In this week’s “Supplier Diversity Practitioner Series” webcast, we focused on the topic of “The Importance of Data.” I’d like to take this opportunity to share some of our key findings from this webcast.
According to a Forrester Research report, “Supplier Performance Trends 2010-2011,” data quality is often cited as the number one challenge facing today’s supplier managers. This data includes general company information, ownership/parent-child hierarchy, and compliance and credit risk.
Based on our extensive experience in serving the supplier diversity community, we have identified four major causes of poor supplier data: lack of data accuracy and quality, data redundancy, lack of insight into ownership and diversity certification, and inadequate diverse supplier risk identification.
Supplier company information becomes out of date over time, causing processing errors. For example, the purchasing system might have one supplier location address and the accounts payable system might have another, resulting in delayed invoice processing and rework.
Duplicate suppliers and misclassified locations also cause rework, wasted time and resources. This cost one of our customers $20 to audit each of its suppliers. Data enrichment helped remove around 10,000 duplicate records, resulting in around $200,000 in savings.
Lack of insight into ownership and diversity certification also pose major challenges. Correctly grouping and categorizing suppliers by family and categories is required for accurate spend analysis and strategic sourcing. Using our own customer base as an example, we have been able to identify $800 million in miscoded spend. And even more significantly, we have identified $2.3 billion in new supplier diversity spend by identifying and correctly categorizing suppliers.
To increase the confidence in Tier 1 supplier diversity spend numbers, a strategic focus and commitment also are needed to ensure that classified suppliers obtain 3rd party certification. This requires stratifying the supplier base to identify for certification the target group with the highest impact on overall supplier diversity spend.
Supplier dependency risk also can have a significant negative impact on Tier 1 supplier diversity spend. For example, one of our customers identified the risk of increasing dependency posed by a critical direct supplier that was experiencing deteriorating revenues. Supplier dependency risk also can result when supplier linkages cannot be determined due to lack of parent-child information. Supplier managers must be able to sort out complex vendor organizational hierarchies to determine supplier linkages for all activity at the ultimate corporate parent.
To meet these data quality challenges, industry best practices dictate that, before you deploy supplier portals and other projects, you must undergo the process of data cleaning and enrichment because they cannot manage suppliers without clean, quality and up-to-date data. To halt the propagation of bad data across the enterprise, initial “clean and enrich” steps include gathering missing or incomplete data, removing duplicate suppliers, standardizing names and categories, and establishing supplier dependency and global corporate family linkages.
To maximize supplier leverage and minimize supplier costs, for example, you must better understand if you are doing business with more than one “related” company in a family tree or corporate structure. You can achieve “buying power” by being able to identify these families and leverage your spend for more favorable contract terms. Additionally, you can reduce costs and increase buying power by migrating away from related companies with low spend to families with more spend.
Stated most broadly, however, the supplier clean and enrich challenge you face today is no longer about just increasing your spend with diverse suppliers. The focus now is moving towards increasing the total amount of diverse suppliers in your supply chain. The impact of diverse spend increases as you increase the number of diverse companies you do business with – and lessens the “blow” from losing any one diverse supplier with a large amount of spend.