Friday, July 20, 2012

Master Data Management

I had an individual ask me to explain Master Data Management. Since the Blog is about procurement and procurement contracts, I’ll try to respond in that context. All master data management is about is discipline in the management of master data that is used through the company and with suppliers. That management may be done through systems, tools, or processes. One goal of master data management is to improve efficiency by avoiding the need to key in information that already exists. Another goal is to make the transition of data between systems to be seamless. For procurement the goal of master data management is to improve the quality of your data for doing things like identifying trends in purchases, trends with specific suppliers for use in developing strategies, plans, and negotiations

What is master data in procurement? Master date management for procurement would include things having like:
1. Having a system that assigns the unique Supplier Number for every supplier entity that includes all the pertinent information about the supplier that prevents duplicate numbers being issued for the same legal entity
2. Having a system that assigns the Purchase Order Number and applicable Contract Number for use with all applicable transaction.
3. A system or structure that assigns or identifies applicable Commodity Codes to be used with the purchases
4. A Part Number assignment system or process. Part numbers are used in materials planning, requisitioning, ordering, receiving and production and services inventory management. These usually need to map supplier part numbers to buyer part numbers.
5. Qualified supplier lists that identify the specific suppliers and part numbers that are qualified to supply the buyer part number.
Master data could also include specific information that is imputed about the purchase such as delivery, quality, failure data about a specific product or supplier.

Master data management is most needed where there will be large transmissions of that data within the company and with companies that have multiple entities or operations spread around the world. I once picked up responsibility for supporting a Network Services business that used a significant amount of third party product. The prior management had allowed each country to assign their own part numbers for what they purchased. There was no master data management for that business across the world. The net result was we had some country locations that had inventory of needed items, that no one else was aware of. We even had multiple locations in a country that didn't know what each other had for inventory. By not having master data management for part numbers for these products they did several things that cost the company.
1. We were paying premiums suppliers to expedite delivery to the location that needed it.
2. We were paying for premium freight and duties to import those items when frequently inventory already existed in another stocking hub in that country.
3. We were also consuming the company’s capital unnecessarily by buying new product while the other inventory aged.
4. When it came time to negotiate new volume purchase prices with the suppliers all the information needed to be pulled manually by each of the locations.