Saving Money with Harmonized Data

Exploring the cost reduction potential of harmonized data in the purchasing organization

By Bridget McCrea

Image of Saving Money with Harmonized DataElectronics buyers have a lot on their plates these days. For example, the sheer rate of speed at which they procure items – as well as the volume of products they procure -- can send even the most well thought-out data management system into a disorganized state. This scenario not only impacts a buyer’s ability to make smart purchases, but it also hinders his or her ability to create cost savings across the organization.

One way to solve this problem once and for all is by using a process known as “data harmonization.” Defined as the combining of data from disparate sources into a single, integrated and consistent identification method, data harmonization helps to create more efficient purchasing processes and a more streamlined and seamless supply chain. With a data harmonization strategy in place, Marko Schmidt, partner at Camelot Management Consultants, Mannheim, Germany, says buyers can make more meaningful use of the bits and bytes of data that they’re collecting daily and then use that intelligence to make smarter, more efficient procurement decisions.

Image of Marko Schmidt, partner at Camelot Management Consultants, Mannheim, Germany
“By consistently aligning purchasing processes and strategies while harmonizing operational procurement activities at a global level,” says Schmidt, “purchasing agents can make more efficient use of available resources and cut costs.”
“By consistently aligning purchasing processes and strategies while harmonizing operational procurement activities at a global level,” says Schmidt, “purchasing agents can make more efficient use of available resources and cut costs.” He says that while the data harmonization concept isn’t necessarily new, the technique is getting more attention as companies work to gain more organization-wide efficiencies.

“Data harmonization is seeing a revival at the moment,” Schmidt says. “With data being the driver behind so many different business processes these days, ensuring that it’s accurate and aligned across the organization just makes sense.” Add that many of today’s supply chains span the globe, he notes, the need for a single, harmonized system becomes even more important.

In Five Ways Your Procurement Could be Leaving Money on the Table, supply chain management consultancy Kinaxis reports that three out of four (76%) of the top companies use tools for harmonizing master data (which it defines as creating a central corporate repository to ensure that information about materials, products, customers, suppliers and assets is consistent and accurate). Calling data harmonization “a key process in strategic procurement,” Kinaxis says that with no systems to capture this intelligence and support collaborative decision-making, “the information remains an unused resource that is never harnessed for the benefit of the enterprise.”

Creating impact

Data harmonization tends to impact the highest cost savings for buyers that want to implement more efficient spend management and spend consolidation strategies. Defined as a function that allows companies to gain visibility and establish controls in order to manage business spend, spend management helps buyers better understand how much they’re purchasing from specific suppliers – from initial sourcing and vendor selection, to negotiating contracts and buying goods, to invoice payment. Using this end-to-end strategy, buyers can more effectively consolidate their procurement activities in order to reduce costs and gain efficiencies.

Without properly harmonized data, Schmidt says attempts at spend management can derail quickly. The purchasing manager who oversees a number of geographically dispersed departments – with their own way of identifying parts and equipment – will never be able to get an accurate grasp on procurement activities, supplier performance and end results. Without that information, any type of spend management becomes a far-off goal.

“For buyers to meet their ongoing cost-savings goals, there must be transparency over suppliers, product categories and individual orders,” says Schmidt. “That level of transparency is enabled by harmonized data.” Electronics buyers who are managing a high volume of products that change and advance quickly, says Schmidt, are particularly well-positioned to tap into the benefits of data harmonization. “The more you’re procuring, managing and overlooking, the more important it is for data to be aligned.”

Direct or indirect?

Historically, Schmidt says companies’ data harmonization efforts have focused on direct spend. Lately, he says more organizations are harmonizing their indirect spend activities (such as MRO goods) as a way to “get a better grip on spend across the entire purchasing organization.” Achieving that goal isn’t always easy. For example, Schmidt says getting different individuals and departments to agree on common names, identifications, units of measure and product groupings can be a challenge – particularly during the early stages of a data harmonization implementation.

“Agreeing on the rules behind the harmonization and on how to actually orchestrate the project can be tricky,” says Schmidt. As a starting point, he advises buyers to select one or two pilot categories – preferably high-importance or high-volume materials – and then begin defining identification rules around those items. “Define the processes that you’ll use to classify the products and harmonize the data,” says Schmidt, and then roll out the initiative on a trial basis. “That’s the pragmatic way to do it.”

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