The first step in just about sourcing initiative is taking a close look at spend in the relevant categories. Conducted effectively, a spend analysis paves the way for renewed efficiency, more strategic supplier relationships, and hard dollar savings. Kicking off the spend analysis process, however, isn't as simple as cracking open a record of historical purchases. It's a process all its own.

This week, Spend Analysis Lead Brian Seipel joins the Source One Podcast to discuss the first step in carrying out a spend analysis - selecting a taxonomy for classifying suppliers and their products.

Most Finance professionals classify their purchases with a well-known, standardized taxonomy. The most popular of these, the United Nations Standard Products and Services Code (UNSPSC), generally comes up first in Seipel's discussions with clients.

While Seipel acknowledges that UNSPSC provides a good starting point, he believes it's generally a poor fit. "UNSPSC misses the mark," he says, "because it wasn't built with Procurement's end goals in mind."In both its rigidity and granularity, UNSPSC only makes it more challenging for Procurement to identify areas of opportunity and realize cost savings.

It won't be easy, but Seipel recommends Procurement work to create its own customized spend taxonomy. How? By asking itself one question, "What is my best path forward to identifying savings opportunities?" The right taxonomy will lead Procurement down that path.

Subscribe to the Source One Podcast to listen to the full conversation.

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