Spend Category Management – What Is It, and Why Is It So Valuable?

March 2nd, 2010 at 09:11am David Bush - Iasta

Category management is very valuable to organizations that conduct sourcing initiatives and want to capture key knowledge around that specific sourcing category, integrated with the corresponding organizational Spend.  This allows for ongoing category-specific measurements, such as rebate programs, Diversity Spend relative to specific items, and managing the overall status of the sourcing program to continually capture the intended cost savings.  This can now be done category by category, which are typically managed by different personnel in the organization.  Having Category management integrated with your Spend Analysis provides your organization with more than Spend Visibility and Spend Analysis.  It truly provides ongoing and comprehensive “Spend Management”.

Spend Category Management requires 3 basic Spend Analysis related capabilities:

1) The ability to classify your Spend data to company sourcing categories, with flexibility for ongoing changes and sourcing breakouts.

2) The ability to isolate Sourcing categories as separate knowledge bases unto themselves, incorporating additional supplier, item, and market data.

3) The ability to channel and refresh organizational Spend data to the specific sourcing category on a regular basis, to drive ongoing measurements and Spend Management capabilities.

Until now, the above has been difficult.  Spend data has typically been classified to UNSPSC codes and other classification schemes, but not specifically to the organizational Sourcing categories.  Sometimes the data is rolled up into sourcing categories, but it has been difficult to maintain the relationships over time, especially as sourcing categories evolve with the organizations Sourcing programs and initiatives.

The graphs below summarize how Spend Analysis directly feeds into Category management, and the type of information that can be structured for ongoing measurements, dashboards, and management:

Organizations require Category management capabilities integrated with Spend Analysis as they mature and begin tracking specific Spend by Sourcing category.  Category Management ensures that expected savings are managed and realized over the longer haul.

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Entry Filed under: General