The Horrors of a Big Vendor Master Database and 5 Steps to Improve It

"We have 90,000 invoices per annum from 7,000 suppliers - how does that sound?" was a question I was just presented with on a call just now. The size of your supplier database can significantly impact the efficiency of your AP process. You will usually find, as a rule, that the larger your vendor number is, the less process compliant your invoices are. Why is that? Well, it's simple: often the secret to increasing first time match rate is often in ensuring the users in the process are compliant with the process rules, and the more users in the process to educate, the poorer your results are going to be.

So what's the solution? The vendor master database (VMD) is a great place to start if the relationship between Procurement and Finance could do with improvement. Here is a quick action plan to get things moving:

1) Analyse the current VMD - assess live suppliers (ie suppliers that have transacted in the last 12 months). Separate them from the inactive suppliers. Scrutinise the inactive suppliers and ask if they can be 'culled' (I wish there was a nicer word!) from the VMD or if they need to stay on. Then look at what you are left with.

2) Analyse how much spend is channelled through each category/supplier and see if you have too many suppliers within each category. If you are using technology like Basware or Proactis, this will all be tightly managed, but if you are still operating off Excel spreadsheets, this information may not be available at the touch of a button.

3) Do you have too many suppliers in certain categories? If you consolidated the number, could Procurement negotiate better contracts by increasing the spend channelled through key suppliers? The answer is probably yes.

4) When you are consolidating the vendor master database, it is often the perfect time for Procurement to re-visit existing contracts and draw up new contracts. Procurement can then forecast spend with key suppliers to negotiate attractive commercial terms. It is then the responsibility of the rest of the business to ensure that these contracts are honoured and no spend happens outside the key-suppliers group.

5) To ensure user compliancy it is wise to put in a solution like Basware, Ariba etc to ensure buyers buy off catalogue only, and the VMD does not become toxic. Certainly at this stage technology can help police user behaviour (sounds strict but process policing is needed until 'doing things a certain way' becomes the new heartbeat and breathing rhythm of the company)

In an organisation where there is poor productivity (ie number of invoices per FTE per annum) and too much paper, this is a great place to start to secure a quick win!