Important Know-how in Category Management — the essentials for Purchasing Teams

We all have frequently looked at the fundamental resources and data to which Category Managers need access. e.g. spend by service provider, category, business unit etc. (see the standard model we’ve created below.) Suprisingly perhaps when people come to search for this kind of data, it’s not easy to find. Category management specialists are found tearing their hair out wrestling with over-worked or under prepared documentation of many different types to find the information they should have to complete a full picture of their categories state of affairs.

Today we’re switching the focus to the 2nd tier of category knowledge that has in no way ever been documented or codified as far as we’ve been informed. For additional information, consider looking at: geobotany izcvolqepycqwhpsc uncorrectly. Tier 2 is a lot more specialist information which will differ according to the profile of the particular category and the potential value which can be achieved by building on the facts and understanding out of Tier 1. This provides you with genuinely advanced insight and category strategies which will fully connect with the business.

In many cases this results in far more intelligent negotiations, much better cost control, greater capture of company innovation and pinpoints more options available for value improvement.

Ten ways Purchasing People make use of category knowledge

The Top Ten distinct types of knowledge preferred by Category Managers:

1 Cost Breakdowns: Cost breakdown or PPCA activity figures out the key cost factors that are incurred by the supplier supplying a product or service. Each suppliers price is categorised in to its most important elements for instance, the cost of raw materials and transportation etc. Once this is finished it is less difficult to evaluate suppliers against each other. Cost breakdowns also build greater knowledge of underlying price drivers such as technical specifications, production methods and service delivery processes for example.

2 Understanding Technical specs: While looking for savings from a supplier, this kind of categorisation method is a massive help. A part of the category strategy should go into significantly greater detail in order to find cost reduction opportunity and this needs to be scheduled as part of the whole process. This involves the assessment of the specific part numbers as well as services purchased, identifying the technical specs and/or performance behind them and connecting all of them to the relevant costs and amounts. Once completed, analysis of the findings to ascertain value is possible. Don’t ever overlook the tiniest detail of any products or services, it might be one of the keys to the next opportunity to minimize cost.

3. Finished Product Cross-fertilisation: To understand what products link to other types of products (or services) used by end customers the suppliers sub-categories really needs to be matched with the end product. This can be used in order to motivate suppliers to provide the best prices and/or new developments, so that they feel directly connected with business development with the end customer and can have an effect on the demand for their own products and services.

4 Benchmarking and Unit Value: Unitisation is when spend data is divided by a relevant variable such as area, length, customer satisfaction etc. By doing this several suppliers are able to be assessed against each other and difference identified. Cost reduction occurs when excellent habits are identified and shared while bad processes are got rid off or re-engineered. An illustration well worth sharing is where the total cost per retail outlet of advertising spend led to local accents being used in radio adverts.

5 Operations Data Overlay: Cost variations amongst alternative products or services which are exactly like the very first product are straightforward to assess. However, pinpointing price variations where a substitute product or service is not the same is far more difficult. This is where the overlay of operations information may well make it possible for a total cost of ownership (TCO) evaluation to take place and even more sophisticated opportunities and associated cost differences verified. For example, these types of total cost opportunity scenarios could happen when a new compound is used that is twice as successful as the last one, or where a modern oil filtration system for a motor vehicle is claimed to last x miles longer before replacement, in comparison with the present filtration system.

Modelling Knowledge in Procurement

In all cases category managers will need to give some thought to which value levers may well generate brand new business opportunities for acquiring extra benefits and also which types of ‘Procurement Ready’ information will help to discover and then quantify these opportunities.

Supply Chain Footprints:

Plotting your company’s suppliers on a map in order to show their address is the first step to carry out while generating a foot print. The next thing is to map additional tiers of the supply chain and linked production facilities. This knowledge of suppliers and production addresses in the supply chain enables supply risk (e.g. guarantee of supply), reputation risk ( e.g. vendors CSR practices) and commercial risks (e.g. switching costs) to be recognized and monitored.

6. Revenue & Profitability Overlays: By evaluating end product sales revenue and earnings overlays it is possible to find target areas where purchasing activity could be used to sustain and / or improve existing levels of earnings and profit margin. The attention is now on the consolidated costs of finished products or services. Cross-functional teams are usually able to work collaboratively to either determine possible cost reduction opportunities or support the reassurance of higher revenue sales. One of the biggest advantages however as a result of working across all of the categories is usually that additional potential opportunities are exposed to the category purchasing people.

7 Supplier Perception Data: Measuring a supplier relationship can be performed both internally in the business but also, most importantly by the suppliers theirselves. Doing this can flush out exactly where things are running both well and not very well. It helps to determine how important the business is as a customer to the supplier. Questions you should ask will include: How well do the strategic agendas of the two of you align? How successfully does the working relationship work? Is the business relationship successfully supplying the benefits needed by the business? Have any business opportunities not been identified? By having this info readily available and plainly linked to the relevant categories, development opportunities can be made visible, included throughout category strategies and executed.

8. Overlaying Market Data: Bypassing essential industry information including commodity prices would probably clearly be a error. This might be simply because the organisation is directly purchasing the commodity in question, or maybe it’s a key element of a supplier’s cost base and the organization needs to track a change in that cost base.

9. Consumption Profile This is useful to have an understanding of when the business has an end consumer demand profile that isn’t flat, but can vary throughout the year. When mapping this demand profile and considering its impact on specific suppliers, more details could be given to them, much stronger relationships developed and more strategic negotiations attempted.

Next Steps and Insights:

You will find information worth referring to on this topic by Future Purchasing Procurement Consultancy. on their website.

The top category managers will generate a strategy based on a sound procurement knowledge. They will complete the work more easily plus the methodology needn’t be hard for them. The probability of successful transformation programmes are raised as a result. A ‘Procurement Ready’ knowledge base is among the differentiators between Category Management Leaders and Followers and contributes to the 46% additional cost savings which Business leaders enjoy versus Followers.

Making certain that every one of the category managers stick to the exact same method is critical therefore the method must be planned to guarantee consistency.

Another enhancement we have seen, at foremost companies, is to create a expert function within the purchasing team that specialises in developing this information — liberating category managers to concentrate on developing more effective category strategies, a lot quicker.

Quite possibly the most effective way we have seen “Procurement Ready” knowledge bases get created and developed is where Procurement prioritises the need for this kind of proficiency and establishes a plan to make it happen.

Overlooking Category Management in present day procurement departments isn’t an option and should be prioritised.

Multi-site organizations from the private sector and large government departments from the public sector require “one way of working” effective at unlocking value in a quick and versatile way. Following the method above will bring about an organisations step change in delivering value. A good procurement consultancy can be beneficial in saving time, energy and money when embarking on this journey and is strongly recommended..

Comments are Disabled