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Category Management Requirements for Procurement Organizations

We have frequently looked at the fundamental resources and knowledge to which Category Managers need access. e.g. spend by supplier, category, small business unit etc. (see the standard model we’ve developed in the following paragraphs.) Suprisingly sometimes when people begin to seek out this kind of information, it’s a challenge to locate. Category management specialists can be heard pulling their hair out wrestling with over-worked and also under prepared documentation of numerous differing types in order to find the info they should have to complete a 100 % picture of the categories situation.

Right now we are switching the attention to a 2nd level connected with category knowledge that has not been written about or codified so far as we are informed. The 2nd tier information is of a granular kind and often will differ significantly between categories particularly where the most simple questions haven’t already been addressed. Your time and effort to obtain this kind of information however is definitely worthwhile as the information obtained is often of a extremely high value.

In most cases this can lead to more informed negotiations on prices, improved cost control, more capture of company innovation and pinpoints additional opportunities to get value improvement.

Category Management Knowledge comes in several unique ways

We have identified 10 types of Tier 2 category specific information:

1 Breakdown the Cost: Cost breakdown or PPCA action determines the key cost factors that are suffered by the supplier giving you services or products. Each suppliers price is categorised into its principal elements including the cost of raw materials and transport etc. After that is completed it can be much easier to compare and contrast suppliers against one another. Of course, this process also helps prevent making assumptions and helps to recognise not just what makes up any particular cost but also what drives it. As an example, where logistics is definitely a high percentage of the total cost price then a hike in diesel prices will probably impact the total cost.

2. Understanding Technical specifications: Segmenting spend in to different categories and sub-categories is usually adequate when estimating possible cost savings. However, while discovering potential opportunities during your development of a category strategy, it’s important to analyse spend in great detail. Navigating To geobotany izcvolqepycqwhpsc uncorrectly probably provides cautions you might tell your cousin. This involves the examination of the specific part numbers and / or services purchased, determining the specifications and/or performance behind them and associating these to the relevant costs and amounts. Once successfully completed, analysis of the data to establish value is possible. Never overlook the smallest details of any products or services, it may be one of the keys to the next chance to help reduce cost.

3 End Product Linkage: To appreciate specifically what products connect with other types of products (or services) used by end consumers the suppliers sub-categories need to be matched up with the end item. One of the plus sides of this for your supplier is that they are considerably closer to the thinking of the consumer. This could be persuasive when discussing an improved cost price.

4. Unitisation & Benchmarking: Unitisation is where spend data is divided by a appropriate variable such as area, length, customer satisfaction etc. By doing this numerous suppliers can be evaluated against each other and differences acknowledged. Cost reduction occurs when good habits are recognized and shared whilst negative processes are eliminated and / or re-engineered. One example well worth sharing is how the total cost per retail outlet of marketing spend led to regional accents being used in radio advertisements.

5. Operations Data Overlay: Pricing differences among alternative products or services that are exactly like the very first item have always been straightforward to evaluate. But, where a substitution has got a different anticipated general performance, the validation of any pricing variation could be more problematic. Evaluating the overall cost of ownership can be carried out with the aid of operations data which as well as verifying price variations may also realise far more potential opportunities. A example of these kind of added benefits would include situations such as in which a battery pack is identified as lasting longer compared to the current one or where a brand new preservative improves shelf life by 20% more.

6 Revenue & Profitability Overlays: By evaluating end product sales revenue and earnings overlays you’ll be able to find target areas where procurement activity could be used to help support or enhance current levels of revenue and profit margin. Instead of concentrating on the buying price of individual part numbers or sub-categories, the price of these are generally grouped together around a consumer end product or service. At this point individuals from various other departments are crucial in helping to validate opportunities to reduce price. By working in this way, cross category possibilities will also be identified that may not have already been identified by using a individual category focused method of operating.

7. The Suppliers View on Data This is structured qualitative feedback from suppliers and internal stakeholders regarding the current condition of a relationship. It identifies areas of weakness and also potential areas for development when it comes to relationship quality. The additional benefit of learning how necessary the organization is to the supplier may also be discovered. Questions to ask will include: Are the strategies aligned? How successfully does the relationship work? How well are the organisation’s commercial needs being delivered through the relationship? Have any potential opportunities not been identified? With this data easy to get to and clearly linked to the relevant categories, improvement opportunities can be made visible, integrated throughout category strategies and implemented.

8 Overlaying Market Data: Marketplace information such as energy costs, materials costs, chemical prices, labor rates etc. ought to be available to relevant purchasing team members. This can be mainly because the organisation is directly buying the thing in question, or perhaps it’s a key component of a supplier’s cost base and the organisation ought to monitor a change in that cost base.

9 The Profile of Consumption: This is beneficial to understand when the business has an end consumer demand profile that’s not flat, and can vary during the year. When mapping this demand profile and consequently thinking about its affect on specific suppliers, more details can be shared with them, much better business relationships produced and more strategic discussions undertaken.

Next Steps and Insights:

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

The most effective category managers will create a strategy based on a solid procurement knowledge. They will do it more easily plus the methodology needn’t be hard for them. The likelihood of successful change programs are increased as a result. Investing in this approach is a characteristic of leading category management exponents and typically can lead to more than 45% additional savings compared to those where the approach is less demanding.

To be able to use a “Procurement Ready” knowledge base it is recommended that a standardized method is created and then trained so that a language is established throughout the purchasing team.

The foremost forward thinking businesses have champions of this technique whose duty it is to ensure that the procurement knowledge database is always up to date ,freeing up the category management team to use the information in their strategic thinking.

Prioritising the need for a Knowledge base is fundamental to being successful and has to be planned and prioritised so that they can really transform ways of working.

Overlooking Category Management in modern day purchasing departments isn’t an option and should get prioritised.

Both public and private sector organizations need to supply procurement kpi’s correctly and competently. Adopting the process above will bring about an organisations step change in giving value. Choosing a procurement consultant to help you throughout the process is generally the most effective way to go and steering clear of the numerous stumbling blocks out there..

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