|Dipan Karumsi, Managing Director,
KPMG Procurement Advisory Services
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In our last post we talked about spend analytics, the danger of the “other” category, and how it can easily lead to unreliable data. Today we’ll talk about how a standardized taxonomy can create dependable analytics.
|For many organizations, the United Nations Standard Products and Services Code (UNSPSC®), a standard product taxonomy that’s on the market, can be a good starting point for building or cleaning up categories. It provides standardized reporting, but it can also be overwhelming for some enterprises because of the level of detail it contains. This can end up creating more confusion, depending on the skill and experience of the people using the system.|
You can edit the UNSPSC® down or roll some things up into larger categories, keeping organizational fit and alignment in mind. If you have too many categories and the distinctions are too fine, you’ll get the same item showing up in different categories. Then you’ll start to get those, “Where did my spend go?” types of questions which quickly lead to data distrust. On the other hand, if you decrease the categories available to the end user, sometimes they just won’t have what they need.
Every organization is different, and you have to identify what makes sense for your situation. Your taxonomy has to strike a balance between providing the visibility and data you need to manage effectively, while simultaneously not being too onerous for end users to adopt easily.
|One key note: Taxonomy development should not be done in a bubble. Creating a spend taxonomy should be a collaborative process that includes a broad group of stakeholders. The more input you receive, the greater the buy-in will be on utilization and self-service reporting.|
While some organizations opt to refine their taxonomy as they mature, I recommend they clearly define and deploy it up front. Constant changes in the way users see the taxonomy can cause confusion. In addition, spend reporting will be impacted if categories are removed, edited, or added, and alignment of workflow approvals to categories will need to be updated each time it is changed.
Most important of all, do not create a category called “other” (or “miscellaneous” or “uncategorized”.) Getting real time visibility into spend is one of the big goals here. Allowing this kind of category automatically introduces the need for a manual process, which causes delays and inaccuracy.
If “other” is not an option, end users will learn to find the right category. Procurement can provide information and training to help. Since most requesters concentrate on a handful of 10-15 categories, they’ll be very effective at selecting the right ones once they learn them.
An up front investment in creating a thoughtful taxonomy is going to give everyone across the enterprise the ability to run accurate, real-time ad hoc reports in the eProcurement application. This is the power of analytics, and once people experience it and see how much easier it makes their jobs, having no “other” will be no issue.