WHITEPAPER

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 companys 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 1/3

rd

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-andacquisition 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.

Copyright 2010 Verdantis

The Business Benefits of Material Master Data Management

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.

The Business Benefits of Material Master Data Management

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 organizations 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.

Copyright 2010 Verdantis

The Business Benefits of Material Master Data Management

Challenges in Material Master Data Management

For a Global 2000 company, material master data management can be a challenging

task:
Disparate, Dispersed & Distributed Sources
Across Multiple Locations
Across Multiple Systems

Global 2000 manufacturing company

97 locations

Across Multiple Business Units

Unclassified Item Data

Multiple systems
Multiple user groups

Non uniform coding standards

Incongruent commodity coding
Poor Item Data Visibility
Incongruent

REAL LIFE EXAMPLE:

350,000 corporate codes

A million items
Multiple languages

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)

Copyright 2010 Verdantis

The Business Benefits of Material Master Data Management

MATERIAL MASTER DATA MANAGEMENT APPROACHES AND

SOLUTIONS ADOPTED BY LEADING COMPANIES
Effective Material Master Data Management involves:

Harmonizing legacy material data

Ensuring 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 cant 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 and
parts/ 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 multiple
languages Non-uniform Commodity Coding
standards Poorly classified data
Poorly structured descriptions (inconsistent specifications or missing
specifications) Incomplete data (missing part numbers or original vendor names)
The unique characteristics of items and part (especially MRO) data

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

Copyright 2010 Verdantis

The Business Benefits of Material Master Data Management

THE NEED FOR EFFECTIVE MATERIAL MASTER DATA

MANAGEMENT
The success and measurable impact of many business initiatives depend on consistent, highquality 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.

Copyright 2010 Verdantis

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 t o 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.

Copyright 2010 Verdantis

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 engineers design decisions can have lasting financial impacts on product margin as well as on
the organization. Part reuse is dependent on the engineers 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.

Copyright 2010 Verdantis

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The Business Benefits of Material Master Data Management

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 1/3

rd

of the hard dollar savings from an ERP

consolidation initiative.

Copyright 2010 Verdantis

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The Business Benefits of Material Master Data Management

Benefits of Material Master Data Management

Competitive Edge

Supported Business Initiative

Better inventory analysis (e.g. ABC or XYZ

Freed up cash flow and better WCM

analysis) and control enabled by clean,

Faster and efficient supply Chain.

enriched, and maintained material data

Superior

Increased supply chain fulfillment.

Increased

requisitioning,

sourcing

relationship

among

partners

supply chain network.

and

usage efficiency and accuracy.

Increased and faster ROI from ERP and

Higher returns to the investor community.

EAM projects.

Increased Investors confidence.

Enterprise wide standards adoption.

Faster integration of process and data in
M&A activity.
Reduction

in

supply

management,

Better

strategic

payment, reconciliation costs.

procurement processes

Increased plant and equipment availability

Better

and reduced downtime

efficiency Higher OEE

sourcing

and

operational

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

Superior corporate governance.

/ERP consolidation and integration

Superior and accurate financial reporting.

Availability and quality of financial

data marts/data warehouses

Visibility into corporate spending

Section 404: Internal Controls

Capability

to

comprehensively

Better rapport with investors & SEC.

aggregate financial data

Capability

to

segment

reporting

into

material or significant elements.

Copyright 2010 Verdantis

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in

The Business Benefits of Material Master Data Management

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 companys 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
departments

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

Copyright 2010 Verdantis

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The Business Benefits of Material Master Data Management

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

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

15%

Savings total (cost avoidance), $

375000

Additional savings (inventory overhead@30%), $

112500

INVENTORY HOLDING COST REDUCTION

5

Estimated total inventory valuation, $

50000000

Estimated inventory reduction, %

20%

Estimated one-time inventory reduction, $

10000000

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

Copyright 2010 Verdantis

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The Business Benefits of Material Master Data Management

ABOUT VERDANTIS
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 offers
end-to-end automated ERP MDM solutions driven by our suite of Artificial Intelligence (AI) based solutions and
business roles and rules, easily configured to fit enterprise requirements for classification, enrichment, screens,
fields, security, attachments, workflow approvals, languages and more.
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 Verdantiss automated solutions for historical data harmonization and
ongoing data integrity management, please visit www.verdantis.com

Copyright 2010 Verdantis

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