Improving the bottom line with spend categorisation
Procurement has been a critical business function for years. While the way business is conducted continues to evolve, key process goals have always included reducing procurement costs and improving resource efficiency. The widespread advent and adoption of digitisation across industries have paved the way to highly detailed spend data on a scale like never before. We can now make detailed spend analyses of historical data and predict future spending trends. However, without a suitable spend categorisation structure in place, this data would be filled with errors, rendering it impossible to conduct an accurate analysis to leverage decreasing costs and improving efficiency.
Spend categorisation can be a time-consuming and arduous process. However, insights gleaned from an analysis of your organisation’s spend data can help make strategic business decisions that can positively affect the bottom line.* A robust spend taxonomy is necessary as a foundation for your analytics engine to provide you with an accurate view of your spend data.
In simple terms, a spend taxonomy is a categorical spend structure of an organisation. Also referred to as a category tree, this hierarchical structure of a company’s spending involves collating every single item an organisation has bought from vendors and suppliers over a certain period of time. A methodical spend taxonomy makes it possible to extract usable information from historical spend data. Spending analysis can be split into three levels:
- Data acquisition, where all spending-related data is gathered from various internal and external sources
- Data processing, which involves cleansing, organising, and enriching the collected data to be analysed
- Reporting and analysis, which refers to gathering usable insights from organised data and using them to make sound, strategic business decisions
Building a spend classification taxonomy involves classifying your spend data into industry-relevant categories, sub-categories, and more. For example, under your marketing spend, you might have subsections such as ‘advertising,’ ‘PR,’ and ‘market research,’ with further sub-categories such as ‘print ads’ and ‘TV ads’ under the advertising category. Here are a few pointers to consider and guidelines to follow when designing a spend category taxonomy:
- Ensure that the categories are appropriate for and suited to your organisation’s specific business needs.
- Incorporate enough sub-categories to avoid overlooking potential saving opportunities. However, ensure that the taxonomy doesn’t contain more than the required sub-categories to avoid confusion and wasted time on separately classifying minor amounts.
- Structure your taxonomy from a supply market perspective so that spend from suppliers of similar goods and services are classified together. If necessary, consult with experts in the field to ensure that your categorisations are compatible with your organisation and your long-term goals.
- Make sure that each category accurately reflects the goods and services purchased. Other factors such as their source, who purchased them, or which accounting process the purchases belong to can be included as additional data to be used in the analysis.
- Ensure all categories and sub-categories across the taxonomy are unique and not repeated and all types of spend are accounted for.
- Expand growing categories, when necessary, with additional sub-categories.
- Avoid including ‘other’ as a category; all spend should be classified appropriately for a clear picture of what the organisation is spending on.
- Avoid creating redundant categories where similar types of spend can be clubbed together.
Creating an accurate spend classification and taxonomy may seem like a daunting, time-consuming process. It helps to have experienced subject matter experts in your corner to assist and guide the procedure. Modern AI-enabled processes can help with data collection, cleansing, and organising, while accurate classification and categorisation can be achieved with the assistance of machine learning models that incorporate industry-specific knowledge to guide your efforts.
How can Infosys BPM help?
Infosys BPM offers a range of spend analytics services that incorporate cutting-edge technologies for data management, spend classification, and opportunity identification to assist with digitising your organisation’s procurement procedures and processes. Discover how Infosys BPM can help you effectively categorise your organisation’s spend and analyse the subsequent data to offer actionable insights into this expenditure.
*For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.