Can Master Data Management (MDM) help your Working Capital Management Strategy? Organization Strategy
We are all aware that an optimal working capital management is a key indicator of financial health and measure of operational efficiency highlighting the success of any business. Let us explore a few examples where the trilogy of working capital measures (receivables, payables and inventory that are at the core of organizational F&A and supply chain processes) are profoundly impacted by the health of enterprise master data.
Improving receivables with a better Days Sales Outstanding (DSO) is a direct measure of an organization's order-to-cash process efficiency. It's a no brainer that an efficient Order-to-Cash (O2C) process starts with fixing the customer data to be correct. Ensuring accurate, valid and current customer address, and contact details including their receiving / billing info with appropriate credit limits and reviews improves the efficiency of the delivery and billing process. Also, maintaining standard & approved payment terms, and International Commercial (INCO) terms as part of customer master records aligning to the organizational policies & guidelines, directly impact when revenue would get realized as part of order-to-cash process. Sound strategies of customer segmentation with focus market categorization & classification, and hierarchy definition & accurate depiction of the same as part of customer master records, would also help improve sales and marketing programs, generating revenues and profits.
Optimal payables with a better Days Payable Outstanding (DPO) is a key measure of an organization's procure-to-pay (P2P) process efficiency. Ensuring accurate, valid and current vendor data including address, and contact details including their banking and payment information improves the efficiency of the procure-to-pay process. Also, maintaining standard and approved payment terms, banking info as part of vendor master records aligning to the organizational policies and guidelines directly impacts payables as part of procure-to-pay process.
Striking a balanced and optimal level of inventory that avoids stock outs and does not call for excessive inventory levels is a key challenge as part of forecast to fulfill process. It requires visibility on inventory levels, demand management and replenishment processes managed properly by a state-of-the-art inventory management system, which in turn will require an accurate material master data capability. Material master data describes how a product & its raw materials or components are planned, procured, stocked & managed in the warehouse, sold, categorized, cost accounted, and phased out. Effective and efficient MRP runs, physical inventory & cycle counting practices, value and volume based categorization that are hallmarks of a sound forecasting and fulfillment process directly depend upon accuracy and timeliness of material and product master records.
Master Data Management has a positive impact on Working Capital Management Strategy!
Though not completely exhaustive, we have seen how the core of supply chain master data (customer, supplier and material data) health can affect the working capital management strategy of an organization.
Also, it is imperative to understand that master data is the key foundation towards enterprise business operations that impact all the downstream processes. Getting the master data right is the basic prerequisite, not only towards working capital management strategy but also to all the organization's transformation endeavors. Sound master data health reflects in the six dimensions of data quality as shown below.