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Crucial Know-how in Category Management — the specifics for Procurement Employees

We all have frequently considered the fundamental information and knowledge to which Category Managers require access. for example, supplier spend, category spend and individual business unit spend (see the standard model we’ve developed in the following paragraphs.) As we have said, this data is typically much less readily obtainable as might be liked. But the truth is, it’s absence is definitely recognized and lamented by the Category Managers that must have fun playing ‘Spreadsheet Detective’ so they can manually bridge the information gap!

This document attempts to determine an additional type of category data which is different and not found anywhere else to the best of our knowledge. Tier Two is a lot more specialized data which will vary according to the profile of the particular category and the potential value that can be obtained by simply building on the information and knowledge out of Tier 1. This provides undeniably advanced knowledge and category strategies which will fully connect with the particular business. Visit contains more about how to ponder it.

In most cases this leads to more intelligent negotiations, improved cost management, greater capture of company innovation and pinpoints more opportunities for value improvement.

10 ways Procurement People utilize category data

We have recognised Ten different kinds of Tier Two category specific knowledge:

1 Cost Breakdowns: Purchase Price Cost Analysis (PPCA – another name for “cost breakdown” is considered the process associated with identifying the key factors that comprise any distinct cost from a provider for the service (or product). Every suppliers price is broken down into its major elements such as the price of raw materials and transport and the like. After that is completed it is easier to assess suppliers against one another. Of course, using this method also helps prevent making assumptions and will help to understand not just what makes up almost any particular cost as well as what drives it. As an example, where logistics could be a high % of the overall cost price then a increase in petrol prices will most likely impact the overall cost.

2 Specification Mapping: When looking for cost savings from the supplier, this kind of categorisation technique is a major help. However, while identifying opportunities during your development of a category strategy, it’s important to review spend in depth. This requires the examination of the specific part numbers or services bought, determining the technical specs and/or effectiveness behind them and connecting all of them to the relevant prices and amounts. When completely finished, analysis of the results to determine value can be done. You should never overlook the tiniest detail of your products or services, it may be one of the keys to a new chance to minimize cost.

3 End Product Linkage: This requires an awareness about which sub-categories supplied by the supplier are used in which finished products provided to consumers and then making this visible to the supplier. Learn additional information on the affiliated article by visiting supply chain consultant. Just one of the plus sides of this for the supplier is that they are considerably closer to the thinking of the customer. This may be powerful when negotiating an improved cost price.

4. Unitisation & Benchmarking: Breaking costs right down to the individual unit helps set a benchmark value. Spend is simply divided up with a variable that is appropriate such as height or even customer opinions. This enables benchmarking across different suppliers or areas of a business, to ensure that variances in general performance can be identified. Browse here at category management training discussions to read where to consider it. The next task is to search for the factors behind the variations, remove any bad practices and promote the good practices which result in lower prices throughout the organization. One example worth sharing is where the total cost per retail outlet of marketing spend led to local accents being used in television adverts.

5. The Value of Operations Data: Cost variations among alternate products or services that are exactly the same as the original item are generally simple to evaluate. Obviously, finding out cost variations where the substitute product or service is different is more troublesome. That’s where the overlay of operations info can allow a total cost of ownership (TCO) evaluation to take place and much more complex opportunities and related cost differences checked. Examples of these kind of benefits would include scenarios such as when a battery pack is identified as lasting for a longer time than the current one or where the brand new ingredient improves shelf-life by 20% extra.

Modelling Knowledge in Procurement

In every case category managers must give some thought to which value levers will probably provide completely new opportunities for the purpose of acquiring additional benefits and what kinds of ‘Procurement Ready’ information will help identify and then quantify those business opportunities.

Supply Chain Footprints:

This involves mapping first tier suppliers and then finding out the geographic regions from where they supply the company. The next step is to map additional tiers of the supply chain and relevant production addresses. This knowledge of companies and also production addresses in the supply chain makes it possible for supply risk (e.g. guarantee of supply), reputation risk ( e.g. suppliers CSR practices) and commercial risks (e.g. switching costs) to be revealed and then monitored.

6 Overlaying Profitability and Revenue: Discovering areas where procurement teams can make improvements to cost prices and/or sales revenue through the course of category reviews is essential practice. The focus will finally be on the combined costs of completed products or services. During this period individuals from several other departments are generally crucial in helping to verify opportunities to reduce cost. One of the best benefits however by working across most different categories is the fact that many more potential opportunities are exposed to the category buying teams.

7. Supplier Perception Data: Measuring the supplier relationship can be done both internally in the organization but also, most importantly by the suppliers themselves. This process can identify where things are progressing both well and not so well. It can help to identify exactly how important the organization is as a customer to the supplier. Things to ask will include: Are the tactics aligned correctly? How successfully does the working relationship function? How well are the organisation’s business needs being delivered through the relationship? Specifically what development opportunities are obtainable? By having this data easy to get to and also plainly linked to the appropriate categories, development opportunities can be made visible, incorporated in category strategies and implemented.

8. Market Data Overlay: Bypassing significant market data including commodity prices would most likely clearly be a error in judgment. This could be because the organisation is directly buying the commodity in question, or perhaps it’s a key element in a supplier’s cost base and the organisation needs to keep track of a change in that cost base.

9 Consumption Profile This can be helpful to have an understanding of if the organisation has got an end customer demand profile that is not flat, and can vary during the year. This empathic methodology with suppliers supports your SRM (Supplier Relationship Management) as their preferences are better understood and also planned for.

Summary & Recommendations for Action:

You might at this point want to have a look at the Knowledge Hub run by Future Purchasing. that has a wealth of information.

The best category managers will develop a strategy based on a formidable procurement knowledge. They will do it with less difficulty plus the strategy is straightforward for them. The probability of successful transformation programmes are increased as a result. Investing in this method is a characteristic of prominent category management exponents and frequently can result in over 45% more cost savings than those where the methodology is less vigorous.

If you want to create a “Procurement Ready” base of knowledge we recommend that a standardized process is developed and also coached to make sure a language is established throughout the procurement team.

One other enhancement we come across, from the leading organisations, is to set up a specialist operation inside the purchasing team specialising in providing this data ,freeing up the category management team to use the data in their strategic thinking.

Probably the most effective way we have seen “Procurement Ready” knowledge bases get produced and developed is where Procurement prioritises the desire for this kind of proficiency and establishes a plan to acheive it.

Making category management a central commercial competence of modern procurement teams is a main priority.

Multi-site businesses from the private sector and large government departments in the public sector need “one method of working” capable of unlocking value in a fast and flexible way. Following the process above will bring about an organisations step change in delivering value. Selecting a procurement consultant that will help you through the process is often the easiest way to go and keeping away from a variety of pitfalls out there..

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