Written by Matt Holzapfel
Over the past 5 years, Supplier Mastering has become one of the most common problems that we solve for our customers. Some people refer to this as the “Supplier 360” problem. Others just say, “we have poor visibility into our supply base”. Regardless of how you describe it, the need is the same: finance and procurement professionals want access to complete, accurate data about their suppliers. It’s a challenging problem, but once solved, we’ve seen it deliver $10M+ of savings for the average sized company (and $100M+ for the largest companies).
Solving this problem requires unifying internal and external datasets to create a comprehensive view of all activity with a supplier. The datasets typically involved include a mix of:
- ERPs: This is often the starting point, since it contains the raw data created from transactions and supplier interactions. Cleaning up this data is foundational to being able to answer, “who are our suppliers?”
- Procure-to-pay: Once this system is a critical part of your accounts payable process, it becomes a key source of supplemental information about specific interactions with suppliers
- Master Data Management: Companies who have tried solving the Supplier Mastering problem with a human-intensive, rules-based approach often have a Master Data Management system in place to house these rules and store supplier master data
- Firmographics data: External data sources such as Owler and D&B help understand company hierarchies, ownership structures, and physical locations, all of which are necessary to know to understand the composition of your supply base
- Validation services: Services such as SmartyStreets and Melissa Data review the validity of addresses, emails, and other attributes that are needed to interact with (and pay!) suppliers
- Compliance: Global watch lists, typically provided by governments, are required to understand if a new or existing supplier is prohibited from participating in your supply chain
- Sustainability: These datasets, which are provided by firms such as EcoVadis, have become more popular over the past few years as more companies aim to measure sustainability risk in their supply chain to avoid being blindsided by regulation changes or negative press
- Diversity: Many companies are establishing supplier diversity goals, and are turning to 3rd party data providers to understand which of their suppliers meet criteria such as being a small or minority owned business
Regardless of the amount of data you have about your suppliers, that data needs to be unified to be truly valuable. This means overcoming the silos inherent across these datasets and being able to link together multiple instances of the same supplier even when it’s not obvious (e.g., “Google” and “Alphabet”).
Companies who deploy a sustainable, continuous solution to this problem realize benefit along three key dimensions: spend optimization, supplier onboarding, and compliance. Combined, these operational and analytical benefits can easily generate $10M+ in new savings.
This is often where companies start when looking to generate savings from their shiny new unified views into their supply-base. These savings are generated by answering analytical questions that were previously impossible to accurately answer then using those answers to negotiate with suppliers or adjust sourcing strategies. Among these questions are:
- Are we receiving consistent payment terms from each supplier? If not, we need to renegotiate.
- Do we have the right number of suppliers within each spend category? This includes understanding which categories are highly commoditized – where we should have more suppliers to optimize price — and which are strategic — where we should aim to partner with specific suppliers to balance innovation, supply, quality, and cost.
- Which suppliers are growing and shrinking the fastest? If we are quickly becoming a more or less important part of a supplier’s business, we need to take action. This can mean normalizing the relationship with the supplier or activating new suppliers.
- Are strategic suppliers actually strategic? If we think a supplier is strategic, but award them a limited share of the business and see poor performance from them, we need to rethink our sourcing strategies.
Customers will typically start by realizing savings in the analytic-driven spend optimization category before moving to operational savings, such as those realized by improving supplier onboarding. Finance departments (accounts payable, in particular) must manage an overwhelming number of suppliers, so onboarding processes require high amounts of automation to be effective. Once automated, this process can immediately become an engine for generating new savings in a few areas.
- Avoid duplicate payments. Companies are often unknowingly paying the same supplier multiple times. This can be avoided by ensuring a “new” supplier is actually new during onboarding, even if their name or address appear to be different.
- Negotiate with the best information immediately. The first contract with a supplier is one of the most important. When you have all internal and external information available about a supplier at your fingertips for that first negotiation, you can get off on the right foot.
- Ensure compliance. You can’t be compliant if your onboarding process is not verifying suppliers through external sources of information.
Ensuring your supply base complies with government regulations and sustainability & diversity goals starts during the onboarding process, but never ends. Supplier statuses can change overnight, so a continuous feed of information is required to understand when these changes happen. It’s impossible to predict when they will happen, but by having timely data about these changes, you can significantly reduce supply chain disruptions and avoid unnecessary fines.
Many companies struggle to maximize their savings potential within these three areas because of the massive variety of supplier data. Our data unification platform, Unify, uses machine learning to overcome this variety and provide accurate views of your supply base. We’ve also developed cloud-based solutions that come pre-packaged with models and datasets required to minimize the amount of human effort required to get breakthrough insight into your suppliers.