Spend Taxonomy: What You Need to Know To Keep Costs Low
Is inefficient spending starting to impact your profitability? If you’ve answered yes to this question, then it’s high time that you conduct a comprehensive spend analysis to identify cost-saving opportunities and optimize every dollar spent.
Spend taxonomy is a crucial part of accurate spend analysis. It helps managers define what information should be collected and analyzed and also provides a way for manufacturers to store, retrieve and search data easily.
In this article, we’ll take a look at what MRO material spend analysis is, the benefits of spend analysis, and how to use the right tools to maximize profitability and optimize MRO spending.
The benefits of spend analysis
Spend analysis is a vital tool for companies looking to gain an in-depth understanding of their MRO spending patterns. By analyzing spending data from multiple sources, such as purchase orders, invoices, bill of materials, consumption, and supplier contracts, companies can identify where and how much money is being spent on MRO operations. This provides valuable insights into spending patterns and allows companies to identify cost savings opportunities while better allocating resources.
Using this information, managers can construct a clearer picture of sending patterns which can help them plan for the future with accurate budgets that reflect maintenance and use data, accurate inventory levels, and potential maintenance risks involving unplanned production outages.
For instance, companies can identify areas where they are overspending on specific MRO categories. They should be able to identify metrics for specific vendors and product categories in order to take steps toward optimizing their spending. For example, businesses can develop comprehensive supplier profiles that provide valuable insight into current pricing structures. This may lead procurement teams to consolidate suppliers or negotiate better pricing with existing suppliers.
How to reap the benefits of an airtight spend taxonomy
Start with harmonized data
As operations and procurement processes become increasingly complex, it can be easy for data to be fragmented across systems. This makes it challenging to gain meaningful insights from the information that is collected. By consolidating data from multiple sources and harmonizing it into a standardized format, organizations can gain a comprehensive view of their spending behavior and identify opportunities for cost-saving and process improvements.
For example, by analyzing spending data by vendor, product category, or asset type, organizations can identify areas where they are overspending and take steps to reallocate resources and exercise spend avoidance when material overages are identified.
On the same hand, existing purchasing data can help organizations identify patterns and trends in their procurement behavior. This makes it possible to make more informed decisions about future purchasing decisions. For example, by analyzing historical procurement data for a specific asset, organizations can identify the most cost-effective vendors and negotiate better pricing for future purchases to help drive out tail spend.
Fragmented data based on location or department can make it impossible for procurement and maintenance teams to truly understand the ins and outs of their operation.
Investing in a cutting-edge cloud-based materials management platform is a simple solution. This technology consolidates all supply chain data into a central hub, offering full visibility of processes from end to end. But how does increasing visibility help in the spend analysis process?
One of the key benefits of increased visibility is the ability to monitor MRO spend and spare parts inventory levels on an operational level. By gaining real-time insights into indirect spend and inventory levels, organizations can make informed decisions about when and where to allocate resources, enabling them to optimize their MRO operations.
Furthermore, increasing visibility can also help reduce rogue spending and keep budgets on track. By establishing clear policies and procedures for spending behavior, organizations can ensure that all expenditures are aligned with business objectives and comply with established spending guidelines.
Create spending plans that coincide with maintenance needs
By analyzing historical spend data, organizations can identify patterns in spending behavior and identify areas where spending can be optimized.
This is made possible with natural language processing (NLP) technology that scours years of data to identify maintenance and spending trends, and transform it into actionable recommendations. Intelligent MRO software uses this collected data to build strategic maintenance plans that aren’t based on just-in-time needs or high-cost unnecessary preventative maintenance. Rather, the plans are constructed based on the unique lifespan and repair history of your individual assets.
By leveraging powerful tools like artificial intelligence and machine learning, teams have access to calculated information that is based on real-time numbers, not ad-hoc analysis.
Build resilient and strategic procurement partnerships
Another benefit of comprehensive spend analysis is that it allows organizations to identify which suppliers are most reliable and offer the best value. This information can be used to build stronger relationships with those suppliers, ensuring that they are held accountable for meeting shipping and delivery deadlines and providing high-quality products.
Additionally, by leveraging spend analysis and spend taxonomy to identify strategic pricing options, organizations can negotiate better prices with suppliers and optimize their procurement strategy. This can result in cost savings and better allocation of resources, which can help build stronger, more resilient procurement partnerships.
With a solid sourcing strategy in place, manufacturers are more likely to have the necessary parts and equipment on hand when they are needed. This can help minimize production downtimes and ensure that equipment is maintained and repaired in a timely manner.
The right MRO tools can help maintain strategic spending plans
The primary goal of an organization is to get the most value out of every dollar spent.
A proper spend analysis backed up by an effective spend taxonomy strategy can help market leaders turn their supply chain data into valuable optimization opportunities. The right MRO tools can streamline this process and help businesses get there faster.
Learn how organizations can keep their costs low through intelligent materials management.