4 Replies Latest reply on May 3, 2011 2:15 PM by Ryan Kingsland

    Spend Classification

    Newbie
      Would like to receive best practices in classification of spend.  UNSPSC levels do not go to detail needed for our industry.
        • Re: Spend Classification
          tminahan Master

          You are certainly not alone. Many companies that venture down the path of classifying their data to a common schema find that UNSPSC does not go far enough for their purposes.

           

          While UNSPSC is often sufficient for common items -- such as PCs and peripherals -- many companies use tools -- like Ariba Spend Visibility -- to expand upon these schema to get to the level of detail they require for meaningful analysis. For example, H&R Block has taken it upon themselves to extend the UNSPSC for more complex services categories, such as commercial printing. You can learn more about their approach here: http://www.supplyexcellence.com/blog/2008/12/17/spend-analysis-beyond-erp/

           

          Ariba's own global services organization has developed a classification taxonomy that extends the UNSPSC to a level of detail that our customers can use to conduct detailed spend analyses and develop better leveraged sourcing. The main difference in approach is that UNSPSC bases its classification on the end use of the product. The Ariba classification taxonomy is based on the process the material or product undergoes -- such as extrusion or injection molding. The Ariba taxonomy is mapped directly to UNSPSC so you can use them interchangeably.

           

          I'm not the deepest expert on the subject, but I do know who is. For more detailed questions, you can contact Simon Hauser (shauser@ariba.com) or Alex Saric (asaric@ariba.com).

            • Re: Spend Classification
              Alex Saric Expert

              Ariba has worked with dozens of customers struggling to decide on the right taxonomy for their business.  Here is what I normally recommend for those that don't have an existing custom taxonomy (this is just a summary so please feel free to contact me at asaric@ariba.com or via this community post if you have more specific question).  Creating a brand new, custom taxonomy can be a challenging task.  Even with just one person sitting down to develop the right taxonomy for their needs, it can be difficult.  Adding the reality that different stakeholders have different perspectives and needs and you have what can be a seemingly monstrous task.  The last thing you want to do is to delay a spend analysis project until you have the "perfect" taxonomy either (or you'll never get off the ground).  When customers don't have their own taxonomy but either need more granularity than a standard like UNSPSC or need a different roll-up, we suggest starting with an existing taxonomy and focusing on areas that should be changed.  We normally suggest customers start with Ariba's own classification or sourcing taxonomies, which already have more granularity in areas UNSPSC is lacking and roll-up to a more purchasing friendly structure (ex.  all IT spending rolls up to IT whereas in UNSPSC services and hardware are completely different branches).  This gives a nice head start and makes the task more manageable.  Then start at the top level.  Do you need to add a special top layer based on who will use the system?  This is where customers often have very unique elements they need to add.  Once you have the top layer, map the second level categories from the starting taxonomy you are using into that top level.  Then move to the bottom level.  Where do you need more granularity?  Don't go crazy though.  Focus on the granularity you need for the business uses.  It may be nice to know every color or physical attribute but building that into your taxonomy will just unnecessary layers and your data probably won't even support having much classified at that level.  Two good rules to keep in mind are:

              1. Don't build temporary nodes into your taxonomy that will require you to constantly change it.  A good example is using attributes.  If you look at IT, it may be useful to know the processor speeds of your laptop purchases, but if you built that into your taxonomy, you will be adding new nodes every quarter until your taxonomy is completely unmanageable.
              2. Keep it mutually exclusive.  Having purchases that fit into more than one category is a recipe for disaster.

              Work with key stakeholders as you do this and once comfortable enough, go ahead and deploy.  You can always remap it or extend it further later.  Having a base taxonomy mapped to yours makes this a lot easier.

               

              I could go on and on, but at this point I think its best to stop and see if anyone has specific questions.

              1 of 1 people found this helpful
            • Re: Spend Classification
              Brian Griffin Newbie

              We were very fortunate to have an initiative kicked off in 2004 that looked to categorize our spend which was tailored to the organization but has many parallels. Property services, PC's, Copier/MFD's, Consultants, Benefits, Software, Telecom, etc classify similarly in any industry. We have specific things like Armored Cars Service and Checks but that's like transportation and printing/fulfillment. Not to minimize the importance of any one thing but it organizes in a common fashion. All indirect spend is a plus too as was strong executive "buy in", support and review. When spending is organized across an organization, there are a lot of eyebrow raising moments.

               

              Roughly 90 categories were identified to be addressed. The approach was to have a core team of leaders experienced in the process and create cross functional teams from the areas the either did the spending or were affected by it. As time went on we saw that the categories fit into what we called "clusters" that could be managed and would allow the core team to specialize on relationships, suppliers and commodities. Each category was examined over a 3 year cycle and we are on the second time thru.

               

              The approach began with "what was spent", then "who spent it", then "on what"

               

              The clusters are Property, Technology, HR (includes all temp resources like legal and IT as well as traditional personnel things), Internal Resource (cross organizational things like office supplies), and industry related (Banking for us). We can now pretty much identify all spend thru a combination of supplier, cost center and GL account.

               

              Head to head competition and supplier consolidation were the two biggest producers of savings and efficiency.

               

              This allows a small group to continually monitor, be aware of, conduct projects, etc within a scheduled approach to constantly working the market and allows for unscheduled projects when the market, economy or other factors require. Small offshoots are easily handled as well this helps to contain the "maverick spending"

               

              The trick for us was to get a structure that is manageable and can be explained in terms of your organization.

              • Re: Spend Classification
                Ryan Kingsland Apprentice

                This question appears to be answered.