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What is Vendor Master Data Management and Why is it Important?

What is Vendor Master Data Management and Why is it Important

An organization cannot be genuinely effective without knowing its vendors, as they are integral to every aspect of the business, and their combined contributions help to define the organization’s reputation in the market.  

Allocating the time and resources to understanding vendors allows organizations to improve all aspects of supplier management, such as sourcing, category management, and payment processes. 

As such, Supplier Master Data Management (MDM) should be a top priority for procurement leaders to focus on, as it allows them to create a single version of truth for all data related to specific vendors and improve the performance of the organization. 

What is Vendor Master Data Management?

Vendor Master Data Management (MDM) is a framework that organizations use to manage extensive arrays of supplier-related records. All pertinent information regarding the supplier, its products and services are included within this data, which is also referred to as supplier master data. 

The data may include purchase histories, supply categories, stock data, details of contracts, purchasing records, and other crucial details regarding the supplier-organization relationship. 

MDM benefits organizations by providing them with a holistic view of this data by storing it in a central location, which also then makes it easier to utilize the data for procurement purposes and monitoring and reporting on suppliers’ performance.  

Why is Vendor Master Data Management important?

Vendor master data management is crucial because it ensures that organizations can efficiently and effectively manage suppliers. This is essential for all organizations as they will often require many vendors to purchase services, goods, or raw materials.   

The added efficiencies brought about by practical vendor master data management also help strengthen vendor relationships, while supporting them in securing long-term success. 

Therefore, supplier master data management should be a top priority for procurement professionals as it provides the organization a single version of truth for all data related to a particular vendor. 

Why do organizations struggle with Vendor Master Data Management?

Within the industry, there is a disconnect between where many CPOs would like to be and where they are in managing vendor master data and related analytical information. 

It is apparent that tackling this lack of supplier master data and gaining insights into the supply chain is essential for organizations that are intent on increasing their market share.  

With a holistic view of accurate data, it is easier to make the right decisions to help the organization stay ahead of its competition.  

Companies currently thriving the most are digital natives that are invested in data. On the other hand, for many organizations, there are often numerous hurdles with common obstacles, including:  

  • Issues with the vendor master data quality have long plagued organizations; this is supported by a research report Raconteur compiled in partnership with HICX, Solving the Procurement Data Dilemma. A contradictory finding stated, “55% of respondents who say their supplier data is best in class say they only have moderate oversight into it.”  
  • It raises the question of how organizations can know if their data is optimal if they only have a moderate level of insight into it. 
  • There is often too much data overlap across multiple silos typically used in large organizations. 
  • There is a lack of adequate data governance policies. 
  • It is perceived as time-consuming and costly.  

When managing thousands of vendors within multinational supply chains, it can be tempting to focus on the most strategic and profitable vendors to maximize the return on investment. However, all vendors and their master data must be included in the scope of vendor master data management to gain a holistic perspective. 

What are the benefits of Vendor Master Data Management?

Supplier information management (SIM) platforms are vital for enabling digitalization within Procurement, which can help enhance performance. Implementing a vendor master data management system is an ideal solution that allows organizations to gain more significant insights into their suppliers’ performance and a holistic view with the following benefits:  

Single source of truth

Supplier information is often complex and spread across numerous platforms within an organization. There are often manual processes that are required to be completed and are more prone to human error. 

Supplier management software provides organizations with a single source of data that empowers them with clean and accurate information and data related to the suppliers, enabling them to make efficient fact-based decisions for greater productivity. 

Full data compliance

When dealing with global supply chains, there are a variety of governmental or regulatory standards that must be adhered to. These standards are often growing increasingly rigorous, meaning that organizations need to remain agile and aware of these changes to avoid ramifications for their business, which could include fines and damage to their reputation. 

Supplier Master Data Management helps minimize these risks and ensures that organizations stay on top of regulation changes to ensure full compliance.  

More accurate data

Organizations that invest in SMDM also benefit from increased accuracy in their data. This is essential as errors in the data could impact other areas of the business and mean that time and resources need to be invested in overcoming issues as they occur.  

It also ensures that instances where data is incomplete are eradicated and that organizations are fully informed from the outset when tasked with important supplier-related decisions.  

Better decision making

Master Data Management provides an overview of an organization’s data and provides greater levels of control regarding how the data is managed. More accurate data helps to feed into better decisions being made; this is especially the case when combined with complete data.  

Enhanced supplier performance

Supplier Data Management empowers enterprises by offering the opportunity to determine and monitor critical supplier metrics, such as delivery times and quality levels, which can result in enhanced supplier performance. 

How Vendor Master Data Management makes reporting easier

Using a dedicated supplier management software solution empowers organizations by enhancing vendor data and managing it more effectively. This puts them in a better position to make more informed business decisions and answer critical questions like:  

  • How much is spent on a particular vendor?  
  • What number of transactions have taken place between the organization and that vendor? Does the vendor collaborate with any other groups inside your business?  
  • Does the vendor genuinely fulfill your needs and perform well? 
  • Are there any potential future hazards connected to the vendor (such as location, labor standards, etc.)?  

It is imperative to remember that suppliers are businesses comprised of actual people, not just abstract data. Future benefits can only come from developing sincere supplier relationships with them, and having reliable data is still the best way to facilitate that for mutually beneficial long-term success. 

Article updated June 2023

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