In the first blog of this series, we focused on the first foundational pillar of spend intelligence, namely Unique Vendor identification. We saw how deriving a deeper understanding of the spend allows business leaders to craft smart procurement strategies and how machine learning models ingest staggering amounts of data and provide intelligent insights in weeks, not months.
Giving your data a structured framework is the next step toward extracting insights from your procurement data. Organizing your spend into meaningful groups helps you understand and track where money is spent.
Pillar Two: Taxonomy – Where's the dilemma?
Taxonomy is the classification of an organization's spend in a hierarchical order. Standard taxonomies are available, such as the global United Nations Standard Products and Services Code (UNSPSC).
The dilemma: How the categories get structured allows the user to see opportunities and potentials. Having fewer sub-categories or levels means that a good deal of spend gets lumped together. Too many sub-categories, on the other hand, lead to redundancy.
Why is it important? With a taxonomy that aligns with your specific industry and business, you can compare your spend against industry benchmarks and identify any outliers. The correct categorization gives you a level of granularity that makes it easier to identify any problematic spend, which can then be resolved to realize procurement savings.
Creating a meaningful structure is a cumbersome and time-consuming task. An AI-powered spend solution such as SpendAI brings you the unrivaled industry-specific taxonomy defined by experts. Having worked with experts in various industries, our taxonomy is closely aligned with the industry requirements. You can further customize and align the taxonomy to your business needs.
Organizing data in meaningful structures allows you to look at suppliers at multiple levels of a category, giving you negotiating leverage. You can broaden your strategy with a supplier by expanding the width of your category.
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