Business Information Management the way we see it

Procurement Master Data

– The Bedrock of Success
©2011 Capgemini. All Rights Reserved. No part of this document may be modified, deleted or expanded by
any process or means without prior written permission from Capgemini. Rightshore ® is a trademark belonging
to Capgemini.
 Business Information Management the way we see it

World class procurement is built upon the availability of information to drive visibility,
control and effectiveness. Information provides the ability to optimize leverage, pursue
informed buying decisions and ensure alignment of internal behaviors to procurement
strategy. Despite how crucial this clearly is, information and visibility relating to third
party expenditure remains an on¬going problem for many organizations.

Information is built upon data. The ƒƒIs detailed, granular understanding

quality of master data ultimately of expenditure available across
dictates the integrity of output all major areas of direct and
information and reporting. In indirect spend categories?
our experience, organizations
are continually hampered with ƒƒCan I compare consistently
optimizing the performance spend information at supplier,
of their procurement activities commodity and line item
through the paucity of information level across sites, divisions,
and availability of reliable data. locations and geographies?
In effect, too many procurement
activities are executed when ‘driving ƒƒDo I know definitively what I
blind’ or made on the basis of spend, with whom and on what
‘gut feel’ or ‘best guesstimates’. in real time without the need
for resorting to spreadsheets
Poor Master Data Management and manual intervention?
(MDM) leads to a cycle of
detrimental events. It starts with ƒƒCan I track savings consistently?
often laborious practices to gather
data from various systems and ƒƒDo I have clear visibility of the
employ some degree of manual compliance levels within my
cleansing to create an acceptable organization against preferred
level of consistency. With this, a contracts and suppliers?

‘snap-shot’ analysis becomes possible, If the answer to one or more of

although this represents merely a these questions is anything other
moment in time rather than real time. than a resounding ‘yes’, then you
almost certainly suffer a problem
Consequently the disparate nature with supply-centric master data.
of underlying data as well as the
inherent data gaps which frequently Despite the age-old nature of
exist provides the formulae for this problem, improvements to
sub-optimal and/or misleading MDM have been slow in coming.
analysis. Take a moment and Capgemini has identified a number of
consider the following questions: reasons behind the lack of progress
in rectifying this fundamental
issue for procurement success.

Procurement Master Data – The Bedrock of Success 3

The ten drivers of – the organization now has three ƒƒGovernance and accountability:
poor master data products when in reality there is responsibility for data management
Whilst no two organizations one. Whilst data structures may is fragmented with unclear lines
are identical, the issues with be consistent within individual of accountability. Common
Procurement Master Data typically BUs, harmonized enterprise- governance determining roles,
come down to a combination of one wide information is frustrated. responsibilities and accountabilities
or more of the following factors: for data entry, management
ƒƒData structures & schemas: it and integrity are also a major
ƒƒPoor data entry: lack of data is not uncommon to find a lack contributing factor. Rigor and
entry discipline is a common of a consistent schema (or its clarity provides uniformity and
issue. This can take a number application) within an organization consistency. Its absence conversely
of forms. Regular problems defining material and service leads to multiple approaches
include: assignment of “other” group hierarchies. Multiple within the enterprise providing
as a major expenditure classification approaches are not opportunity for conflicting data
category, use of incorrect uncommon mingling ‘home grown’ standards and ambiguity.
categorizations, incomplete with industry standard structures.
application of part numbering/ These tend to undermine ƒƒOver-reliance on IT: despite
supplier description details in consistency. In simple terms, when significant improvements in the
master records, duplication two things which happen to be the available IT solutions to help
of entries and mis-coding. same are called something different resolve master data problems
they become two different items they are not a panacea. However
ƒƒLegacy systems & classification as far as reporting is concerned. good the technology platform,
structures: many organizations Although use of schemas such as it relies on process discipline
have grown through mergers and EClass and UNSPSC has become and application. Perceiving them
acquisitions or have segmented more commonplace, consistent as a ‘silver bullet’ negating the
their business units (BUs) to application and coverage remains need for non technology activity
recognize distinctive product problematic. Without a common simply contributes to the problem
offerings or markets. Through data structure to drive uniformity and holds progress back.
this process, data structures in data entry, inconsistencies
have often been siloed with no rapidly arise and persist.
overarching direction or approach.
Hence a “hard hat” at one location
becomes a “yellow hat” at another
and a “safety hat” at a third

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 Business Information Management the way we see it

ƒƒScale of the issue: the scale of data

issues for some can be daunting,
leading to paralysis of action.

ƒƒVisibility: poor spend data is

regularly ignored as a significant
issue within organizations. Its
relative importance is frequently not
understood or is underestimated
by executives. The issue of poor
data is disguised by a willingness to
manage with what is available on the
part of line management. The focus
is too often on what can be done MDM is business-centric,
and not on what is ideally needed. not data-centric
MDM is not a single problem for
ƒƒQuantifying the benefits: the an enterprise. It splits into various
benefits from rectifying master business areas but these can be
data do not reside with master categorized in three groups:
data itself but from what is done
with the resulting improvement ƒƒCustomer Centric – focused on
in information. When master the external management and
data is seen as an “IT” issue the interaction with customers
link to enabling business benefit
is seldom made, destroying the ƒƒEnterprise Centric – focused
economic case for investment. on the internal operation
of the company
ƒƒPerception: MDM is not seen
as the most glamorous or ƒƒSupply Centric – focused on
strategic of topics for many. This the external management
can give rise to a ‘Cinderella’ of the supply chain.
attitude towards it, relegating its
relative importance down the Procurement Master Data is the major
pecking order for investment. part of Supply Centric MDM and
focused on the specific challenge of
ƒƒCost & effort: whilst benefits have buying goods and services. Supply
regularly been difficult to attribute, Centric MDM also covers the
costs have not. Investment in challenge of distribution networks,
tools, technology, expertise and global data synchronization and
man hour effort at the enterprise supplier/enterprise event types. A key
level has often acted as a barrier to measure of success in addressing the
act. Delay in tackling MDM over problem is recognizing the business-
a prolonged period of time allows centric nature of procurement
the issue to become exacerbated, challenges and addressing the MDM
reinforcing inertia through the challenge from that perspective.
scale of investment needed.

Issues with Procurement Master Data

arise through a combination of the
factors referred to above. They can be
summarized, however, through a com-
bination of outcomes. Complacency,
lack of ownership, poor rigor and an
inability to clearly see and quantify
the impact for high procurement
performance and ultimately the bal-
ance sheet are but to name a few.

Procurement Master Data – The Bedrock of Success 5

 Quantifying the nature of poor ƒƒPart or SKU data. Here a range of
Procurement Master Data problems are evidenced covering
One of the reasons why poor descriptions, taxonomies and
master data is so widespread within part numbering consistency. A
procurement is an inability to either single manufacturer part which in
highlight or quantify its nature and location A is classified as a ‘123’, is
impact. Making the connection ‘XYZ’ at site B and ‘ABC’ at location
between what is often regarded as C. De facto, we now have three
a mundane problem and top line separate parts when we analyze!
performance has escaped many,
despite how seemingly obvious this is ƒƒEqually, MDM issues affect
when a moment is taken to consider. descriptions. This is particularly
prevalent with non stocked items
Organizations thrive or struggle based where bill of materials rigor is
on the decisions they make. Decisions absent. Actual description lines
should be based on fact and be can be poor or nonexistent
informed, which in the normal course ranging from incomplete
of events, requires analysis to draw description strings (e.g. ‘stainless
conclusion. This ‘chain’ of activity lies steel bearing’) to ones which
behind all rational decisions and its are inconsistent across business
bedrock is accurate, reliable master units (e.g. “bearing, stainless
data. If the data upon which analysis steel, 3cm diameter” versus
is conducted is inaccurate, misleading 30mm bearing, steel bearing)
and/or unreliable, then by definition
the whole of the decision making ƒƒThe third common issue relates
hierarchy becomes contaminated. to categorization. These normally
split into two distinct aspects.
In organizations where master Firstly those which have their
data is poor, problems compound roots in inconsistent data
problems; poor data results in hierarchies and the second in
inaccurate analysis which in turn is non classification. All areas of
used to make decisions which can expenditure, whether physical
be fundamentally flawed. Ultimately, goods or intangible services,
this drives up risk of failure, sub- belong to category families (e.g.
optimal performance and uncertainty. Facilities), which can in turn be
broken into commodity groups
Issues with master data, in a (e.g. Cleaning) which can again be
procurement context, normally driven down to sub-commodity
circulate around four primary areas: groupings (e.g. Cleaning
Consumables). When these are not
ƒƒThe consistent recording of applied consistently it undermines
supplier data relating to vendor the ability to create robust spend
description. It is not uncommon hierarchies. A printer cartridge
to have the same supplier in one location is categorized as
represented as multiple ‘suppliers’ ‘Office Supplies’ whilst a sister
as a result of inconsistent data site has categorized it as ‘IT
entry. To illustrate, ‘Capgemini’ Consumables’. These problems are
becomes ‘Capgemini’, ‘Cap most pervasive when one considers
gemini’, ‘capgem’, ‘CG UK Ltd’, indirect expenditure areas and
‘Capgemini Consulting’, ‘Sogeti’, thwart visibility of spend. More
‘Cap-gemini plc’ and so on. worryingly however is where

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 Business Information Management the way we see it

spend is not categorized at all. are seen as ‘late’ before they

This normally goes by a number have even started to fulfill the
of names; ‘other’, ‘non classified’, order affecting accurate rating
‘miscellaneous’ to name but a few. and monitoring of suppliers.
Often these classifications arose
to deal with low value ‘one-off’ So, what does all this amount to?
spend requirements but over time After all, companies have long
they have been abused because operated with these problems. In
of either ease or lack of rigor short it comes down to effectiveness
over data standards and have and efficiency and how this translates
become catch-alls. In one example into opportunity. The problems
organization around 20% of total with master data described above
spend was categorized as “other”. manifest themselves into a number
of frustrations which thwart
ƒƒFinally, MDM issues also affect this opportunity, undermine the
procurement performance data. effectiveness of a procurement
Suppliers are monitored regularly function and erode performance.
with respect to delivery. However,
the recording of suppliers’ The impact of poor MDM
‘promised’ dates by the buying determines the difference between
organization are often confused top quartile buying performance
with the ‘required’ date fields. and average performance. When
If the buying organization is one considers the consequences
ordering late and out of lead time of each of the above areas in turn
it is often common to insert the and extrapolates the impact, this
required date into the promised becomes abundantly clear.
field. Consequently suppliers

Procurement Master Data – The Bedrock of Success 7

 Defining the opportunities 2. Supplier rebates and discounts:
from MDM utilizing the same improved data
Despite the challenge that poor MDM as ‘1’ above, regularly provides
can pose, the prize for procurement opportunities for ‘quick wins’ once
is significant and demands action. master data is ‘cleansed’. Better
These opportunities depend upon understanding of total spend by
accurate, consistent and reliable vendor can increase the spend
master data. The benefit does not upon which rebates are applied.
come from improved MDM, but what Equally, the same information
is done with the resulting information can help exploit existing pricing
and what it makes possible. This link models by ‘tripping’ the buying
is crucial to justifying investment. organization into greater
discount bands in recognition
Here are the main advantages of through formerly fragmented
perfecting Procurement Master Data: volumes. These savings can be
significant, quick and helpful
1. Supplier leverage: consolidation for covering the investment cost
of supplier records and consistent in rectifying MDM issues.
descriptions provides the ability to
better exploit purchase volumes. 3. Line item leverage: homogenizing
Moving from a perception of part descriptions and numbering
spending €5m with twenty provides the ability to exploit
suppliers to spending it with one differentiated pricing across the
makes for a completely different organization. Once parts are
discussion with that vendor established as being the same
during commercial negotiations. item or service, pricing can be

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 Business Information Management the way we see it

The opportunity to standardize relies on consistent, transparent data to allow

comparison and understanding. Standardization typically represents significant savings
costs of anything between 10 and 30% but is only possible if MDM is consistent,
reliable and robust.

compared across different business 6. Productivity: better visibility

units, locations and functions. of stocked items through
Once pricing is understood, consistent part descriptions
harmonization to the lowest and line item classifications
paid rate becomes a simple also improves productivity.
and often lucrative exercise. Improved data consistency
provides part availability for
4. Standardization: similarly, maintenance activities through
improved line item detail and harmonized records across the
standardized information opens stores network. Availability is
up the opportunity to standardize improved by exploiting duplicate
requirements to lower cost, but stock holdings in differing stores
fit for-purpose specifications. by removing inconsistent part
The opportunity to standardize numbering. Better availability
relies on consistent, transparent of maintenance items leads to
data to allow comparison and improved up time for plants and
understanding. Standardization thus improved productivity.
typically represents significant
savings costs of anything We would estimate that these
between 10 and 30% but opportunities collectively represent
is only possible if MDM is one of the most significant financial
consistent, reliable and robust. opportunities for an organization. The
scale of benefit may fluctuate from
5. Cost of capital: utilizing the organization to organization, but the
data to drive standardization scale for large business is likely to run
also provides the ability to into tens of millions of pounds, Euros
improve stock management and/or dollars. When translated to the
and the associated cost of balance sheet the impact is material,
capital. Removing inconsistent improving gross and net profit,
categorization and part numbering earnings per share and potentially the
provides the ability to better company’s overall rating as measured
leverage stock. In an example from a price to earnings perspective.
from a Capgemini project, a client
saved over €400,000 by avoiding Exploitation of these opportunities,
the purchase of packaging at one however, is based on the ability to
site through leveraging stock link master data improvement to
surpluses at another. The former a procurement program. The data
regime would have perceived provided by the former affords
these as disparate parts leading the latter the ability to drive
to the continuation of unwanted commercial benefit and gain. As
stock at one site incurring a a consequence they represent a
capital cost and significant symbiotic relationship which if
capital expenditure at another. broken thwarts opportunity and
progress. Once this link is established
though, the case for change becomes
both compelling and tangible.

Procurement Master Data – The Bedrock of Success 9

Resolving the master ƒƒDetermine the key management
data problem information requirements
Addressing Procurement Master for procurement and the
Data requires a ‘look back – look associated prioritization.
forward’ approach. Looking back
recognizes the legacy of corrupt/ ƒƒDesign and implement an
inconsistent data which needs to be operating model and associated
addressed. Parallel to this is the need governance required to bring
to create a sustainable environment consistency, ownership and
for future master data collection. This accountability for managing
forward-looking focus is required to master data records.
rectify the root cause issues of poor
master data. These twin areas of ƒƒReview, define and execute system
focus require a range of integrated and technology requirements
activities representing a holistic needed to support management
solution to this endemic problem. of standardized and effective
procurement master data.
The check list of critical
activities includes: ƒƒExecute an effective change
management program to support
ƒƒBuild a business case which clearly consistent primary data inputs by
links the tangible opportunities stakeholders and help colleagues
from improved procurement data understand the link between data
and information to the cost of entries and business performance.
rectifying the MDM problem.
ƒƒDevelop and implement a
ƒƒHave a clear strategy and compliance approach to
implementation plan which revised data capture and entry
recognizes the interdependencies standards devised as part of
across activities, sequences the program of change.
tasks appropriately and
sets the right priorities. ƒƒFinally, define and embed the
consistent data structures,
ƒƒDetermine the most appropriate hierarchies and protocols
data cleansing approach for the to optimize management
situation in balancing the use of information and exploitation
software accelerators with the of business benefit.
need for human intervention.
Dealing with the legacy problem can
ƒƒClarify how corrupt/ be a daunting challenge to change,
inconsistent legacy data will be but a well considered, pragmatic
quarantined from new records and integrated approach can break
until it has been cleansed. the problem down into manageable
components and drive momentum.
ƒƒSet priorities and scope to
maximize cost to benefit,
whilst determining an optimal
approach to dealing with the
legacy low spend but high volume
tail of SKU’s and suppliers
which is unlikely to form part
of the cleansing scope.

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 Business Information Management the way we see it

Summary master data becomes powerful.

The focus on controlling costs and Without the link it remains at best a
reducing expenditures is a perpetual low priority mundane topic likely to
challenge to organizations of all be shunned by senior management
nature; public, private, large and and evade their attention.
small. Speak to any procurement
professional and they will always Whilst resolution of master data
pinpoint information as one of the issues can be daunting due to scale
key determinants of success. If and complexity, the size of the
progress is to be made in this area prize in most instances demands
then the starting point must be the action. If a pragmatic, well thought
tangible demonstration of fiscal through, comprehensive approach
and performance improvement is taken, with the end requirement
which change represents. always at the fore, the ‘elephant’,
to use a well known analogy, can
This will require the integration be eaten in bite-size chunks.
of traditional technology-centric
strategies with the opportunity which
exploitation of resultant management
information provides. In such a
context the case for addressing

Procurement Master Data – The Bedrock of Success 11

 www.capgemini.com

About Capgemini and the

Collaborative Business Experience

Capgemini, one of the to get the right balance of the best

world’s foremost providers talent from multiple locations, working
of consulting, technology and outsourcing as one team to create and deliver the
services, enables its clients to transform optimum solution for clients. Present
and perform through technologies. in more than 35 countries, Capgemini
Capgemini provides its clients with reported 2009 global revenues of EUR
insights and capabilities that boost their 8.4 billion and employs over 100,000
freedom to achieve superior results people worldwide.
through a unique way of working, the
Collaborative Business Experience™. More information about our services,
The Group relies on its global delivery offices and research is available at
model called Rightshore®, which aims www.capgemini.com

For further information please contact:

Jim Abery, Vice President

Procurement Transformation Services
[email protected]

or write to us at [email protected]

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