provider like Dun&Bradstreet (D-U-N-S Number). Convenient, but costly. You may work as well with LinkedIn.
If you delay this effort and think that the data will just magically be cleansed while implementing a SRM, you will soon discover what frustration is.
The most difficult part of this step :
To make sure you do not have double-vendors hidden in the jungle of your data, while filling the blanks. That is why you clean supplier data. This way you identify in a quick way doublons.
Step3: Consolidate spend of last year
Well, we all know that we do this to see the supplier spend, don’t we? So now has come the time to dig into the figures of last year. Why starting with last year: because it makes no sense to start any reporting if you do not have a clean base year. Which means n-1. You can allow back and forth decision on last year data, this does not impact your current year.
Starting with last year will give you time to align on definitions. Oh this is not about your french subsidiary not understanding your needs. This is about your very next colleagues having other background.
So you gather all sources of spend from your internal Excel, etc… And start to allocate per supplier, consolidate per country etc… There is no other way.
Real-life experience: I spend hours to try to consolidate data from a subsidiary. The figures did not add. I was sitting shoulder with shoulder with my controller to try to find “where is the bug” in our spend database or in our Excel Formulas. Until he realized that the figures of this specific subsidiary were net delivered spend to their location:
- not accounting for direct deliveries to some customers, which they nonetheless had orders from their system
- not accounting for additional costs such as transport etc… which were still part of their P.O. as this supplier was EXW.
He basically saved my day and earned a drink on me.
The most difficult part of this step:
To agree on definitions and perimeters with your colleagues:
- Avoid double counting
- What is meant with spend (invoiced, paid, delivered, ordered,…)
After this vendor master clean, don’t be too hasty. Now that you have a structure, use it for at least 6 months, to ensure:
- You still have time to adapt your Excel vendor database
- You get familiar with your new procedures
- You finalise reconciliation of data
Be patient. This is not about speed. This is about quality and data consistency. This intermediate step does not prevent you from working. SRM in Excel is a great tool to start with. And there are so many companies that just stick to a supplier relationship management in Excel.
You may already address low hanging fruits, no worries.
The most difficult part of this step:
Admit that you were wrong last month and adapt once again your file :-). The last time, I promise!
Step 5: build a SRM with vendor score card
Now that you have the ground stone of your SRM template (Supplier Relationship Management Template), you can start to build on it. Look this specific article on supplier score card and how to build it.
This is a really strong tool to get the full overview of your suppliers, while being able to zoom in details whenever you want.
Creating a vendor score card will cast a crude light onto all the inconsistencies you still have in your data:
- wrong categories
- unrealistic spends
- unadapted criteria
This very last step enables fine tuning our your cleaning process. Only after this scorecard will you sleep well when you run stats on your vendors.
Understand your supplier:
Review your spend metrics and spend analytics.
- Quantitative Segmentation: Stratify your current suppliers quantitatively by spend volume and purchase order frequency.
- Qualitative Segmentation: assess suppliers’ performance, services and business intelligence to help you control total spending.
Start optimizing and reducing your supplier base
This post is describing this process.
Usual Benefits of cleansing supplier data
With cleansing vendor data is nothing done, but soon you will be able to
- Improve total spend and cash flow
- Improve negotiating power
- Identify supplier dependency and risk exposure
- Improve credit limit settings