Vendor Item Data, new item setup process and the impact on Procure-to-Pay

Many upper mid-market and large supply chain enterprises struggle to get their Source-to-Contract (S2C), or Procure-to-Pay (P2P) process working smoothly (measured for example by Perfect Order execution %). While several factors may be affecting the maturity and the health of this process for Buyer Organizations, a common theme I see is "item data quality": chiefly determined by the role of vendor data synchronization and the new item set up process. Let's try and demystify this topic.

Item data has a significant impact on the ordering process in a S2C and P2P process.? This data includes "attributes" such as item names, descriptions, buying/selling unit of measure, weights and dimensions, part numbers, sustainability information such as product carbon data (critical for Scope 3 emissions tracking and reporting). These and many other attributes help inventory management staff understand what they are ordering, making it crucial data for identifying and selecting the right products to order.

In industries such as retail, grocery, and wholesale - much of this data comes from suppliers in the form of standard item attributes. Product suppliers/brands etc. might use 3rd party data pools to host their item data available with such "standard attributes" and buyer organizations can acquire the supplier's standard product data from such data pools.

However, additional buyer-required but vendor-provided ("non-standard") attributes are often key to the buying organization's item set up and downstream P2P order management process with the same vendors.

It is important that these industries have a process and supporting technology in place to acquire such additional data directly from vendors in a timely and automated manner. Let's explore how accurate item data affects source-to-pay and procure-to-pay.

?In a data-driven sourcing process, accurate pricing and cost data associated with comparable items are essential for negotiating favorable terms with suppliers. It allows procurement teams to compare quotes and choose the most cost-effective options.? For manufacturing industries, the source-to-contract (RFQ-driven) process is driven by having clean item data based on which multiple suppliers provide cost quotations – usually in an automated and digitized manner.? Clean and accurate item data helps in determining the most suitable suppliers for each item. This includes supplier information, pricing for comparables, lead times, and past performance data.

?When it comes to ordering and inventory management, clean item data becomes even more important.?? The supply chain team’s objective is to place right order quantities in order to meet current and future demand, while minimizing excess inventory demand.? Demand/supply planning, forecasts, historical usage, and minimum order quantities aid in determining the right order quantities to meet.? The item data must be precise to ensure that the order placed matches the required items, quantities, and specifications. This reduces the risk of errors and returns.? Accurate item data is thus essential for maintaining optimal inventory levels, reordering points, and safety stock calculations.

?Receiving & Distribution: When the ordered items are received, the item data is used to verify that the right items were delivered and to issue a digital “Receiving Advice” message to suppliers. ?Clean item data is the primary driver of this process, while also playing an important role in quality control and inspection processes during receiving.? Several distribution centers are highly mechanized and automated, and the supply chain is designed around “flow.”? The idea is to keep "inventory flowing" to the intended final destinations, such as stores, without the DC becoming a bottleneck.? Clean and complete item data is crucial to keep these highly automated DC’s flowing inventory without intervention.

?Invoicing & Payments. We can’t forget the finance department that is often left “holding the bag” of a poor quality item data and ordering process that negatively impacts inventory management and supply chain.? A perfect order would have a very high rate of three-way invoice match (PO, Receipt and Invoice).? A poor quality item data environment disrupts the whole process and creates invoice exceptions that require AP time in reconciling and investigation.? Accurate item data ensures that the matching process is efficient and accurate, reducing the risk of discrepancies and disputes with suppliers. Often buyers will use a “pay-on-receipt” known as Evaluated Receipt Settlement process (read: Benefits of an ASN to learn more), which fully relies on a perfect execution of the purchase order, vendor shipment and exception-free ASN/receiving process.? In this process, organizations skip the vendor invoice submission altogether and pay for goods received by internally matching receipts (or ASN in some cases) against ordered quantities and pricing. High quality vendor/item data is a critical component for executing such a process.

?Finally, buying organization rely on item data to assess supplier performance, such as on-time delivery, product quality, and adherence to agreed-upon item specifications.

?In summary, item data quality and consistency are fundamental to the success of the ordering process within the procure-to-pay (P2P) cycle. Accurate, up-to-date, and well-managed item data ensures that the right items are ordered from the right suppliers at the right prices, leading to cost savings, efficient operations, and effective supplier relationships.