How Frequently Should You Review Spend Taxonomy?

What is the objective of Spend Taxonomy Review:
Spend Taxonomy presents the spend of an organization in an heirarchical format, this heirarchy is based on levels, usually it ranges from 3 to 5 levels. Depending on the complexity of their spend the classification structure is created. They are usually in the following format: Level 1 (Group), Level 2 (Family), Level 3 (Category), Level 4 (Commodity); where Level 1 is the highest level which is broken down in Families and Families in turn are further divided into various Categories, and Categories are divided into Commodities. The last level (Commodities) represents unique set of suppliers with same core competencies and can also be considered to represent a unique RFP. Since the Commodities represent unique RFP's it is very important to keep the taxonomy current and relevant so as to track and identify categories that should be sourced.

Advantages of Reviewing Spend Taxonomy:

The obvious advantage is that with passage of time and with change in business situation there are times when the spend for some categories increase and some decrease this change can be drastic. If the taxonomy is not reviewed the newer ones now with high spend may get lost and probably at the same time some low spend RFP's may have their own Commodity level. The supplier spends which are not classified in their own commodity levels are then classified in a more generic bucket and hence are usually lost and remain untracked.

When should Spend Taxonomy be reviewed:

When there is change (addition or deletion) in the product line of a company, the raw material, packaging material and some of the service requirements may change. This situation qualifies for a review of spend taxonomy.

When there is drastic change in the revenue of a company the spend taxonomy should be reviewed as this indicates changes in the sales of various company products and SKU's. This change usually is not even across all SKU's, the rate of increase or decrease for some may be much higher compared to others. And so accordingly the spend profile will also change and hence this situation also qualified for a review of spend taxonomy.

We at EmpoweringCPO (www.empoweringcpo.com) with vast pool of experience have plenty of case studies to elaborate on the situations that were faced by our clients that justified spend taxonomy review. Our focus on procurement intelligence and procurement analytics are the two key ingredients to achieve successful results with Opportunity Assessment and Spend Analysis. Call us or write us at info@empoweringcpo.com to know more about what we have achieved for our clients.