The Business Benefits of Material Master Data...

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The Business Benefits of

Material Master

Data Management

Copyright © 2010 Verdantis

The Business Benefits of Material Master Data Management

INTRODUCTION Master data is the core reference data that describes the fundamental dimensions of business—

customer, material, vendor, chart of accounts etc. Master Data Management (MDM) is a

comprehensive strategy to determine and build a single, accurate and authoritative source of

truth of a company‘s information assets and deliver this on demand as a service. Master data is an

important enterprise asset, and effective MDM is critical to maintain good operational and

financial health.

The material master database (often referred to simply as the "material master", comprising all

the individual material master records stored in the system) contains descriptions of all materials

that an enterprise procures, produces, and keeps in stock. It is the central repository of

information on materials (such as inventory levels) for the enterprise. The integration of all

material data in a single materials database eliminates the problem of data redundancy and

permits the data to be used not only by Purchasing, but also by other applications (such as

Inventory Management, Materials Planning and Control, Invoice Verification, and so on).

Clean, consolidated, enriched and maintained material master data is the foundation for

optimized inventory, rationalized materials spend, and improved procurement processes, and is a

key enabler to realizing significant benefits from an ERP consolidation or upgrade initiative. AMR

Research estimates that as much as 1/3rd

of the hard dollar benefits from an ERP initiative can

come from optimized inventory and reduced material costs.

There are numerous business initiatives underway in an organization at any given time that are

focused on cost reductions, operational efficiencies, or strategic synergies. The merger-and-

acquisition team may be evaluating potential targets based partially on synergies to be won in the

consolidation of operations, supply chains, or product lines. There are significant financial and

operational benefits to be realized from optimizing and controlling inventory. Plant managers

want to reduce downtime and increase people efficiency. Supply Management wants better spend

visibility and leverage. When material master data is not clean, managers do not have reliable

data for the reporting needed to drive these initiatives forward. Given the intense pressure to increase operational efficiency, drive M&A synergies, and maximize

ROI from ERP initiatives, forward thinking companies in industries such as manufacturing, energy

and utility simply cannot afford to lose competitive advantage due to material master data

inefficiencies. Given the magnitude of the problem and the opportunity, MMDM is not just a sound

investment — it is an essential one.

2 Copyright © 2010 Verdantis


ROLE OF MATERIAL MASTER DATA Material Master (also known as Item Master) is considered core functionality for any ERP system

using distribution or manufacturing type functions. The material master serves as a central

repository to define the characteristics of a company's inventory items. The material master

database comprises all the individual material master records stored in the system, and contains

descriptions and a variety of data elements including part number, description, stocking codes,

and much more, that an enterprise procures, produces, and keeps in stock.

A unique number is assigned to each material master record. Material master numbers are

assigned to uniquely identify each stock keeping unit (SKU) within an enterprise. The integration

of all material data in a single materials database eliminates the problem of data redundancy and

permits the data to be used not only by Purchasing, but by other applications (such as Inventory

Management, Materials Planning and Control, Invoice Verification, and so on) across a global

enterprise.

Accounting - Valuation and costing/price calculation information. Examples: standard price,

past and future price, and current valuation.

Materials planning and control - Information for material requirements planning (MRP) and

consumption-based planning/inventory control. Examples: safety stock level, planned delivery

time, and reorder level for a material.

Purchasing - Data provided by Purchasing for a material. Examples: purchasing group (group

of buyers) responsible for a material, over- and under delivery tolerances, and the order unit.

Engineering - Engineering and design data on a material. Examples: CAD drawings, basic

dimensions, and design specifications.

Storage/ warehousing - Information relating to the storage/warehousing of a material;

examples: unit of issue, storage conditions, and packaging dimensions.

Forecasting - Information for predicting material requirements. Examples: how the material is

procured, forecasting period, and past consumption/usage.

Sales and distribution - Information for sales orders and pricing. Examples: sales price,

minimum order quantity, and the name of the sales department responsible for a certain

material.

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MATERIAL MASTER DATA QUALITY AND MANAGEMENT CHALLENGES Organizations rarely have a unified approach toward managing material master data. Customer

records typically fall under the purview of the CRM team, and customer data is maintained as part

of that initiative. Vendor master records normally belong to procurement or accounts payable,

and their maintenance is administered by these departments. Item master data records, on the

other hand, often have no clear owner. Item master records have numerous sources. Engineers

and designers can create parts, procurement can source new parts, and suppliers can load their

part masters into the organization‘s systems.

“Unfortunately, attributes in the item record may be left blank, be cryptic, or be

inaccurate. In particular, ERP master records are full of cryptic attributes, due to

poor validations and limited text-field lengths.”

Bruce Hudson

META Group Compounding the complexity surrounding the item master record is the number of systems in

which they reside. Most of the global enterprises today are built over decades through both the

organic and inorganic route. Over the years, enterprises kept on adopting best of breed business

process automation applications / MRP / ERP available at that that instant along with the

evolution of the available ERP applications. As a result, today's global enterprises have amassed

multiple application platforms, legacy systems, ERP applications (different versions and vendor).

As illustrated above, almost all of the business applications talk with each other through a

common thread of master data. Material master data would exist in multiple ERP / legacy

applications, multiple data forms, languages, varying degree of details, associated attribute

information etc rendering consolidation of item master information for multi location, global

enterprises a humongous task.



Challenges in Material Master Data Management For a Global 2000 company, material master data management can be a challenging task:

Disparate, Dispersed & Distributed Sources REAL LIFE EXAMPLE:

Across Multiple Locations

Global 2000 manufacturing company

Across Multiple Systems

97 locations

Across Multiple Business Units Multiple systems

Unclassified Item Data Multiple user groups

Non uniform coding standards 350,000 corporate codes

Incongruent commodity coding A million items

Poor Item Data Visibility Multiple languages

Incongruent naming

conventions Poor descriptions

Inconsistent item Data descriptions

Lack of Ownership (and global view) for master data definition

Lack of processes (and compliance) for Master Data Creation

Inconsistent System defined formats from multiple systems

High cost of Master Data Maintenance (Lack of software tools)


MATERIAL MASTER DATA MANAGEMENT APPROACHES ANDSOLUTIONS ADOPTED BY LEADING COMPANIES

Harmonizing legacy material dataEnsuring ongoing data integrity and leverage

Legacy material master data harmonization

Rationalized and enriched Material Master Data is a vital enterprise asset that drives the optimization of inventory and improved shop floor productivity, and provides greater visibility into and control over material spend. However, large materials data consolidation projects can be very challenging if traditional, manual approaches or generic MDM applications are used. Interna teams or services-based vendors can‘t handle large volumes of data, and projects end up being long drawn and expensive – while delivering suboptimal data quality. And generic master data management applications (―one size fits all‖) lack powerful data harmonization capabilities andparts/ items domain expertise.

Leading companies are increasingly embracing solutions that combine automation with domain intelligence to ensure that large material master data harmonization projects are delivered successfully within time and budget. These best of breed solutions automate the material master data harmonization process, ensuring scalability, consistency, and reduced total cost of project. A best of breed solution such as Verdantis Harmony is tailor made to deal with Global 2000 material master data harmonization challenges such as:

High volumes of data in multiplelanguages Non-uniform Commodity Codingstandards Poorly classified dataPoorly structured descriptions (inconsistent specifications or missingspecifications) Incomplete data (missing part numbers or original vendor names)The unique characteristics of items and part (especially MRO) data

Effective Material Master Data Management involves:


The Business Benefits of Material Master Data Management Ensuring ongoing material master data integrity Harmonizing data once is not enough – forward thinking enterprises employ cutting edge solutions

to ensure that material data stays clean on an ongoing basis, and can be leveraged by various

business users for increased business efficiency. For example, Verdantis Integrity, an intelligent

MMDM solution that seamlessly integrates with leading enterprise applications, ensures that:

Data quality is maintained on a real time basis – and that data is de-duplicated at source

instead of post facto.

Material data users have superior intra and inter plant material visibility due to powerful,

intelligent search

The new item creation process is governed by a rigorous workflow – while being simplified



THE NEED FOR EFFECTIVE MATERIAL MASTER DATA MANAGEMENT The success and measurable impact of many business initiatives depend on consistent, high-

quality material master data.

Merger and Acquisition Activities The synergies driving M&A activity often are dependent on consolidating operations and inventory

as well as sharing and integrating designs and leveraging use of common parts. Realizing these

synergies depends on the ability to merge item master data files and to accurately report on the

status of these initiatives. Failure to gain a common view of the item master data of both

companies not only diminishes the synergies and drags out the integration process, but also

threatens the success of the merger or acquisition itself — a business event typically far more

expensive than the cost of the required data maintenance.

ERP System Consolidation Increasingly more organizations are consolidating their ERP instances, targeting savings and

efficiencies. Business drivers for these consolidations include SOX compliance pressures, the end

of SAP®

R/3®

version support, system harmonization across business units or geographies, and

architectural upgrades that allow companies to leverage service-oriented architectures. However,

attempting consolidation before the master data is rationalized will lead to a contaminated single

instance. Cleansing the data once it lands in the new system is enormously expensive and time

consuming.

Inventory Visibility Warehouse management systems, ERP systems, and third-party logistics service providers manage

aspects of parts and finished goods inventories. This fragmented system landscape clouds

inventory visibility and leads to overpurchasing, stockouts, inventory write-offs, and disruptions of

manufacturing operations. Bad material data is the key culprit behind issues such as cash locked

up in excess inventory, lack of inventory visibility within and across plants, low employee

productivity, false stock outs and increased plant downtime. Increased inventory cost is the single

largest bottom-line effect of unstructured and inaccurate material master data.


The Business Benefits of Material Master Data Management Effective Spend Management Many material items are infrequently replaced items purchased on a decentralized basis from a

broad range of suppliers, resulting in inefficient purchasing processes such as increased order

fulfillment times, higher transaction processing costs, and time-consuming administrative support.

In many purchasing departments there is still an enormous potential for savings, e.g. in the area

of bundling of demand across locations, supplier management, and shared purchasing contracts.

However, companies waste millions every year because of different material and supplier data in

distributed IT systems, leading to lack of spend visibility and poor inventory control. Inadequate

material descriptions are a source of frustration for those employees who cannot find the right

parts and supplies to allow them to do business. This situation leads to maverick purchasing -

when an organization has negotiated strategic contracts with suppliers but employees buy outside

these contracts, typically at higher prices. Such off-contract spending reduces an organization's

ability to efficiently monitor its expenditures and raises its costs. Professional purchasing as well

as professional supply chain management are thus closely dependent on professional material

master data management in order to fully leverage its potential.

Decreased Plant and Equipment Availability Poorly-described material items, especially MRO items, often lead to incorrect and untimely part

orders. Inefficient buying of critical supplies increases the cost of maintaining equipment and

frequently results in decreased plant and equipment availability.

Decreased Employee Productivity Duplicate and obsolete inventory leads to excess material records. This compounds the problem

for most of the materials management software tools which are buoyed by a lack of effective

search functionality. According to an Aberdeen Group survey of leading manufacturing firms,

maintenance workers spend as much as 60% of their time identifying and searching for MRO parts,

indicating that most organizations could benefit from improvements in their loss of ―wrench

time‖. In addition, sometimes employees searching for the right part often lack the product

expertise or time to manage the process effectively. The additional time, resources and expertise

needed to find the necessary parts to run an organization's plant and equipment leads directly to

decreased worker productivity.


The Business Benefits of Material Master Data Management Sourcing Sourcing projects and the make-versus-buy decision process in general require a view of what

exists already in the approved parts lists and approved vendor lists. Bad material master data can

result in supplier proliferation, part proliferation, and a failure to leverage existing contracts.

Part Reuse in Design An engineer‘s design decisions can have lasting financial impacts on product margin as well as on

the organization. Part reuse is dependent on the engineer‘s ability to find the right part based on

attributes. When existing parts are incompletely or wrongly classified and attributes are missing,

frustrated engineers find it easier to create a new part than to perform an extended manual

search. This undermines sourcing strategies and merger-and-acquisition synergies, and further

bloats inventories.



THE BUSINESS CASE FOR MATERIAL MASTER DATA MANAGEMENT

“Although the problem is big, so is the potential payback”. The best part of a

Data Rationalization project is the demonstrable ROI in the following areas:

Greater and quicker ROI realization from ERP

Investments Increased Leverage of the existing systems

Increased Contract Compliance

Spend Leverage through supplier

consolidation Global Inventory optimization

Reduction of Inventory Carrying

costs Increased Plant Uptime

Increased Worker productivity

Reduced Mean Time to Delivery of Products

AMR Research Research from leading analyst firms have found that reduced material costs and

optimized inventory, enabled by harmonized and subsequently maintained material

master data, can contribute more than 1/3rd

of the hard dollar savings from an ERP

consolidation initiative.



Benefits of Material Master Data Management

Supported Business Initiative Competitive Edge

Better inventory analysis (e.g. ABC or XYZ

analysis) and control enabled by clean,

enriched, and maintained material data Increased supply chain fulfillment. Increased requisitioning, sourcing and

usage efficiency and accuracy.

Freed up cash flow and better WCM

Faster and efficient supply Chain. Superior relationship among partners in

supply chain network.

Increased and faster ROI from ERP and

EAM projects.

Enterprise wide standards adoption.

Faster integration of process and data in

M&A activity.

Reduction in supply management,

payment, reconciliation costs.

Increased plant and equipment availability

and reduced downtime

Increased employee productivity

Improved Cross-plant inventory visibility Accountability Under Sarbanes-Oxley Sections 302 and 906: CEO/CFO Sign-off

Degree and efficiency of financial

/ERP consolidation and integration

Availability and quality of financial

data marts/data warehouses

Section 404: Internal Controls

Capability to comprehensively

aggregate financial data

Capability to segment reporting into

material or significant elements.

Higher returns to the investor community.

Increased Investors confidence.

Better strategic sourcing and

procurement processes

Better operational

efficiency Higher OEE

Superior corporate governance. Superior and accurate financial reporting.

Visibility into corporate spending

Better rapport with investors & SEC.



MRO Inventory Control: A major benefit of Material Master Data Management

In an effort to become more competitive, companies have found that maintenance

represents from 15 to 40% of the total product cost and dollars saved in maintenance are

cost avoidance. In larger companies, reducing maintenance expenditures by $1 million

contributes as much to profits as increasing sales by $3 million.

Inventory and stores savings – Maintenance material costs are related to the frequency

and size of the repairs made to the company‘s equipment. The total number of parts, in

addition to the stores‘ policies, purchasing policies and overall inventory management

practices contribute to the overall maintenance materials costs. Since little attention is

paid to maintenance materials in some companies, inventories may be higher than

necessary by 20 to 30%.

Good inventory control enables companies to lower the value of the inventory and

continue to maintain a service level of at least 95%. This enables the maintenance

department to be responsive to the operations group, while increasing the maintenance

department‘s own personal productivity. Successful computerized maintenance

management system users have averaged 19% lower material costs and an overall 18%

reduction in total inventory.

Source: Vesta Partners



SIMPLIFIED BUSINESS BENEFIT CALCULATOR FOR MATERIAL MASTER DATA MANAGEMENT # Elements Value

INVENTORY COST AVOIDANCE

1 Total dollar value of MRO spares purchased per year ($) 2500000

2 Percentages of time spares are already in store when others are purchased (%) 15%

3 Savings total (cost avoidance), $ 375000

4 Additional savings (inventory overhead@30%), $ 112500

INVENTORY HOLDING COST REDUCTION

5 Estimated total inventory valuation, $ 50000000

6 Estimated inventory reduction, % 20%

7 Estimated one-time inventory reduction, $ 10000000

8 Estimated additional savings (inventory overhead@30%), $ 3000000

REDUCED STOCK - OUTS RELATED DOWNTIME

9 Number of stock-outs causing downtime 36

10 Amount of downtime, hr 90

11 Cost of downtime, $/hr 10000

12 Total cost of materials related downtime, $ 900000

13 Percentage of savings obtainable, % 50%

14 Savings in materials-related equipment downtime, $ 450000

IMPROVED MATERIALS - RELATED PERSONNEL PRODUCTIVITY

15 Time wasted by personnel looking for spare equipment parts, % 20%

16 Total number of craftsmen 10

17 Multiply line 16 by 2080 (normal hours worked by an employee), hr 20800

18 Total number of hours wasted for craftsmen, hr 4160

19 Average labor rate, including benefits for a craftsman, $/hr 28

20 Potential materials-related productivity savings, $ 116480

21 Total savings, $ 14053980

Note: All the values mentioned in the table are only representative



ABOUT VERDANTIS

In recent years, many global organizations have taken initiatives to harmonize and manage their

master data to ensure the success of their ERP consolidation/upgrade projects. After experiencing

sub-optimal results with conventional approaches, an increasing number of Global 2000 companies

are opting for Verdantis's cutting- edge automated solutions to ensure success of their MDM initiatives. Leading global companies have chosen Verdantis solutions for the following reasons:

End-to-end automated processes to harmonize & enrich historical master data

Ability to ensure ongoing data integrity

In-depth domain expertise

Ability to handle huge volumes of data in multiple languages

Reduction in material data consolidation project timelines by more than 50%

Lower total cost of project‘ due to automated approach

Ensuring high quality, scalability, and consistency

To find out more about Verdantis‘s automated solutions for historical data harmonization and

ongoing data integrity management, please visit www.verdantis.com


Verdantis is the first to offer Master Data Management services and solutions that bring real ROI and Business Value by focusing on the business use and application of organizational Master data. Verdantis uniquely offersend-to-end automated ERP MDM solutions driven by our suite of Artificial Intelligence (AI) based solutions andbusiness roles and rules, easily configured to fit enterprise requirements for classification, enrichment, screens,fields, security, attachments, workflow approvals, languages and more.

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