Reltio Connect

“The world is one big data problem.”

Andrew McAfee, co-director of the MIT Initiative

“Information is the oil of the 21st century, and analytics is the combustion engine.” 

Peter Sondergaard, Gartner

“The goal is to turn data into information, and information into insight.”
Carly Fiorina, ex-CEO of Hewlett-Packard

In today's data-driven business environment, organisations strive to optimise their operational efficiency and reduce costs. Spend analytics plays a crucial role in this pursuit by providing valuable insights into procurement processes, supplier performance, and risk management. However, to maximise the benefits of spend analytics, organisations must ensure their data's accuracy, consistency, and reliability. This is where Master Data Management (MDM) comes in. By implementing a modern MDM solution, organisations can enhance the quality of their active and archived data, leading to improved spend analytics outcomes and increased cost savings. 

This article delves into the various ways in which the use of MDM can boost cost savings identified in spend analytics.

The best tool procurement never knew they needed

Spend analytics is the practice of analysing an organisation's procurement spend to surface insights and identify opportunities for cost reduction, risk mitigation, and process improvement. It involves collecting, cleansing, categorising, and analysing spending data from various sources, such as purchase orders, invoices, and contracts. The ultimate goal is to optimise purchasing decisions, negotiate better contracts, and drive cost savings across the organisation.

We know that even rudimentary spend analytics has been an essential part of the Procurement tool kit long before the Pareto Principle was introduced (by Vilfredo Pareto in 1906). Before algorithms and AI it relied on a lot of research, conversations, travelling to gather data from sites and a lot of paper or spreadsheets! Even then, this analogue approach achieved substantial savings for companies and resulted in procurement departments and consultancies becoming the norm. 

On the other hand, Master Data Management (MDM) is a relatively new principle, which evolved in the 1980s from Data Management which itself was a concept in the 1960s. It focuses on creating and maintaining a single, reliable, and consistent version of core data entities (nouns), such as suppliers, assets, and customers, within an organisation. MDM ensures data quality, integrity, and consistency across multiple systems and departments, eliminating duplicates, inaccuracies, and inconsistencies.

But where is the synergy?

One of the primary challenges in spend analytics is dealing with poor data quality, which can lead to poor insights and decision-making. By implementing MDM, organisations can enhance data accuracy and cleansing, thereby increasing the reliability of spend analytics. MDM helps identify and eliminate duplicate supplier records, standardise naming conventions, and validate data against trusted sources. Clean and accurate data allow organisations to make informed decisions, negotiate better contracts, and identify potential cost-saving opportunities.

My spend analytics solution says they can do all of this…. Why do I need MDM?

Having spent 10 years working in Procurement and in Spend Analytics, I can honestly say that spend analytics companies can perform a reasonable level of deduplication, cleansing, and standardisation - some of which is automated, and some of which is reasonably accurate. But I will let you in on a secret they don't want you to know... with all the AI and the Rules Engines and the fancy technology... a high proportion of it is reviewed manually. This leads to data being produced to support business decisions which is inconsistent or subjective due to human intervention. Furthermore, it often lacks "local" or country-specific knowledge because many individuals do the work offshore in Eastern Europe, South America, or India.

It can also take a long time to see a return on investment because data is returned after a month (or longer) with a reasonable level of accuracy or within a week or two with a poor level of accuracy/poor granularity.

How can MDM help with this? One limitation of spend analytics businesses is their inability to enhance the quality of the data they receive. They cannot take the data from numerous sources (purchasing systems or production systems for example) merge it seamlessly and improve its quality before conducting analysis. Reltio will cleanse and unify a company's complex, multisource data into a single source of real-time information with the Reltio Connected Data Platform—the industry's first cloud-native, SaaS master data management solution.

Reltio as an example, could incorporate real-time supplier catalogue data through APIs so that requisitioners can raise PRs using accurate part numbers, descriptions, and pricing from your preferred suppliers. Alternatively, this data can be uploaded and stored in Reltio as Reference Data, ensuring accuracy for those key suppliers who don't have real-time capabilities. Data from previous POs and Invoices can be used to enhance PRs and auto-complete classification, thereby saving you some time in reporting your categorised spend.

All of this new accurate cleansed data can be fed downstream into the spend analytics platform or a data lake to improve that historical perspective and allow Procurement to re-review that spend for opportunities that weren't visible before due to the use of vernacular or poor data being manually entered at the source:

		or
UNSPSC Code	60141401		24111824
Which one of these is the £30,000 “Witches Hat”? (it's easy when you have context, something not always available on a free text Purchase Requisition

Improved Supplier Management

Effective supplier management is a key component of spend analytics, as it enables organisations to identify underperforming suppliers and negotiate more favourable terms with reliable ones. MDM enables a comprehensive and centralised view of supplier data, including contact information, performance metrics, bank details and contractual terms. By leveraging MDM, organisations can better track supplier performance, assess their contribution to the organisation's goals, and identify potential areas for improvement or cost savings. Additionally, MDM facilitates supplier consolidation, enabling organisations to streamline their supply base, negotiate volume discounts, and reduce administrative costs.

Enhanced Spend Visibility and Analysis improved

Spend visibility is crucial for identifying cost-saving opportunities and optimising procurement strategies. MDM provides a consolidated view of spending data by integrating and reconciling data from disparate systems and sources. This holistic view enables organisations to identify patterns, trends, and anomalies in their spending patterns, enabling them to negotiate better prices, consolidate purchasing, and identify areas of excessive spending. With accurate and complete data, organisations can conduct sophisticated spend analysis, such as identifying maverick spending, tracking compliance with contracts and negotiated discounts, and identifying potential areas for cost reduction.

Strengthened Compliance and Risk Management

MDM also plays a vital role in strengthening compliance and risk management efforts. By ensuring data accuracy and consistency, organisations can ensure compliance with regulatory requirements and internal policies. MDM enables the identification and monitoring of key data elements relevant to compliance, such as supplier certifications, product specifications, and contract terms. This reduces the risk of non-compliance penalties and enables proactive risk mitigation measures. Moreover, by having a comprehensive view of supplier data, organisations can identify and mitigate risks associated with supplier performance, reliability, and financial stability, leading to further cost savings.

Conclusion

Effective spend analytics is contingent on the availability of accurate and reliable data. Master Data Management (MDM) provides organisations with the means to enhance data quality, consistency, and reliability, thereby increasing the effectiveness of spend analytics and unlocking additional cost-saving opportunities. Through improved data accuracy and cleansing, enhanced supplier management, enhanced spend visibility and analysis, and strengthened compliance and risk management, organisations can maximise the value derived from spend analytics and drive substantial cost savings across their procurement processes. 

MDM acts as a catalyst in increasing the power of spend analytics and ensuring that organisations make informed decisions to optimise their spending and drive sustainable cost reductions.

Paul Lawrence Technical Delivery Manager Father, Analytical thinker, and Builder of Lego. Paul is a Senior Account Manager with 15 years of experience working with global brands in FMCG, Pharma, and Manufacturing managing high-value and Enterprise accounts to drive renewals and growth of existing contract value whilst delivering exceptional Customer Adoption and best practice.