Category Management Requirements for Procurement Teams

We’ve often looked at the essential information and data to which Category Managers need to have access. e.g. spend by supplier, category, business unit etc. – there’s a good illustration mapped out below. Suprisingly perhaps when people come to seek out this sort of info, it can be difficult to locate. Having said that, it’s absence is unquestionably known and reported by the Category Managers that must play ‘Spreadsheet Detective’ in order to manually close the information gap!

Now we are switching the focus towards a second level connected with category data that’s in no way been written about or codified so far as we’ve been aware. Tier 2 is more specialised data which will vary according to the profile of the particular category and the potential value that may be obtained by building on the data and understanding from Tier 1. This provides you with truly ground breaking knowledge and category strategies that fully connect with the organization.

The main importance of comitting to the additional efforts are gained when negotiating with suppliers because the knowledge obtained will offer valuable insight to spending and identify the opportunity to go after a reduction and / or add value sufficient to provide a transformation to the relationship with the supplier and additionally making management of them much less complicated.

Top 10 ways Procurement People benefit from category information

Category Management data – 10 important gaps it’s critical to fill:

1. Breakdown the Cost: Cost breakdown or PPCA activity figures out the primary cost elements that are suffered by the supplier supplying services or products. By simply calculating the % share of the supplier’s total price that is likely to be attributable to each cost element, comparisons can be made across suppliers. Cost breakdowns also build improved understanding of fundamental price drivers which includes specs, manufacturing methods plus service delivery operations for example.

2 Understanding Specs: Segmenting spend down into categories and even sub-categories is usually enough whenever calculating possible cost savings. However, while identifying opportunities during your development of a category strategy, it’s important to review spend in greater detail. A considerable amount of analysis is needed to achieve this. It must go into the tiniest detail of the constituent part of a product or a service because they might be the main drivers behind the cost price. Once completed, analysis of the results to ascertain value is possible. You should not disregard the smallest detail of any product or service, it could be one of the keys to the next chance to reduce cost.

3 End Product Linkage: To understand specifically what products connect with other sorts of products (or services) used by end customers the particular suppliers sub-categories will need to be matched up with the finished item. Just one of the plus sides of this for your supplier is that they are considerably nearer to the thinking of the consumer. This is often convincing while discussing an improved cost price.

4. Benchmarking and Unit Value: Unitisation is when spend information is divided by a relevant variable such as area, length, customer satisfaction etc. This allows benchmarking across varied suppliers or parts of a business, in order that variations in general performance will be identified. The next phase is to look for the factors behind the variations, get rid of any damaging practices and talk about the excellent practices which produce lower costs throughout the business. An example worth sharing is where the total cost per retail store of advertising spend led to regional accents being used in radio advertisements.

5 The Value of Operations Data: Getting a substitute product or service which directly compares with the former one is not difficult to validate when it comes to price difference. However, figuring out pricing differences where the new product or service is different may appear far more troublesome. Evaluating the overall cost of ownership can be done by using operations data files which as well as validating pricing variations might also realise additional business opportunities. For example, these kind of total cost opportunity situations can occur where a different compound is used that’s two times as effective as the last one, or when a latest engine oil filtration system for a car or truck is claimed to last x miles longer before renewal, compared with the current filtration system.

6. Overlaying Profitability and Revenue: Locating areas where purchasing people can make improvements to cost prices and/or revenue through the course of category reviews is required practice. Rather than concentrating on the price of unique part numbers or sub-categories, the cost of these are typically grouped together around a customer end product or service. Cross-functional teams are usually able to get the job done collaboratively to either establish possible cost reduction opportunities or retain the guarantee of high revenue sales. This striking geobotany izcvolqepycqwhpsc uncorrectly site has endless witty tips for the reason for this enterprise. When working in this way, cross category opportunities should also be discovered that may not have already been identified when pursuing the single category centred way of operating.

7 Supplier Perception Data: This is structured qualitative feedback from suppliers and also internal stakeholders on the existing state of a relationship. The process may well flush out where things are going both well and not very well. It helps you to determine exactly how significant the business is as a customer to the supplier. Things to ask will include: Are the systems aligned? Is the relationship with the supplier functioning effectively? How well are the organisation’s commercial demands currently being delivered through the relationship? Have any opportunities not been acknowledged? Using this feedback and then accepting it is not necessarily easy but category managers will find it priceless when talking about strategies.

8. Overlaying Market Data: Bypassing significant industry information including futures trading prices would probably clearly be a error. This may be simply because the organisation is directly buying the commodity in question, or maybe it is a key component of a supplier’s cost base and the business should monitor a change in that cost base.

9. Consumption Profile This can be beneficial to understand if the organization has got an end consumer demand profile that’s not flat, and can vary during the year. This empathic methodology with suppliers aids your SRM (Supplier Relationship Management) as their particular requirements are better understood and also prepared for.

Summary & Recommendations for Action:

You will find resources worth looking at on this topic by Future Purchasing. on their site.

With a high quality “Procurement Ready” knowledge base, establishing a strong category strategy is quicker and easier. As a result this encourages greater momentum for change. A ‘Procurement Ready’ knowledge base is one of the differentiators between Category Management Frontrunners and Followers and contributes to the 46% additional cost savings which Front runners benefit from versus Followers.

Making certain that all category managers follow the exact same process is a must therefore the process needs to be mapped out to ensure uniformity.

A further development we have seen, at foremost companies, is to build a expert function within the purchasing team that specialises in providing this data — releasing category managers to focus on developing superior category strategies, much faster.

Prioritising the requirement for a Knowledge base is fundamental to success and must be planned and prioritised so that they can improve ways of working.

Making category management a key business competence of modern procurement departments is a top priority.

Multi-site organisations from the private sector and large gov departments within the public sector demand “one method of working” capable of unlocking value in a very fast and versatile manner. Following the method above will bring about an organisations step change in giving value. A procurement consultancy can be helpful in saving time, energy and money when beginning this type of journey and is highly recommended..

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