Category Management Requirements for Purchasing Organizations

We all have often looked over the fundamental resources and knowledge to which Category Managers require access. for example, supplier spend, category spend and also individual business unit spend (see the standard model we’ve produced in the following paragraphs.) For the reason that we have pointed out, this data is normally much less readily obtainable as might be liked. Having said that, it’s absence is undoubtedly recognized and reported by the Category Managers that must engage in ‘Spreadsheet Detective’ so that they can manually bridge the information gap!

This article seeks to find another level of category information that’s unique and not revealed elsewhere to the best of our knowledge. The 2nd tier information is of a granular kind and definitely will vary considerably between categories notably where even the most elementary queries haven’t already been addressed. Your time and effort to extract this knowledge however will be worthwhile since the data gained can be of a extremely high value.

In many cases this leads to more intelligent negotiations, improved cost management, greater capture of supplier innovation and pinpoints even more options available to get value growth.

Category Management Knowledge comes in many different ways

We’ve identified Ten different types of Tier 2 category specific information:

1 Breakdown the Cost: Cost breakdown or PPCA action establishes the key cost factors that are incurred by the supplier providing a service or product. Each suppliers cost is categorised in to its principal elements for instance, the cost of raw materials as well as transport and the like. When that is completed it’s much easier to evaluate suppliers against one another. Of course, using this method also helps prevent making assumptions and helps to recognise not just what makes up any specific cost as well as exactly what drives it. As an example, where logistics is a high % of the overall cost price then a increase in fuel prices will impact the total cost.

2. Specification Mapping: When looking for savings from a supplier, this type of categorisation technique is a huge help. However, while discovering potential opportunities during the creation of a category strategy, it’s really important to review spend in great detail. This requires the examination of the specific part numbers and / or services bought, determining the technical specs and/or performance behind them and connecting all of them to the relevant costs and volumes. This data will enable detailed Value Analysis activity to be completed. Remember not to overlook the smallest detail of any products or services, it might be the key to a new opportunity to reduce cost.

3. End Product Linkage: To understand what products connect to other sorts of products (or services) used by end consumers the suppliers sub-categories have to be matched up with the end item. Use this to successfully persuade suppliers to offer best prices and/or new developments, so they feel instantly connected with business development with the end customer and can have an impact on demand for their own products and services.

4. Identify further on the affiliated use with by navigating to geobotany izcvolqepycqwhpsc uncorrectly. Unitisation & Benchmarking: Breaking up costs right down to the individual unit helps to set a benchmark value. Spend is divided up with a variable that’s relevant such as height or customer feedback. This enables benchmarking across varied suppliers or areas of a business, in order that variations in performance are often identified. The next thing is to look for the reasons for the variations, remove all bad practices and then promote the excellent practices that result in lower costs across the business. An example well worth sharing is how the total cost per retail outlet of marketing spend led to regional accents being used for television advertising campaigns.

5 The Value of Operations Data: Pricing differences relating to substitute products or services which are exactly like the very first product will definitely be simple to assess. Of course, figuring out cost variations where the substitute product or service is not the same is far more challenging. This is where the overlay of operations info can enable a total cost of ownership (TCO) evaluation to take place and many more challenging potential opportunities and associated cost differences verified. For example, these types of total cost opportunity scenarios can happen where a completely new chemical is used that is twice as productive as the old one, or where the new motor oil filter for a vehicle is claimed to be able to last x kilometers further before renewal, compared with the current filtering system.

6 Overlaying Profitability and Revenue: Finding areas where procurement people can get better cost prices and/or sales revenue throughout the course of category reviews is required practice. Instead of being focused on the price of unique part numbers or sub-categories, the expense of these are generally grouped together around a customer end product or service. At this time people from other business units are generally important in helping to validate opportunities to decrease price. One of the biggest advantages however by working across most different categories is that more opportunities are exposed to the category purchasing teams.

7. Supplier Perception Data: This is structured qualitative feedback from suppliers and also internal stakeholders regarding the present state of a relationship. This process will identify where things are going both well and not so well. The additional benefit of learning how necessary the organization is to the supplier is also identified. Usual matters covered may include: Are the strategies aligned? Is the business relationship with the supplier working effectively? How well are the organisation’s commercial demands being delivered through the business relationship? Have any potential opportunities not been identified? With this info at your disposal and plainly linked to the relevant categories, improvement opportunities can be made visible, incorporated throughout category strategies and implemented.

8 Market Data Overlay: Industry data such as utility costs, materials prices, chemical prices, labour rates etc. should be made available to appropriate purchasing team members. This might be because the business is directly buying the commodity in question, or perhaps it is a key element in a supplier’s cost base and the organisation needs to monitor changes in that cost base.

9. Consumption Profile Wherever seasonal demand profiles exist they need to be prepared for and analysed. When mapping this demand profile and considering its effect on specific suppliers, more details can be shared with them, stronger relationships produced and more strategic discussions attempted.

Next Steps and Insights:

There’s information worth referring to on this subject by Future Purchasing Procurement Consultancy. on their website.

Using a higher quality “Procurement Ready” knowledge base, building a robust category strategy is quicker and easier. The likelihood of successful change programs are increased as a result. A ‘Procurement Ready’ base of knowledge is among the differentiators between Category Management Front runners and Followers and contributes to the 46% additional cost savings which Leaders benefit from versus Followers.

To be able to use a “Procurement Ready” knowledge base our recommendation is that a standardized process is developed and trained so that a vocabulary is established across the procurement team.

One other development we come across, at the leading companies, is to set up a specialist operation inside the purchasing team specialising in providing this information ,liberating the category management team to use the information in their strategic thinking.

Prioritising the need for a Knowledge base is fundamental to success and has to be planned and prioritised to be able to improve ways of working.

Making category management a primary business competence of modern procurement teams should be a top priority.

Both public and private sector companies must supply procurement kpi’s efficiently and in the right way. Putting into action a ‘Procurement Ready’ strategy is an essential basis to deliver outstanding value faster. Getting a procurement consultancy that will help you throughout the process is generally the easiest way to go and keeping away from the numerous pitfalls out there..