Classification for Spend Analysis

Many XSB customers are Original Equipment Manufacturers (OEMs) serving the Aerospace and Defense industry.  These organizations have a complex supply chain of thousands of suppliers and millions of component parts.  Additionally, most have multiple locations with independent contracting and procurement systems.   Facing internal pressure to leverage volume buying power and external pressure from end customers to cut costs, these organizations are realizing that they are missing out on millions of dollars in annual savings.  The challenge is to develop sustainable strategic sourcing processes to optimize their supply base, and identify immediate and long term cost reduction opportunities.  

However, before this can be accomplished, they need to have accurate visibility into commodity spend across various business units and divisions; this requires a semantic understanding of product data.

The XSB Solution
The XSB approach enables companies to consolidate data from multiple locations or divisions, standardize the data to resolve inconsistencies across the supply chain, and classify purchase transactions into relevant product categories.  This brings all of the enterprise purchase data into a single uniform view of spend which can then be analyzed and prioritized based on the importance of the product or service, and on the complexity of the supply base.

To accomplish this, XSB relies on its ontology-driven classification system.  This system describes classes of products from more general to specific as well as the various characteristics of the products in those classes. 

XSB’s Ontology Directed Classifier (ODC) tool enables the assignment of products, based on their item descriptions, to classes in a taxonomy, such as The United Nations Standard Products and Services Code® (UNSPSC).  The Classifier reads a product description, attempts to “understand” it, and then selects the most appropriate class in the taxonomy for that item.   When the quality of an input item description is poor, the system uses other item identifying information, such as the Manufacturer Name and Part Number to map the item to the correct product class.  The XSB system works at web scale, handling taxonomies containing tens of thousands of product categories and customer data sets with millions of records. 

The system itself is completely automated; however XSB technical experts  “train” the system to recognize jargon or abbreviations in the item descriptions so that the system can "learn" what these items are, and can properly classify them when they are found in customer data.  XSB has accumulated a significant amount of training data for the UNSPSC taxonomy; this includes product descriptions and training data for more than 80M items of supply. 

Who can benefit from Spend Analysis and Classification? 
Any Multi-National Corporation or large buying organization looking to analyze spend and reduce costs can benefit from this process.

What are the benefits?
Once properly organized, spend data is now actionable and can be quantified by division, by product category, by supplier or by SKU.  This process provides the visibility needed to:

  • Profile commodity spend and prioritize savings opportunities by category and supplier
  • Reduce costs by improving economic lot size purchases
  • Negotiate more favorable discounts by establishing long term contracts with suppliers
  • Avoid supply chain disruption by identifying alternate sources of supply
  • Implement a repeatable and sustainable process to ensure continued savings

How can I Learn More?
For additional information, please feel free to contact us or call 631-371-8100.