The cost of bad data 

We’re all hearing about the need to be more data driven, and while organisations are increasingly embracing software-as-a-service products as part of key business processes, that doesn’t necessarily mean they are collecting and using good data

The value of being data driven is better decision making. Knowing the impact of decisions on sales, supplies and operations, and in turn the impact of external events on business functions is critical. And yet, in research published in his book Fail Fast, Learn Faster, business author Randy Bean finds just 24% of executives agreed their organisation is data driven. 

In short, data is only as useful as its quality – particularly in supply management. In today’s complex socio-economic and political environments where supply chains are seeing near constant disruption from international conflicts, Covid-19 prevention policies in China, or simply a lack of shipping capacity, having the data to predict how your supply chains can be impacted by external events is critical. 

Inaccurate data in today’s world can lead to opportunities missed and revenue lost. Examples might include, being unable to identify the impact of a higher cost of raw materials on the overall price of a product or being unable to deliver goods to customers within promised timeframes, resulting in penalties and lost profit. Research by Larry English (founder of the TITQM Quality System – a holistic approach for quality information management) finds poor information can cost organisations as much as 35% of their operating revenue.  

Poor quality information can be corrected, but this process is often expensive and time consuming, reliant on a single or group of individuals ploughing through numbers and evaluating spreadsheets. Further, this time wasted will weaken a business’ ability to respond to changing environments – by committing crucial staff to manually process information rather than actioning it. Simple tasks like generating a time sensitive status report or evaluating exposure to new regulations or a natural disaster can leave teams trying to find answers for hours. 

Fixing bad data 

Fixing bad data is one thing – but avoiding it in the first place should be the priority. The key to this is effective governance. Research by Aberdeen Group found organisations effectively governing and ensuring accuracy in data can improve that insight at three times the level of competitors – in turn ensuring better decision making.  

In procurement – every function from billing, invoicing to supply chain management can benefit with better access to accurate insight.  

Good data can crucially improve decision making. For example, by ensuring better connections to suppliers, organisations can see cost structures, identify supply availability, predict lead times, and identify risks as well as service or quality performance of suppliers. This can in turn improve decision making when planning new products or looking to expand manufacturing output. With the information in place and visible, organisations will be well positioned to negotiate on prices, diversify supply chains to minimise reliance on a small number, and identify any risks before they have a major monetary impact. 

Visible information that can’t be overlooked will in turn create opportunities – whether it’s identifying from a database that one supplier is delivering materials to multiple divisions in an organisation (creating opportunities to negotiate a discount), or something as simple as ensuring accurate payments by having one source of truth for supplier bank details. 

With supply chain risk high on the corporate agenda, forward insight is more important than ever. Forecasts, only so good as the data they are based on, can enable organisations to model scenarios such as the impact of new regulations, a new duty on materials/ a product, or what happens if a supplier is prevented from trading due to an unforeseen disaster. 

Making a difference 

Whilst the cost of bad data is high – the cost of ensuring good data doesn’t have to be. Key is bridging the gap between business functions and technology expertise. Data is technology enabled, so without IT or tech teams on-board, procurement or finance divisions will struggle to improve their data management. Promoting a culture of data sharing and identifying opportunities across a business is key to making the case for a new approach to management. As a result, a single platform that unifies a range of information can go a long way.  

Once in place – we advocate first discovering data. Where is information held in a business and which systems, what needs to be united? At that point comes the most challenging part, cleansing and enriching. Data in a spreadsheet or in a database has limited use on its own, so how can that be visualised? What queries should be run and where can alerts be set up to flag concerns or potential opportunities? 

Whilst there is work to be done, it doesn’t have to be a manual process. With the right technology, data can be aggregated and managed from disparate sources to provide a solution suitable for informing and driving business decision making at both micro and macro levels. 

This drive to better business decision making is how organisations can elevate the importance of technology and procurement teams. Traditionally back-office functions, by combating bad data and turning it into intelligent data, these groups can elevate their role to that of key c-suite stakeholders. 

It is pleasing to see progress is being made, with IDC estimating spend analytics investments will reach $6.8 trillion by 2023 – but more needs to be done to ensure those analytics functions have the right data to deliver actionable insight.   

About the Author

Ed Riddell is CFO of Rosslyn, a procurement specialist company helping organisations to manage and understand their data, delivering business insights that enable them to succeed. With over 10 years’ experience heading up and developing finance departments, Ed has led the finance team at Rosslyn since July 2021. He and has held a number of roles in the industry, most recently at operational risk specialists Acin.

Featured image: ©Quardia Inc