Master data management crucial for commodity management

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Johan de Jager.jpgThe implementation of proper Master Data Management (MDM) enables organisations to not only improve their reporting capabilities, but also realise savings through true commodity management, Johan de Jager, Senior Procurement Specialist at Volition Consulting Services, tells SmartProcurement.

Procurement professionals the world over realise more often than not when kicking off a sourcing initiative, that the data they are working with is the most complex part of the whole process.

They spend many unnecessary hours every year sifting through tons of data to get a holistic view of the addressable spend within their commodities.

Bad management of master data is the sole reason of this frustration, says de Jager

Until recently MDM has not received sufficient attention in the procurement function. In many cases data management has been assigned to the various departments outside procurement such as finance or stores/warehouse. This is not only true in the private sector, but also in the public sector.

With the realisation of the strategic importance of procurement, companies are coming to the conclusion that the commodity structure used within the organisation is not only being utilised by the Finance Department for General Ledger accounts, but also by the Procurement Department, where commodity management is the order of the day.

Furthermore, bad data can lead to bad planning, bad reporting and missed opportunities, not only within the procurement department, but right across the organisation.

“I have personally seen the reported BEE spend of a company jump significantly through improved vendor master data management. Through the identification and management of duplicate vendors and the alignment of the procurement spend to a single vendor entry, the company not only succeeded in achieving government targets, but also exceeded their future targets,” explains de Jager.

There is still a misconception in the market that MDM is only a high level activity where your item master, for example, only needs a classification linked to every item master entry or purchase order. While this is a very good starting point in commodity management, it is also essential to standardise the descriptions of item masters within the master data environment.

Few organisations have the skills embedded in their resources to perform proper master data management and often this task is passed down to junior personnel to manage. Because of the lack of skills, industry knowledge and technical insight, these resources often “convert” the description and part numbers supplied by the vendor into a master data record. This might be an acceptable practice when it comes to OEM parts, but by implementing vendor descriptions and part numbers the company closes itself off from any competitive sourcing advantage that it may have in the market.

So what is the way forward for procurement professionals faced with bad master data quality?

Identify the capabilities of your ERP system – Changes in the strategic importance of procurement and more specifically commodity management in companies has forced ERP solutions to evolve with these expectations. We no longer see a single tier commodity structure in ERP solutions, but rather multi-tiers available to the users.

Identify / Create a commodity structure that suits your needs – There is a vast amount of ready-to-use commodity structures available in the market, most of which are free or available to the public at a minimal fee. De Jager favours UNSPSC as this structure is sufficiently developed that you could implement it with very little effort into any type of business. Many organisations also create and implement hybrid structures based on their specific needs.

Implement a structure for item descriptions – The most common structure works as follows: Noun, Modifier, Attributes. Example: PAPER, PRINTING, WHITE, 80GSM. By creating a generic description, with non-vendor specific specifications the organisation allows itself to purchase the specific item required, but opens the item to the market to supply its own brand of the item.

Get input from all stakeholders – In many cases this is where organisations loose the plot. While a relatively senior person may be assigned to perform Master Data Management it would be impossible for this person to have the technical knowledge related to all products. Therefore, it is crucial that the organisation receives input from all relevant stakeholders regarding the product or service being created. However, it is important for this person to manage the expectation from end users and still create generic descriptions for each product.

Through implementing proper MDM, the organisation will see an improvement in their reporting capabilities and has the potential to realise savings through true commodity management.

For more information on master data mangement, contact Volition Consulting services.

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