Optimising financial processes

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Vendor Master Data: The Engine of the P2P Cycle

master data governance

It all starts with the data, and in the case of Procure to Pay/Purchase to Pay (P2P), it’s Vendor Master Data (VMD).  Many organizations spend many man months and years, not to mention a high cost, cleaning up their Vendor Master Data only to realize that it had begun to slip back into a less than pristine state only months later.  Because of its primary nature as the engine of the P2P process, inconsistent or erroneous Vendor Master Data will manifest in numerous exceptions and potential fraud in downstream processes.

For example, it’s estimated that 25%-30% of duplicate payments occur from duplicate suppliers defined in organization’s Vendor Master Data, a significant risk to any organization. Could this be the result of a poorly coordinated and fragmented process? of Fraud? or something more complex? Is there an answer, or is this just an inherent risk within P2P?

Even in the absence of fraud events, inconsistent, duplicate and erroneous Vendor Master Data has an equally damaging, yet silent, effect on the organization; wasted effort, lost cycle  time and disgruntled suppliers and colleagues. Quantifying duplicated effort, or the amount of time spent ‘chasing down’ the right record might seem difficult but small investments in time and knowledge around this can transform your P2P operation.

In short, there is an answer and it requires reflection and perspective and a little work. An honest look at the overall number of vendors in your organization is a great place to start. Shared Services Link recently published research that shows companies who are identified as ‘World Class’ have on average 2,048 vendors per $1 Billion in revenue. Additionally, a simple review of one time, or highly infrequent suppliers can serve as a quick litmus test for process effectiveness and fraud risk. These spot checks can show exceptions, the real challenge becomes finding adequate remediation, which is accomplished through a thoughtful, repeatable and risk based review of the data and the related processes.

Key drivers for VMD clean up may be a consolidation of processes into a Shared Services environment, increased processing time due to an increase in duplicate payments, Audit Findings, Fraud, planned improvement of Accounts Payable cycle time and many more. Whether your end to end process is scoped as ‘Invoice to Pay’ , ‘Purchase to Pay’ or ‘Source to Pay’, the impact of badly managed master data cannot be underestimated. However, in terms of managing it better, organizations that create a ‘Source to Pay’ (S2P) end to end context tend to get better stakeholder alignment across vendor management and thus find it easier to address underlying issues – food for thought all you Global Process Owners (GPOs) out there!

We have developed a framework to help you through the stages of Vendor Master Data rationalization and control with a focused diagnostic and assessment of Vendor Master Data including specific guidance around ongoing continuous monitoring and sustainability. We come armed with advanced analytics for Vendor Master Data to tease out unusual patterns of behavior, outliers, data field inconsistencies as well as potential fraud risks.  Additionally, we guide you through the data format standardization process identifying all mandatory, and pertinent fields. Master Data management is a journey, and knowing your risks, knowing what works and what does not work, and why, are critical first steps to moving Master Data to the next level as a connected, pro-actively monitored process.

This is a short sharp engagement that can have a transformative effect. We also have some great customer feedback and ratings on P2P KPIs and Analytics. It’s all related to optimising our Procure to Pay and even Source to Pay end to end processes Would you like to learn more? Click here: