Oct 9, 2018

Posted by in Home | Comments Off

Crucial Knowledge in Category Management — the specifics for Purchasing Organizations

We’ve often considered the essential resources and knowledge to which Category Managers need access. e.g. spend by supplier, category, business unit etc. – there is also a good illustration mapped out listed below. Suprisingly perhaps when people come to search for this sort of information, it’s a challenge to locate. However, it’s absence is definitely recognized and lamented by the Category Managers that have to play the game ‘Spreadsheet Detective’ so they can manually close the information gap!

This document tries to identify another type of category knowledge that’s different and not revealed anywhere else to the best of our knowledge. This 2nd tier data is of a granular variety and may vary greatly between categories notably when even the most simple questions haven’t already been answered. This gives truly ground breaking knowledge and category strategies which will fully connect with the organization.

In many cases this leads to far more informed negotiations on terms, much better cost control, more capture of supplier innovation and pinpoints additional opportunities to get value enhancement.

Types of Tier 2 Category Specific Information

We’ve recognised 10 different kinds of Tier 2 category specific data:

1 Breakdown the Cost: Cost breakdown or PPCA action figures out the primary cost factors that are usually incurred by the supplier providing a service or product. Each suppliers price is separated in to its most important constituents for instance, the cost of raw materials as well as transportation and the like. Once that is successfully done it is much easier to assess suppliers against one another. Obviously, this process potentially avoids making assumptions and will help to understand not just what makes up any specific price as well as what drives it. As an example, where logistics is a really high percentage of the overall cost price then a rise in diesel prices will almost certainly impact on the total cost.

2. Specification Mapping: Segmenting spend down into different categories and even sub-categories is sufficient whenever calculating possible savings. However, when identifying opportunities during the creation of a category strategy, it is vital to analyse spend in depth. A lot of analysis is needed to achieve this. It needs to go into the tiniest details of the constituent part of a product or a service as these might be the main drivers driving the cost price. This information will enable thorough Value Analysis activity to be completed. Under no circumstances disregard the tiniest detail of any product or service, it might be the key to a new opportunity to help reduce cost.

3. End Product Linkage: To appreciate specifically what products link to other sorts of products (or services) used by end customers the suppliers sub-categories will need to be matched with the finished item. On the list of plus sides of this for your supplier is that they are much nearer to the thinking of the customer. This may be powerful while discussing a better cost price.

4 Unitisation & Benchmarking: Unitisation is when spend information is divided by a suitable variable eg area, length, customer satisfaction etc. This enables benchmarking across different suppliers or parts of a company, in order that variances in performance are often identified. Cost reduction occurs when good habits are recognized and then shared while negative practices are removed and / or re-engineered. An illustration worth sharing is where the total cost for every retail store of advertising spend resulted in regional accents being used for television adverts.

5. The Value of Operations Data: Buying a substitute product or service which directly compares with the old one is easy to validate with regards to cost difference. However, where the substitution has a totally different predicted general performance, the verification associated with a pricing variation could be more difficult. This is why the overlay of operations data may make it possible for a total cost of ownership (TCO) evaluation to take place and even more complex potential opportunities and related cost differences validated. For example, these total cost opportunity scenarios can take place when a brand new chemical is used which is twice as beneficial as the old one, or where the modern oil filter for a motor vehicle is claimed to last x miles longer before replacement, in comparison with the present filter.

The ‘Procurement Ready’ Knowledge Model

Possessing a standardised approach to Procurement data will help whenever analyzing and then quantifying an opportunity. Understanding which value levers to pull is an essential skill for many category managers to look for a price reduction opportunity.

The Supply Chain Footprint:

This requires mapping 1st level vendors and establishing the geographic locations from where they supply the organization. 1 step over and above this is to map the address of minor suppliers and most importantly where goods involved in the chain originate. This knowledge of suppliers and production locations in the supply chain enables supply risk (e.g. assurance of supply), reputation risk ( e.g. vendors CSR practices) and commercial risks (e.g. switching costs) to be identified and then managed.

6 Revenue & Profitability Overlays: By going over end product sales revenue and also earnings overlays you’ll be able to identify target areas where procurement activity can be used to help support or increase current levels of product sales and profit margin. Rather than focusing on the buying price of specific part numbers or sub-categories, the cost of these are typically grouped together around a customer end product or service. Cross-functional groups are usually able to do the job collaboratively to either establish possible cost reduction opportunities or support the peace of mind of higher revenue sales. One of the greatest advantages however when working across all different categories is usually that many more potential opportunities are exposed to the category buying teams.

7. Supplier Perception Data: This is structured qualitative responses from suppliers and internal stakeholders on the existing state of a relationship. It identifies areas of weakness and also possible areas for improvement when it comes to working relationship quality. It assists you to identify exactly how important the organisation is as a customer to the supplier. Frequent subjects asked about may include: How well do the tactical agendas of both sides align? How effectively does the relationship function? How well are the organisation’s commercial requirements being delivered through the business relationship? Have any business opportunities not been identified? Using this feed back and accepting it is not necessarily easy but category managers will find it very helpful when discussing strategy.

8 Market Data Overlay: Passing up significant market knowledge including commodity prices would likely clearly be a mistake. This can be simply because the organisation is directly purchasing the thing in question, or perhaps it is a key component of a supplier’s cost base and the business ought to monitor a change in the cost base.

9. Consumption Profile This can be helpful to understand if the organisation has an end customer demand profile that’s not flat, and can vary throughout the year. This kind of empathic approach with suppliers will help your SRM (Supplier Relationship Management) as their particular needs are better understood and planned for.

Next Steps and Insights:

There’s information worth looking at about this topic by Future Purchasing Category Management Training Consultants. on their site.

The very best category managers will develop a strategy based on a sound procurement knowledge. They will certainly do it with less difficulty and the methodology needn’t be hard for them. The odds of successful change programs are raised as a result. If people require to get more about geobotany izcvolqepycqwhpsc uncorrectly, there are many libraries you should consider investigating. Investing in this strategy is definitely a hallmark of leading category management exponents and frequently can lead to over 45% additional cost savings than those where the methodology is less vigorous.

So that you can implement a “Procurement Ready” base of knowledge it is recommended that a consistent model is designed and also coached so that a vocabulary is established across the procurement team.

One other enhancement we come across, from leading organisations, is to build a specialist function within the procurement team that specialises in generating this data ,freeing up the category management team to make use of the data in their strategic thinking.

Prioritising the need for a Knowledge base is fundamental to success and has to be designed and prioritised so that they can improve ways of working.

Making category management a primary commercial competence of modern procurement departments should be a main priority.

Both public and private sector organisations need to deliver procurement kpi’s efficiently and competently. Using a ‘Procurement Ready’ strategy is an integral basis to provide great value much faster. A good procurement consultant can be helpful in saving time, energy and money whilst beginning this type of journey and is strongly recommended..

Comments are closed.