The Benefit of Investing in Clean Vendor Data
This blog was originally published in 2021 but was updated in November 2023 for accuracy and comprehensiveness – and to underscore the importance of maintaining clean vendor data.
Vendor master data has implications throughout your organization. First (and most obviously), it impacts your relationships with vendors and suppliers. Second, it impacts your bottom line via your ability to practice strategic vendor management and fight fraud. Finally, stick with me here, it can impact your ability to fulfill your organization’s mission (more on that later).
Without automation of your onboarding and change management processes, clean vendor data can be an uphill battle. However, it’s not a zero-sum game. Even if you haven’t begun your automation journey, baby steps count. Just ask Snow Rutkowske of Huron, who explains the value of going one step at a time:
Making the case for automation can also be an uphill battle, but it’s a lot easier if you can quantify the cost of vendor data management – and the potential costs of bad vendor data. To help, we’ve put together some factors to consider and some easy math to help you advocate for better processes and systems.
Vendor data, or vendor master data, includes all information related to individual vendors and the processes for managing and paying those vendors.
Most of this data is collected at the time of onboarding and your company must manage that data throughout the vendor lifecycle. That means keeping tabs on the most recent and accurate vendor contact information, address, contract and payment terms, banking data and legal info.
Vendor management – collecting this information, ensuring it’s accurate, maintaining compliance with regulatory requirements, and keeping data up-to-date, aka “clean”, so it can be used to conduct business and track vendor spending and performance – deserves more credit than it gets.
Good vendor management processes and systems have value for your entire organization. Seem too dramatic? Find a person at your organization who isn’t working with or relying on a vendor for some part of their job.
It’s simply imperative that your organization start valuing the work of vendor management relative to the expectations that role has to deliver. Give them the tools and support to get your vendor master data in shape.
Clean vendor data is the holy grail of vendor management. Unfortunately, most organizations get bogged down by error-prone manual processes and disparate systems that make it nearly impossible to glean any valuable insights or maintain any semblance of control over how data gets entered, changed, and maintained.
Siloed organizations (read: most large organizations – bonus points if you’re a government or higher ed institution) have it worse. And let’s not forget the lack of data governance policies, documentation for exceptions, and disorganized vendor compliance processes.
Without automation or centralized processes for vendor data, visibility can be non-existent. As a result, your organization’s strategic decision-making capabilities suffer.
Does an investment into automation and better vendor data management have a price tag? t . Probably. Comparatively, I promise you, is *not* investing has a price tag too- and probably not one that lines up neatly with a line item on your budget.
So let’s figure it out by getting a handle on how much your current vendor data management processes are costing. To that end, we’ve put together some helpful calculations and benchmarks you can run to see for yourself.
All day long we hear from customers and prospects alike that their vendor master data is ‘a mess’, ‘out of date’ and ‘full of duplicates’.
We have published in the past about the hidden ways your vendor master is costing your organization with both fraud risk and compliance issues, but we understand that many organizations find it challenging to quantify those risks in dollar terms when making the case to invest in vendor onboarding automation to clean vendor data.
We get it, it can be overwhelming to nail down the myriad ways a messy vendor is costing your organization. We’ve spoken with countless customers and prospects and gathered three factors you can, and should, consider when creating your cost/benefit analysis.
This factor should include the time spent onboarding new vendors and time spent making changes to existing vendor information. Calculate each type of vendor interaction in minutes spent for your AP/Finance/Procurement Staff. That could include things like:
Using the average hourly rate across these positions, you will have what it is costing your organization just to gather the required information needed to pay a vendor (AKA: what it is costing you to spend money!).
Remember, that’s the time spent on *one* vendor. To get the total number, add them up and multiply by how many times you do this each year (We’ll bet it is not a trifling amount).
BONUS: Across the PaymentWorks vendor network, we see an average of 30% of existing vendors changing a piece of their data each year… so to truly get the right number here, you need to be sure to do the math on those existing supplier changes as well.
Next, calculate the costs of third-party lookups you use for things like identifying tax IDs and conducting sanctions checks. Each of the databases you may be using to verify vendor identity info likely has a subscription or per-use cost.
Calculate costs based on actual historical vendor data for new additions and existing vendor changes. Then add the time (using the hourly rate above) the employee spends doing these checkups to calculate the total cost.
Finally, you need to calculate your risk exposure to financial losses due to payments fraud scams.
The AFP reported this year that 65% of organizations were the target of an attempted or actual payments fraud scam in 2022. With numbers like that, it is when – not if – your organization will fall victim. To calculate the amount you can expect to lose to one of these scams in any given year, use this simple formula:
With the three figures outlined above, you are well on your way to a solid dollar amount you could save with an investment in vendor automation and cleanup.
There are, however, many additional pieces that can give you a more nuanced and specific understanding of the real cost of your vendor data. For example:
These things are directly tied to how much vendor data costs your organization. But don’t forget about the “hidden costs” of things like supplier frustration from clunky onboarding processes. Not only can that damage your relationship with that vendor, but it can negatively impact your organization’s entire mission, as Jenn Glassman points out:
Are you going to be able to calculate with perfect certainty the exact amount that bad vendor data is costing you? No. Should that keep you from trying? Also no. There are “hidden” costs, interdependent variables and other moving targets.
But, with even an inkling of how much messy vendor data is costing your organization, you can make a solid business case for automation. An imperfect quantification of the costs of bad vendor data is better than nothing at all. So get your calculator out and pave the path to better data, better decisions, and an improved bottom line.
If you’re like us, all this talk about clean vendor data puts you in the mood to party. Good news: we’re throwing one. It’s happening on December 12th, and you’re cordially invited.
What are we celebrating?
You! More specifically, we’re celebrating the tremendously challenging job vendor management professionals do day in and day out. That’s why we created Vendor Management Appreciation Day (VMAD).
It’s time for everyone to come together in honor of one of the most important, sometimes under-recognized roles across industries.
Will you join us to celebrate on December 12th?
VMAD is a brand-new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.
People are already talking about this, and we think you should join the chorus (no singing required).
Learn more here, and grab some free vendor management goodies.
Our recent blogs are full of actionable guidance.