How Much Of Our Spend Data Can You Classify On The First Pass?

November 16th, 2009 at 09:17am David Bush - Iasta

We get this question all the time.  And it is difficult to answer, because many factors are involved, such as what kind of data will we get, and what classification taxonomy will be in play that is meaningful to your strategic sourcing needs?  Data = AP only? PO also?  Pcard?  Expenses?  Foreign data?  Classification = UNSPSC?  eClass?  Achilles?  Directly to Sourcing Categories?  After doing over 100 projects over the past 12 years, the answer varies.

But is this a pertinent question or test?  I don’t think so, for a variety of reasons.  Of course the assumption with this question is that the more you can classify automatically, the less expensive the effort will be, and the more experienced you are.  Not so.

Shouldn’t the question be…. How fast can you classify my raw data to my business specific sourcing categories? Isn’t that the goal of Data classification – to support the organizations strategic sourcing efforts, which are centered on leveraging specific Spends within sourcing categories?  For our customers, that is the overwhelming focus of Spend Data Classification, including the need for flexibility to change and manage their business-specific categories.  And what is interesting, is that in every one of the projects we have done, there has been a different business sourcing strategy, and therefore different category structure.  So how can data be classified automatically to the most-important but unknown sourcing category structure, on the first pass?  As the Sourcing structure is defined, the “auto-classification” percentage jumps dramatically; quickly, with quality, and accuracy.  It may take 2 or 3 passes to properly define the organizations specific business sourcing categories, and associated business-specific classification rules.

Here are some of the assumptions, and fallacies, with the question – “how much data can you classify on the 1st pass?…

1. People are asking this question based on auto-classifying to UNSPSC.  UNSPSC seems to be becoming sub-optimal for Sourcing.  In literally all the projects we have conducted and classified to UNSPSC, this classification has NOT been used to conduct sourcing programs.  UNSPSC must be rolled up to Sourcing Categories.  It’s like a middle man.  With today’s advanced classification tools, you can classify directly to Sourcing groups (or both).  So this may be a costly and unnecessary effort for your organization
2. The question does not focus on how effectively you can get to Sourcing Category classifications.  If a vendor can classify 70% (to UNSPSC) on the 1st pass, but takes weeks and months to get to >95% classified, that is not cost effective, or efficient.  With today’s advanced classification tools, you should be able to classify 95%+ to your business specific sourcing groups within a few days.  95% classified to the Spend dollars, to the number of items, and accurately.
3. Some organizations have large “pre-sales” organizations specifically to “impress” organizations how much they can classify up front.  They invest a lot of time and effort, and do this in a “black-box” environment.  It is this black-box environment and process capability you should be looking at, not the end result, which can be manipulated greatly.

Bottom-line… focus on how fast, how efficiently, how effectively, how flexibly, a vendor can classify your data to your business specific sourcing programs and categories as the primary goal, which may include other levels of analysis capabilities by classifying to other/multiple categories as well (such as UNSPSC, if needed).  And ask “how” this is accomplished, as you will want to see this process to be comfortable your sourcing needs can be met, as you will want to continue with effective Refreshes to drive advanced compliance, performance, and category management programs.

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Entry Filed under: General, Spend Analysis