Optimal Spend Analysis – How to Leverage Multiple Data Classifications?
Focusing on Business Specific Category Sourcing Groups is key, with or without UNSPSC.
Transforming raw Spend and Supplier data from payment and purchasing systems and reclassifying it into common, meaningful sourcing categories creates significant visibility and leverage into cost savings opportunities.
Many companies agree this is a vital discovery process and it is the key to successful results, but how the data is classified can be a challenge.
Raw data and UNSPSC
Raw data can be classified in a variety of ways.
One of the most common line item classification taxonomies is UNSPSC, which stands for the “United Nations Standard Products and Services Code”.
It is an 8 character code that breaks down 2-2-2-2 by segment, family, class and commodity.
If an item is classified to all 8 characters, it provides a detailed description across over 43,000+ UNSPSC definitions.
Reporting can also be segmented and rolled up by the 2, 4, 6, or the 8 character definitions.
This can be an advantage to companies with many items, as they break down their Spend for sourcing opportunities.
However, UNSPSC by itself does not roll up within its given structure to desired business-specific sourcing categories without multiple data classification technology.
Not taking away from the power of utilizing UNSPSC as a baseline classification, what has proven to be of much more importance to Strategic Sourcing is to have items classified to business specific sourcing categories, aligned and organized specific to the business needs.
That may be by buyer, by supplier offerings, by organization, etc.
The key is to determine the business sourcing category structure.
In many cases and depending on the complexity of the data and business needs for analysis, UNSPSC is often not needed at all, and items can be classified directly to the business specific sourcing category.
Directly classifying items to business sourcing groups is becoming more and more common, as it specifically accomplishes what organizations need to create – leverage-able sourcing categories specific to their business sourcing strategy.
It produces the same end result at less cost.
Classification for some organizations entails building analysis around sourcing categories already in place, such as internal custom categories, or (i.e.) SAP material groups.
SAP material groups or custom categories can be related to business Sourcing categories, maintaining a relationship between all classifications for internal purposes.
Multiple classifications/taxonomies like this can be done with more sophisticated tools like Sourcing Force.
One or our customers wanted it all – UNSPSC detail item categorization, related to existing SAP material groups, with both classifications rolled-up to flexible Strategic Sourcing groups.
They can now dissect their classified data in every way imaginable, they gained a very deep capability to analyze and isolate savings opportunities, and they now have the ability to “lock down” and track sourcing programs by many classifications.
The point of this post is that there is no one way to classify and break down organizational data. Every organization is different as to how they can create more sourcing leverage and more savings.
The key to success however, is to have flexible business specific sourcing categories created from the line-item detail that align with the desired business sourcing model.
This can be a direct classification of data to business sourcing groups, or a combination of classifications linked together, depending on the needs of the organization for detailed analysis of their Spend.
As mentioned, a sophisticated Spend classification system can give you the choice, and can handle multiple classifications for deeper Spend Analysis, performance management, and compliance management.
To learn How to conduct a best-in-class Spend Analysis, download your free e-book here: