B2B Payments

Multinational’s Next Data Challenge: Know Your Vendor

Automation may be transforming the procurement department, but when it comes to the buyer-supplier relationship, human interaction is critical.

In a survey of B2B buying organizations conducted by SnapApp and Heinz Marketing last year, researchers found that millennial corporate buyers rank their personal relationships with suppliers as the most effective way to evaluate products and services that vendors offer.

But when a multinational organization is working with tens of thousands of suppliers, maintaining personal relationships with each is not necessarily a realistic way to maintain business partners. With eProcurement increasing its strategic role within the enterprise, data emerges as an essential part of supplier management – and that’s placing heightened pressure on the vendors themselves, too.

Peter R. Benson, executive director at the not-for-profit data quality solutions firm Electronic Commerce Code Management Association (ECCMA), told PYMNTS that buyers and suppliers are enduring shifts in their relationships.

“Buyers are becoming more important and more strategic. They’re analysts,” he told PYMNTS, adding that supplier data is paramount to today’s corporate buyer. “On the other side,” he continued, “suppliers are having to provide better data services. They’re not salespeople anymore, so much as they’re relationship managers.”

There is an emphasis on suppliers providing data to their corporate customers in order for businesses to manage their partnerships. But for multinational firms with troves of supplier data, managing the information and ensuring its accuracy is a growing headache – especially as more businesses find that their vendor data is filled with duplicates, errors and even business partners that are exposing firms to legal risks.

“Turns out,” said Benson, “for a typical company, you’re going to find a lot of trading partners that don’t really know who these companies are.”

In one example that Benson cited, a Fortune 300 company that worked with ECCMA handed over its master list of suppliers, which included more than 67,000 vendor names. Analysis of that list, however, found that 95 percent of the company’s spend in the last two years went to just 43,000 of those companies.

The assessment went further: According to Benson, a deeper look at that list of 43,000 revealed duplicates – misspellings, or multiple names for the same supplier. When consolidated, the list was comprised of about 24,000 companies.

“Now, the picture looks very different,” Benson said of this consolidation. “Companies can look at how much they are spending with their partners.”

The financial implications of improved vendor data management reach further than spend analysis, however. As businesses focus on the buyer-supplier relationship, having an accurate view of how many suppliers they’re working with means corporate buyers and analysts in the procurement department can more strategically negotiate contracts and pricing. An accurate vendor master list is vital for mitigating maverick spend and ensuring that employees procure from approved suppliers, Benson noted.

This can also be essential to multinational firms with departments in various locations, all procuring from the same supplier without coordination.

Benson used the example of Grainger, a supplier of maintenance, repair and operations (MRO) products. The company will sometimes go by W.W. Grainger, which may be displayed as WW Grainger in a company’s database.

“In this situation, when a company has multiple buying departments across the world, its U.S. department is buying from Grainger, and its Canadian department is buying from W.W. Grainger,” he said. “They’re buying from the same company.”

When supplier data is cleansed, consolidated and optimized, companies can have a more accurate worldview of who they’re buying from, positioning them for more effective negotiations, Benson added.

There is a clear, significant impact on companies’ bottom lines when they address issues of supplier data quality, he continued. But there are other implications for businesses when they neglect to optimize this information, particularly when it comes to compliance.

ECCMA recently unveiled new trading partner data cleansing processes for its clients, which enable businesses to consolidate their master vendor lists. The solution uses the ISO/CD 8000-116 Authoritative Legal Entity Identifier (ALEI) and, in doing so, provides clients with their vendors’ Legal Entity Identifier (LEI) code.

It’s an international system that was developed following the 2008 financial crisis as a way for FIs to verify corporate identities for risk mitigation purposes. Today, the information is essential for businesses when paying their vendors, consolidating duplicates and ensuring that they know who their business partners actually are. In a world of rising Know Your Customer requirements, it emphasizes the importance of knowing your supplier.

ECCMA’s solution automates the process through which businesses discover and record their vendors’ ALEIs, which, Benson noted, is a key component to ensuring master lists are consolidated and accurate. In rare instances, ECCMA will find a supplier or two working with a client that cannot be identified and does not have an ALEI.

“It’s a big red flag,” he said. “That’s a legal red flag that you have to be paying attention to.”

For that Fortune 300 company that consolidated its master vendor list from 67,000 suppliers to 43,000, only two could not ultimately be identified by their ALEIs. By pinpointing those entities, companies can proactively address any legal ramifications of working with businesses they cannot verify.

“I can tell you today,” Benson said, “that company is no longer doing business with those two suppliers.”

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