How a Supplier Taxonomy Can Drive Procurement Success and Savings

By The oboloo Team

How a Supplier Taxonomy Can Drive Procurement Success and Savings


With the increasing complexity of global supply chains, creating a supplier taxonomy is more important than ever for procurement departments. This article looks at why having an organized supplier taxonomy can help ensure the success and savings of procurement operations. Find out how a supplier taxonomy can help drive execution excellence and cost savings!

Introduction: What is a Supplier Taxonomy?

Most organizations that are serious about procurement have a well-defined process for supplier selection and management. This usually includes some form of supplier evaluation and supplier onboarding, as well as ongoing performance management. A key part of this process is the identification and classification of suppliers according to their industry type, products or services, geography, etc. This information forms the basis of the supplier taxonomy.

A supplier taxonomy is a hierarchical structure that enables the consistent classification of suppliers across an organization. It provides a shared language and understanding of supplier types, which can be used to drive procurement decisions and strategies. It also forms the foundation for supplier performance measurement and management.

There are many different ways to develop a supplier taxonomy. The most important thing is to ensure that it is fit for purpose and takes into account the specific needs of your organization. A good place to start is by looking at existing frameworks and best practice models (such as the Supply Market Intelligence Competency Model from the Institute for Supply Management).

Once you have defined your organizational need, you can begin to develop your own customized solution. The following are some tips to keep in mind:

– Keep it simple: A Taxonomy should be easy to understand and use. It should not require special training or expertise to interpret.

– Be consistent: Use standard terminology across the organization to promote understanding and buy-in.

– Be flexible: Allow for different levels of detail or granularity depending on the context in which it is to be used

Benefits of Utilizing a Supplier Taxonomy

When it comes to managing suppliers, a key question is always how to organize them. There are several different ways to do this, but one common and effective method is to create a supplier taxonomy. A supplier taxonomy is simply a classification system for suppliers. This system can be used to group suppliers by type, category, or any other meaningful metric.

There are many benefits to utilizing a supplier taxonomy. First, it can help procurement professionals more effectively manage their suppliers. By grouping similar suppliers together, it becomes easier to track spending, performance, and trends. It also allows for more efficient communication and collaboration between procurement professionals and their suppliers.

Second, a supplier taxonomy can help create more accurate spend data. This data can be used to negotiate better deals with suppliers, as well as identify opportunities for cost savings.

Third, a supplier taxonomy can improve the visibility of the supply chain and make it easier to find potential risks and disruptions.

Fourth, a supplier taxonomy can help streamline the sourcing process by making it easier to identify qualified suppliers and compare their offers.

A supplier taxonomy can drive procurement success and savings in many ways. Utilizing one can help you better manage your current suppliers and find new ones that offer better value.

Characteristics of an Effective Supplier Taxonomy

When considering a supplier taxonomy, there are certain characteristics that make an effective solution. The most important factor is that the taxonomy should be able to adapt and change as your business grows and evolves. Additionally, it should be intuitive and easy to use so that your team can quickly find the right supplier for each project.

A supplier taxonomy should also be comprehensive, covering all of the different types of suppliers that you work with. This way, you can be sure that you’re getting the best possible prices from each type of supplier. Finally, an effective supplier taxonomy should be able to integrate with your existing procurement processes and software solutions.

Steps to Building an Effective Supplier Taxonomy

When building a supplier taxonomy, there are a few key steps to keep in mind in order to create an effective one. Here are some tips:

1. Keep it simple: A supplier taxonomy should be easy to understand and use. Avoid using jargon or overly complicated terms.

2. Make it comprehensive: Include as many suppliers as possible in the taxonomy. This will make it more useful for users.

3. Use standard terminology: Use terms that are commonly used in the procurement field. This will make the taxonomy more accessible to users.

4. Structure the taxonomy logically: Group similar suppliers together and arrange them in a way that makes sense. This will make it easier for users to find what they’re looking for.

Tips for Implementing a Supplier Taxonomy in your Organization

A supplier taxonomy is an important tool for any organization that relies on procurement to source goods and services. By organizing suppliers into a taxonomy, Procurement can more easily find and compare potential vendors, track spending, and manage risks.

There are several ways to implement a supplier taxonomy within your organization. The most important factor is to ensure that the taxonomy aligns with your organization’s specific needs and business objectives. Here are a few tips to get started:

1. Define the Purpose of the Taxonomy
The first step is to define the purpose of the supplier taxonomy. What business objectives will it help you achieve? What information do you need to track? Once you have a clear idea of the purpose, you can begin developing the structure of the taxonomy.

2. Create a Supplier Database
In order to develop an effective supplier taxonomy, you’ll need access to data about your current and potential suppliers. This data can be compiled from internal sources (e.g., purchase orders, invoices, contracts) and external sources (e.g., Dun & Bradstreet reports).

3. Develop classification criteria
Once you have assembled a database of suppliers, you’ll need to develop criteria for classifying them into categories. These criteria should be based on your organization’s specific needs and objectives. Some common classification criteria include industry, geography, size, products/services offered, etc.

Use Cases Demonstrating the Value of Supplier Taxonomies

A supplier taxonomy can provide numerous benefits to an organization, including improved spend visibility, reduced maverick spending, and simplified supplier onboarding. Here are a few examples of how a supplier taxonomy can create value for an organization:

1. Improved spend visibility: A supplier taxonomy can help procurement teams identify spending patterns across the organization. This information can be used to negotiate better terms with suppliers, optimize the supply chain, and improve overall cost management.

2. Reduced maverick spending: A well-defined supplier taxonomy can help organizations avoid maverick spending by clearly defining the approved suppliers for each category of goods or services. This helps to ensure that employees only purchase from approved suppliers, which reduces costs and improves compliance.

3. Simplified supplier onboarding: A supplier taxonomy can streamline the process of onboarding new suppliers by clearly defining the information that is needed from each supplier. This helps to reduce the time and effort required to vet and onboard new suppliers, which improves efficiency and drives down costs.

Conclusion: Unlock Greater Value Through Supplier Taxonomies

A supplier taxonomy can create a great deal of value for an organization through increased efficiencies and improved spend management. It can also help to unlock greater value from the suppliers themselves. By classifying suppliers according to their products, services, and/or industries, an organization can better understand their costs, capabilities, and risks. This understanding can lead to enhanced negotiation strategies and more favorable terms and conditions. Additionally, a well-defined supplier taxonomy can provide a level of standardization that allows an organization to easily compare apples-to-apples when soliciting bids or proposals. Ultimately, this can lead to greater savings and a more strategic approach to procurement.

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