Pre or Post Spend Classification??
We have heard the old adage "a stitch in time saves nine". When we talk about Spend Visibility that helps us to enable make an effective supply management strategy, it is often observed that many organizations do their spend classification periodically after the spend has been concluded. We have the technology, methodology or taxonomy to know the category classification before the transaction.
Consider two scenarios. In the first, we choose to collate the spend data and start the classification process after the fact. As an illustration, let us consider the data till 20th of each month is the cutoff. Data of 120,000 lines till the cutoff date is considered for classification over a period during the next month and the same is made available in the subsequent month for the spend cubes. This would mean that our spend estimates are off by over a month.
Now under the second scenario, let us consider to classify the data immediately either at the time the Purchase Requisition is raised or when the payment for the supplier is requested through the Non PO. Then the cycle time of such a classification through an algorithm could be take about few minutes additionally if the technology is placed. Alternatively, we can also choose to classify the data in batches based on the volume of transactions in each period and complete the classification exercise as soon as the request is placed. In these cases, the transaction value can be considered for spend visibility earlier than the first scenario.
The key deciding factor shall be the business value add this will provide through an improved 'expected value of perfect information'
a) when we consider opportunity assessment, leverage spend during negotiations
b) when it helps to manage a better working capital reflecting the potential cash flow for each category
An analysis of the Pre Vs. Post classification for the RoI will show if the game is on or not...