Spend Category Management: Why Your Business Needs It?

So, what’s the solution?

A spend analytics software that automatically categorise the spend is the solution.

Spend category management: What is it?

Spend category management is the process of classifying and grouping a company’s spend based on products, services, suppliers, departments, etc.

Spend categorisation typically involves: 

• Defining a clear bucketing structure to classify products/services based on the purchases made by the business or the reporting hierarchy that the business wishes to follow.
• Consolidating similar purchases into standard groups.
• Implementing a well-defined spend classification taxonomy that classifies the spend into categories and subcategories involving various levels and sub-levels.

This can help businesses to devise a sourcing strategy, source strategically and spend mindfully to ultimately improve the procurement strategy.

How Can Spend Category Management Help Businesses?

Unlike the 1990s, the goal of category management is not just limited to sales and cost savings today. 

Today, strategic category management is an end-to-end incremental approach aimed at:

1. Spend visibility 

Spend analytics tools unify, simplify, and standardize the otherwise unstructured raw spend data. This helps you gain a true picture of the spend across-the-enterprise. This also answers the questions such as:

• Highest & lowest spend categories
• Categories with high maverick spend
• Highest purchase demands & quantities
• Categories with highest & lowest P2P &S2P cycles‍‍

2. Improve supply chain resiliency 

By implementing an effective spend category management and comprehensive spend analytics, companies can foresee supply chain risks and improve their business continuity planning. This is possible by:

• Identifying and quantifying the risk associated with supply chain disruptions.
• Prepare in advance to tackle the supply chain risks.

3. Control Indirect Spend

As Una suggests and we agree, Indirect spend accounts for 30% of a company’s total spend but is rarely managed due to the lack of visibility into:

• How much is being spent across which categories
• Budget vs spend insights
• Supplier Contractual terms thereby losing out on discounts and negotiation opportunities

 As a result, businesses miss out on cost savings & optimization opportunities hiding beneath indirect spend analysis. Spend category management helps you take control of your indirect spend and reduce it by as much as 10%.

4. Better Supplier & Contract Management 

An efficient spend categorisation strategy provides you within-depth insights into your supplier base. It clearly helps you discover:

• Number of suppliers contracted for each spend category
• Supplier consolidation opportunities
• High-cost suppliers
• Contractual terms that you may be missing out on include supplier discounts and rebates
• Payment terms and payment trends

Using spend analysis in supply chain management, the procurement team get a granular view of the spend patterns. As a result, procurement leaders are in a much better place to:

• Predict the future demand & plan cost-effective sourcing strategies.
• Strategically manage their addressable spend.
• Evaluate supplier performance, replace underperforming suppliers, and onboard new ones.
• Bundle similar suppliers and streamlining the contracts to improve supply chain efficiency.
• Rationalize the supplier base to provide value for money and improve buying power and negotiation strength.
• Predict the impact of unforeseen risks (international conflicts, natural disasters) to boost resilience & bulletproof the supply chain against disruptions.
• Aligning the business goals with supply chain performance & overall profitability in the long-term.

5. Cost Savings

Spend consolidation & spend data analytics are direct functions of category management directly contributing to saving costs. By individually managing the sourcing for each category, procurement leaders can:

• Use the spend data analytics to secure contracts at optimal pricing.
• Identifying the suppliers providing early payment discounts and rebates.
• Detect the maverick spend across categories & devising a strategy to cut it down.

6. Improve Procurement efficiency/ Accurate Reporting 

In the 21st century, data is the new currency. With real-time and accurate spend insights at their fingertips, procurement leaders can get a clear view of the organisation’s buying patterns and make optimal decisions to improve spend under management.

Category management drives constant standardization & value generation that goes beyond just cost savings. It drives long-term growth by supplier innovation along with the budget cycle. In addition, category management helps in improving service quality and facilitates world-class procurement processes for businesses.

If it’s so beneficial, why are companies not implementing spend category management?

Spend Category Management- Key Challenges

• Developing a customized category hierarchy can be laborious and time-consuming.
• Companies don’t have complete and standardized spend data in one place.
• Most companies still use manual ways or excel sheets to collect data. Add to it data present in different languages, spelling mistakes, and redundancies.
• Lack of a categorisation strategy and absence of any standard or customised spend classification taxonomy in place

The complexity of spend category management is another hurdle. Companies have so many categories & sub-categories, thousands of suppliers across countries, and lakhs of daily transactions. As a result, it’s next to impossible for CPOs to categorize the spend data and analyse it.

But, a spend analytics solution simplify the process for you as it automatically categorize the business spend.

Spend Analytics Tools For Managing Spend Category

To implement category management in its true spirit, we need spend analytics.

The smart and intelligent spend analytics tools help businesses auto-classify their spend into accurate spend categories or cost codes. Built on a foundation of modern AI/ML technology, these tools offer a standard spend classification taxonomy and are flexible enough to classify spend based on customised classification taxonomy that the business may want to adopt.

Spend analytics solutions can help you extract the complete purchase history & spend data to answer the queries like:

• Which items are we buying?
• Who are we buying it from?
• Which department is buying more often?
• Which category has the highest maverick spend?
• How many suppliers are there for each category?
• Are we getting the promised quality on time?
• Did we leverage the early payment discounts?
• Who are the top suppliers?
• Do we have too many or too less suppliers doubling the supply chain risks?

Planning to implement category management across your business?

You are on the right path.

Spendkey is the best spend analytics solution as it lets you:

1. Leverage your spend data’s true potential

How?

Spendkey extracts, cleanse, standardizes, auto-maps, and enriches the raw spend data to amplify your visibility.

2. Saves you time, money & efforts

How?

Spendkey can help you auto-categorise your spend and helps your review thousands of transactions under a few minutes to yield actionable insights for your business. Moreover, Spendkey helps you reduce your management overhead by as high as 95%.

3. Shock-proof supply chain resistant to unforeseen risks

How?

Built on the latest AI/ML technologies, Spendkey can help you perform what-if scenarios and predictions to stay prepared.

4. Cost saving & strategic sourcing at the lowest prices possible

How?

Spendkey’s data transformation, category management and intuitive analytics capabilities help you get a comprehensive view of your supplier base and spending behaviour. You’ll be surprised to see the hidden savings opportunities that you had been missing out on.

5. Value generation for your clients

How?

Spendkey frees up time otherwise invested in sorting, collecting, and reporting data. You have more time at hand to focus on generating valuable innovative solutions for your clients.

Are you ready to begin your category management journey?

Try Spendkey. Let us help you start today.