Is Internal Catalog Management Really More Cost Effective?

Following any data cleansing project, the challenge becomes maintaining ongoing integrity and consistency of the item master as new records are created and existing ones are modified. There are several strategies and solutions available for catalog management, yet the most common question companies ask themselves is, “Should we manage the catalog internally or outsource?” At first, it may seem more cost effective and realistic to manage the catalog internally, however, there are many factors that need to be considered to truly determine, “is internal catalog management really more cost effective?”

Let’s take a look at some of the pros and cons of internal catalog management versus outsourcing.

First of all, at the risk of sounding like a broken record, manufacturing companies specialize in producing finished goods, not in data cleansing. This statement is not intended to be an insult to manufacturing companies; it is simply a fact, just like a data cleansing company does not specialize in manufacturing finished goods. For this reason, internal catalog management can often yield poor results and ultimately end up costing companies more money in the long run.

But how, data cleansing seems so straightforward right? In some ways yes, but if that were truly the case then why would any company need to cleanse their data in the first place? If data cleansing were so easy then every manufacturing company would have perfectly standardized and formatted data, yet this is absolutely not the case.

When left up to internal resources with limited part knowledge and cleansing expertise, the naming convention, contents, and format of item descriptions are at the mercy of user interpretation. In addition, manufacturing companies do not have access to the automated cleansing tools that a service provider would; therefore the entire process requires manual sorting, researching, validation, and formatting. As you can imagine, this can be extremely laborious and potentially generate inconsistency and inaccurate information. Without the proper tools to enable accuracy, consistency, and efficiency, maintaining the catalog internally suddenly became a much more costly and time-consuming task.

To capture the best of both worlds, here’s a suggestion… First select a third-party service provider, preferably the company that completed the original data cleansing project, to assume the daily catalog management activities. Next, since every company wants ownership of their data, establish an internal data governance team, which will act as the gatekeeper to review and approve all cleansed data and catalog updates before they are entered into the live ERP system. Using this methodology, you should only be paying for the catalog updates that are actually processed, and can rest assured that each item meets the pre-defined project standards, is rich with validated attribute enhancements, and is consistent amongst product groups. By doing so, you will ultimately reduce internal cost and effort, while maximizing data quality and return on investment.

So as you plan your next data cleansing and catalog management project, be sure to consider all your options. Are you looking to manage the catalog internally, purchase an automated software package, or contract a third-party service provider? Do you have adequate internal resources that can be allocated to the catalog management role? Do these resources have sufficient part knowledge and cleansing expertise? Do you have access to the necessary tools and software applications to capture required information and properly format descriptions? Remember time is money and…well, poor results are just wasted money.

For more information on data cleansing and catalog management services, please visit www.imaltd.com or contact info@imaltd.com.

Introduction to Vendor Master Data Cleansing

Although we constantly find ourselves promoting, educating, and focusing on the Material Master side of data cleansing, it is important to remember that the Vendor Master also plays a critical role in the maintenance, purchasing, and procurement process.

Similar to materials data, the Vendor Master often becomes corrupt with inconsistent, inaccurate, and incomplete information. Through mergers and acquisitions, ERP implementations, and employee turnover, data is bound to become corrupt at some point without a proper catalog management strategy in place. In every database we typically see multiples of the same vendor, spelled differently, with varying address, payment, and taxation information. It is this type of inconsistency and lack of data quality that leads to many procurement inefficiencies and missed cost savings opportunities.

The same data cleansing process used for material master data can be applied to cleanse, standardize and validate vendor master records as well. Prior to project commencement, a Standard Operating Procedure will need to be developed to outline the standard cleansing policies and formatting requirements. While the Standard Operating Procedure for Vendor Master Cleansing will not contain a Noun-ModifierDictionary, it will articulate Naming Convention, Abbreviations, Payment Terms, Taxation, and Custom Requirements. Once developed, the Standard Operating Procedure will be used to consistently structure vendor master records moving forward. Potential duplicate records will be identified and returned to the client for review and further direction.

Upon completion of the cleansing process, a catalog management strategy must be implemented to prevent future data degradation. IMA’s uManage web-based catalog management solution, which is most commonly used to maintain ongoing integrity of the material master, is also available as a Vendor Management solution. Standard request forms are customized prior to go-live in an effort to capture the required data fields for a vendor master record creation. Role-based user access is provided, enabling designated requesters to submit additions, modifications, and suspensions to the vendor master.

In summary, we must not overlook the vendor master when implementing a corporate data cleansing initiative. As we’ve said multiple times, data is the foundation for operational efficiency, this includes both material AND vendor master data.

For more information on data cleansing and related services, please visit www.imaltd.com or contact info@imaltd.com.

Building Operational Excellence From The Ground Up

We’ve all been exposed to the latest industry buzz terms such as “Big Data”, “Master Data”, “Data Integrity” and “Data Quality”. Many of you may have heard or read that data is the foundation for operational excellence, which is absolutely correct, but what does this really mean? The misconception manufacturing organizations commonly have is that data quality alone will deliver all of the desired cost savings and efficiencies that they are looking for. However, many purchasing and procurement professionals struggle when building a business case for data cleansing, simply because they are not focusing on the larger scope. While there are several immediate cost savings opportunities and maintenance related efficiencies to be gained from a data cleansing project, most finance executives want to see a much larger ROI related to inventory and procurement savings. In order to achieve this vision, purchasing and procurement teams must leverage clean data to implement further cost savings initiatives such as excess inventory disposition, stock level optimization, and spend leverage. Reality is, operational excellence is not a one step process. It requires several phases, none of which can be performed effectively without first having quality data to work with.

The graphic below illustrates the process in comparison to a home building project.

As previously mentioned, data quality acts as the foundation since all future cost savings initiatives and business decisions are driven by this valuable material and vendor data. Without a solid foundation, the rest of the project would be weak, unstable, and eventually come crumbling down. Once the foundation has been laid and data is finally in an accurate, consistent, and usable state, the inventory optimization process can begin. The inventory optimization process is comparable to the bulk of a home building project, including key components such as framing, roofing, windows & doors, exterior, and of course, plumbing and electrical. All of these tasks are completed throughout a specific project management plan, which is critical to the end result. Much like building a home, it is important to perform the tasks of an inventory optimization project in the proper sequence to ensure that the correct data and statistics are available for accurate analysis and calculations. As you can see, the inventory optimization process involves product group segmentation, item analysis, stock level optimization, inventory disposition, and spend analysis. All of these tasks are driven by the initial cleansed material master data and transactional purchase history, which if implemented properly, can deliver significant inventory and procurement savings.

The finishing touches and interior of the home building project can be comparable to the strategic sourcing phase. By using accurate purchase history and data-driven statistics, you now have the ability to leverage spend and establish preferred vendor programs.  

Finally, the keys represent compliance. Traditionally, compliance has been a relatively “grey” area for most organizations. Too often buyers disregard preferred vendor programs, with no repercussions, just so that they can buy from the local supplier whom they have an existing relationship with. By establishing a strict compliance program at the SKU level, users are forced to buy from preferred vendors, with the exception of emergency breakdowns and part unavailability. If nothing else, this process instills ownership and accountability, as end users are aware that upper management is monitoring their purchasing habits. Let’s be honest, there’s no point in establishing a preferred vendor program if you’re not going to honor the contract down to the finest detail.

For more information on Data Cleansing and Inventory Optimization, please visit www.imaltd.com or contact info@imaltd.com.

Best Practices for Creating an RFP

The purpose of an RFP, regardless of what product/service you’re sourcing, is to define your specific business requirements, identify vendors capable of meeting those requirements, and recognize differentiation amongst bidders to select the best suited candidate.

Too often procurement teams go above and beyond the necessary requirements of an RFP by creating complex content layouts, which contain far too many redundant and/or irrelevant questions that do not reflect the capabilities of the vendor. As a candidate receiving an invitation to participate in this type of RFP, it can seem like an overwhelming and confusing task. In some cases, it can even cause vendors to withdraw or decline participation simply because they do not have the time, resources, and understanding to complete the over-complicated RFP.

From IMA’s experience in the data cleansing and catalog management space, RFPs are a necessary evil to secure project contracts. The challenge is that many manufacturing companies don’t have a clear understanding of what their data requirements actually are, and therefore end up creating RFPs that are difficult for bidders to interpret and respond to in a knowledgeable manner. In many cases, companies provide their own pricing template that does not align with the bidder’s pricing model, ask multiple questions that can ultimately be responded to with the same answer, and do not allow for any subject matter expertise or best-practice recommendations to differentiate candidates.

There are a few key components that should be incorporate into an effective RFP.  Those components include:

1)     Compact and Organized Layout

The layout of an RFP sets the tone for the entire submission process, as it is the initial impression that a bidder receives upon first glance at the document. The RFP should be short, not 50 pages long, and should be laid out in an organized format, which aligns with the set business requirements. RFPs that are lengthy and complex often create a significant disconnect in response submissions, making them difficult for the procurement team to review and evaluate. The objective is not to challenge or confuse the bidder, but to educate them on the business requirements at hand, while allowing them to propose their product/service offering and capabilities.

2)     Defined Product/Service Requirements and SOW

In the Product/Service Requirements section of the RFP, it is important to clearly define the Scope of Work and vendor capabilities that are required and/or desired. Not only should this include product/service requirements, but also unique business requirements such as desired terms and conditions. If you have important requirements that are non-negotiable, make them known to bidders and don’t just ask, demand them. The better you outline your requirements, the more likely and capable bidders are to meet them.

3)     Clear and Concise Questions

Questions, questions, and more questions. This is what we tend to see in a typical RFP. While there is no magic number of questions that an effective RFP should contain, you should always use wise judgment to ensure your questions are not redundant and serve an important purpose. If the question does not address a specific business requirement or gain valuable information on the bidder’s capabilities, then it is not necessary. Try sticking to a minimal number of questions and consider breaking them up into categories. Based on the categories, you can also develop a ranking and weighting system to prioritize your requirements and help evaluate bidder submissions.

In summary, an RFP does not need to be a complicated task; in fact, it is actually designed to do just the opposite, simplify the strategic sourcing process. Somewhere along the line, the purpose and format of an RFP has become buried in technical verbiage and questions. We need to get back to the basics by defining our business/project requirements, asking clear and concise questions that will address those business requirements, and allowing bidders to differentiate themselves from one another. The ultimate objective throughout the RFP process is to secure the best-suited vendor, not just based on price, but on their ability to meet business requirements and provide added value.

For more information on Strategic Procurement and related services, please visit www.imaltd.com or contact info@imaltd.com.

How Well Are You Managing Procurement Compliance?

Procurement compliance often presents a difficult challenge for any manufacturing organization, regardless of how strict and well managed it may be. While many procurement teams feel they have effectively leveraged spend through preferred supplier negotiations and purchasing processes, reality is that they have only hit the tip of the iceberg. The main factor that holds every organization back is data quality, or lack thereof, related to inventoried parts. Some parts, and their associated description, radiate with accuracy and attribute information. Unfortunately, this only represents about 10%, arguably much less, of the items in a given database. More realistic are parts that barely have a part number or any type of description that would allow the preferred supplier to accurately provide a replacement part. Without clean data there is a good chance that the agreement, which was originally negotiated with the preferred supplier, doesn't accurately represent the organizations true spend. Without quality data product group reporting lacks accuracy that could very well change the margin, cost savings, inventory commitments, etc., that are deserved when negotiating. In most cases, the majority of companies can't tell definitively what they bought, who they bought it from, and how much they bought it for in the past week, let alone the past twelve months. P-cards, free text, VMI one line invoices… these are all contributors to poor data and insufficient item detail information.

In order to maximize spend leverage and utilize preferred supplier programs to their full potential, procurement teams first need to address the data issue. By implementing a data cleansing project, legacy data will be cleaned, standardized, and enhanced so as to provide an item master that is consistent amongst product groups, while containing accurate and attribute-rich descriptions. Once clean, data will be formatted to meet the specific configuration requirements of the chosen ERP. Since each enterprise system is unique, it is imperative that a strategy be developed to ensure that the cleansed deliverable meets technical criteria such as file format, character limitations, field population, etc. A defined Standard Operating Procedure developed at the beginning of the cleansing initiative should clearly articulate the formatting requirements. During the cleansing process, duplicates will be identified at both the plant and corporate level. On average, duplication within a standard item master ranges from 10-20%, but can sometimes climb as high as 30%. Duplicate identification provides significant opportunities to reduce on hand inventory and further leverage spend. For best results, it’s also a great time to run an OEM to MRO item conversion project in parallel with the cleansing initiative. Be careful though, while some parts may seem to be identical at first glance there can be minor variations that can have devastating effects on machinery if used improperly. It is best to include members from the engineering team as well as an external subject matter expert when making these interchange decisions.

Now that you have implemented a data cleansing project and finally have quality data to generate accurate reports, you’ll be quite shocked to learn just how many hidden cost savings opportunities can be discovered during the Inventory Optimizationand Spend Analysis. The key to maximizing spend leverage and effectively utilizing preferred supplier programs is to manage procurement compliance at the SKU level. While you may have thought this was impossible before you had clean data to work with, your new corporate item master enables clear and detailed visibility right down to the individual item. If you’re wondering how you will control compliance at the plant level, there are solutions available to enforce buyers and purchasing agents to order “Preferred” items over “Non-Preferred” items, as well as, third-party procurement organizations that will manage all purchasing and procurement functions for you. By managing compliance at the SKU level, you’ll be able to take your procurement performance to an all time high as you begin saving the company millions each year.

For more information on Strategic Procurement and Compliance solutions, visit www.imaltd.com or contact info@imaltd.com.

Leveraging OEM to MRO Conversion Opportunities

Regardless of what manufacturing industry you look at, OEM to MRO conversion represents a significant cost savings opportunity for any organization. To their own benefit, Original Equipment Manufacturers heavily promote their parts for ongoing equipment maintenance and repairs. You can’t blame them; it’s excellent revenue sustainability. The problem is that the price variance between an OEM and a standard MRO item is often astronomical.

Although it may seem like an easy task to convert all OEM items to standard MRO parts, it most definitely is not. The challenge is to identify equivalent MRO interchange items that can be sourced elsewhere to safely replace these costly OEM items. While most MRO manufacturers are quite generous when providing part specifications, OEM’s usually are not. If you’re lucky, you may be able to retrieve a limited amount of information online or by contacting the OEM directly, but there’s a very good chance you’ll come up empty handed. In most cases, obtaining OEM attribute information requires an on-site subject matter expert to physically inspect OEM parts and collect information such as type, size, material and description.

It is a time-consuming and laborious task that manufacturing organizations rarely leverage to the full potential, however, the return on investment opportunity is tremendous. For example, in a given manufacturing organization OEM items represent on average 40% of total inventory. To further illustrate the savings potential, the purchase price reduction opportunity on OEM to MRO interchange items can range from 25-75%, if not greater. You don’t have to be a mathematician to realize that’s a lot of money that could be kept in pocket.

For more information on OEM to MRO Conversion and IMA services, visit www.imaltd.com or contact info@imaltd.com.