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When it comes to vendor management, small mistakes can lead to big problems. In a recent episode of our web series, The Never-Ending Climb to Stronger Supply Chain and Procurement Shaun discussed some of the biggest mistakes procurement leaders are still making, and why you should try to avoid them as much as possible.
As the third article in this series (one and two are here) we consider the issue that many companies still have multiple entries for the same vendor, let’s call them ABC Co. In this scenario each version of this vendor has its own set of terms and conditions. Unfortunately, many individuals unknowingly select the wrong one, which results in data duplication inconsistencies and complicates vendor analysis and relationship management. In this blog post, we'll delve into why you should care about this common mistake and what you can do to solve it.
Understanding The Problem
Looking back at our example of the fictional company ABC Co., consider why there might be three different versions of the vendor, each with its unique characteristics:
- 30-Day Payment Terms: This version of ABC Co. requires vendors to adhere to 30-day payment terms. It's a straightforward option, but not necessarily the best fit for every situation.
- Preferred Contract: The second version of ABC Co. involves a preferred contract with specific terms and conditions. This choice can be beneficial for vendors who have a more established relationship with the company.
- Credit: The third version provides credit to selected vendors. This is a convenient option, but it can lead to complications if not managed correctly.
Companies often suggest that they work with the vendor in different capacities, so it makes sense to have them listed multiple times in their vendor master. However, upon closer inspection here is why this is a problem.
Challenges of Selecting the Wrong Version
When individuals inadvertently select the wrong ABC Co. version, it creates a host of challenges, primarily revolving around data duplication inconsistencies. Here's how it happens:
Data Inconsistencies
Different versions mean different data requirements. Inconsistent data entry across these versions can lead to errors, confusion, and a lack of standardization.
Complicated Vendor Analysis
Managing vendors across multiple versions can make it challenging to perform a comprehensive analysis. You might end up comparing apples to oranges, making it difficult to assess vendor performance accurately.
3-Way Matching Challenges
3-way matching, a crucial process for avoiding duplicate payments, becomes exceedingly difficult when data is inconsistent across versions. This can lead to overpayments and financial discrepancies.
The Solution: Centralized Vendor Management
To address these issues, it's essential to adopt a centralized approach to vendor management, which in many cases means taking another look through your vendor master, making it your single source of truth.
In Shaun’s words, “Just pick one vendor. Don’t try to mix and match, don’t try to clone them.”
Conclusion
In vendor management, the devil is in the details. Selecting the right version of ABC Co. is a crucial decision that can significantly impact your data consistency, vendor analysis, and 3-way matching processes. By embracing a centralized vendor management approach, you can simplify your operations, avoid errors, and maintain strong vendor relationships.
Don't let the wrong ABC Co. version complicate your vendor management; choose wisely and keep it clean.