Having a robust master part and master supplier list can yield many low hanging fruit for organizations in the early stages of their procurement transformation. Many of these opportunities can be driven by looking at redundant part numbers, contracts that haven’t been reviewed in a year or more, and spending that is going to suppliers with no contract to cover it. A CPO from a major oil and gas company recognized that simply having data on current items and products in use would yield massive opportunities in terms of part rationalization and standardization. A good example of how in the early stages of transformation, clamping down on master data and the ability to enter data into the system is key to building a baseline. This oil and gas company executive recognized that there were limitations to their master data, but that early wins with the technical community was important to enable traction and greater control over the front end of the sourcing process. Being in an engineering-driven culture, a tendency to allow engineers free latitude to introduce new parts on a moment notice had led to a massive level of part proliferation and over-design.
We have a culture that doesn’t delineate what the technical community might own vs. what the commercial people might own and have created massive redundancy and multiple part numbers that has become much more difficult to handle. We just did a material upgrade our own ERP environment – including a significant clean up of our material master data as well as an adjustment to the process. We have greatly limited the number of people who can touch the system, upped the skill set, and locked it down considerably, despite that this has not been popular. We have about 20,000 suppliers in the system of which 12,000 we don’t use! We don’t have much trust in our ability to eliminate suppliers, because if there is an emergency and they aren’t in the system, they can’t be used on short notice (for instance on an emergency part or a turnaround.) So we have ended up with an unmanageable situation that must change. If we can’t drive down the number of suppliers, but maintain to ability to move quickly in unusual circumstances, we won’t get buy-in to any type of change. – Oil and Gas Executive
One of the lenses that we think is an interesting opportunity for us is that we have tended to over-engineer our products. It is great for our supplier! It became so bad, that our own distributor wouldn’t give us a price book for items that he was carrying that we weren’t using – because he was afraid to see how much more we were paying for the unique items we were buying from suppliers. We tend to specify unique qualifications – even for readily available items. A message we are trying to drive with our suppliers is that the right way is the easiest way. So we need to be using technology that provides a drop down menu system that allows users to easily navigate to the right place, and make it easy to choose the right thing. As opposed to where we sit now and drive a lot of engineering and free text that causes us to use expensive channels for mundane non-differentiated pieces of equipment.
Once supplier characteristics are understood, organizations must begin to define the criteria that are used to filter these relationships into those that are transactional in nature, core, strategic, and critical. There are a number of criteria that vary by industry and level of procurement transformation maturity that can be used. To support a good segmentation framework, supplier performance management (SPM) systems are created to establish clear criteria for moving suppliers into the upper echelons of what are known as “strategic supplier relationships” based on a defined track record of solid performance and meeting one’s expectations.
But it all starts with having good data to look at!