In part 7 of 17 in this series on procurement/finance collaboration, Chief Procurement Officer continues its countdown, from least to most important, of the top ways finance can help procurement improve spend and supply management. The rankings come from a joint Spend Matters and Institute for Supply Management research study, which is still open to practitioners. (Participants can win an Apple Watch or 1 of 10 Spend Matters PRO memberships.)
Coming in at No. 11 is procurement’s desire for finance to get a supplier master data management process and policy that works for everyone. The problem is that too many finance organizations treat supplier information management (SIM) as a tactical vendor master file maintenance activity buried within accounts payable (A/P). If suppliers are supposed to be managed more strategically and in a more tailored way based on the nature of the spending with them, such as in category management, then supplier information should similarly be managed more effectively. Getting a handle on managing supplier master data well – and doing it cross functionally to support broader business objectives – is absolutely foundational in a procurement transformation, according to provisional data from the study.
Supplier master data management (MDM), which is part of SIM and in turn part of broader supplier management, needs to be freed from its transactional shackles. The first step is for finance and procurement to agree on a broader vision for it. A/P groups too often are measured on payment efficiencies, on-time payments and basic risk mitigation. They lack a major impetus for performing compliance checks on a broader procure-to-pay process (P2P), since that would slow them up.
Procurement, on the other hand, rightly sees such a cash disbursement process as a more centralized activity. It is a single chokepoint – or small set of choke points – to identify when pending spend is against procurement policy and fix root causes for such noncompliance. Many firms will try to use “no purchase order, no pay” policies as a countermeasure, but such a policy is just one tool to consider.
The best companies manage their supplier information in a broader context around P2P and even source-to-pay (S2P). The former requires explicit linking of sourcing and category management into P2P, where accountable global process owners for P2P will align procurement, finance, spend owners and suppliers around an optimized P2P or S2P process. This includes an optimized SIM process that serves more objectives than just efficiently setting up suppliers to spend money with them poorly. Such supplier information not only helps pay the bills, but also helps in sourcing, risk management, spend compliance and working capital management.
The bottom line is to manage this process as strategic SIM rather than transactional vendor master file maintenance. You may not be able to make A/P truly strategic, but at least you can help them elevate their value alongside you – and jointly improve spend effectiveness while also improving payment efficiency.
In the next edition of this series, I’ll focus on how finance can help procurement by using internal auditors and controllers as change agents in a procurement transform