Essential Knowledge in Category Management — the specifics for Procurement Employees

We all have frequently looked at the essential info and data to which Category Managers need access. for example, supplier spend, category spend along with individual business unit spend — there is a decent illustration mapped out further down. For the reason that we have said, this data is regularly not as readily obtainable as would be liked. Category management experts can be found ripping their hair out struggling with over-worked and also under prepared files of countless different sorts to find the data they will need to complete a full picture of their categories state of affairs.

Right now we’re turning our focus to the second tier regarding category knowledge that has in no way ever been documented or codified as far as we’ve been aware. Tier Two is far more specialized data which will differ according to the profile of the particular category and also the potential value which is achieved by simply building on the data and knowledge out of Tier 1. The time and effort to acquire this knowledge however is well worth it as the data gained is often of a extremely high value.

In most cases this can lead to more informed negotiations on terms, improved cost control, more capture of company innovation and identifies more options available for value growth.

Category Management Information comes in several unique ways

The Top Ten distinct types of information desired by Category Managers:

1. Breakdown the Cost: Cost breakdown or PPCA activity establishes the main cost elements that are incurred by the supplier supplying a service or product. Each suppliers cost is categorised into its principal elements such as the price of raw materials as well as transportation and the like. When that is finished it can be easier to assess suppliers against each other. Of course, this process also avoids making assumptions and helps to understand not just what makes up any specific cost but also what drives it. For instance, where logistics could be a high % of the total cost price then a increase in gasoline or diesel prices will probably affect the total price.

2 Understanding Specifications: Segmenting spend in to categories and even sub-categories will be enough when calculating possible cost savings. However, while discovering opportunities during your development of a category strategy, it’s really important to review spend in depth. This requires the analysis of the specific part numbers and / or services purchased, identifying the technical specs and/or performance behind them and linking these to the related costs and amounts. Once completely finished, analysis of the findings to determine value can be done. Under no circumstances disregard the smallest details of your product or service, it may be the key to a new chance to minimize cost.

3. End Product Linkage: To appreciate what products connect with other sorts of products (or services) used by end consumers the particular suppliers sub-categories have to be matched with the finished item. Just one of the plus sides of this for the supplier is that they are considerably nearer to the thinking of the customer. This is often persuasive while negotiating a better cost price.

4 Unitisation & Benchmarking: Unitisation is where spend information is divided by a relevant variable eg area, length, customer satisfaction etc. This enables benchmarking across varied suppliers or parts of an organisation, so that variances in general performance are often identified. Cost reduction takes place when good habits are recognised and then shared whilst undesirable practices are removed or re-engineered. One example of this method used by us, was the analysis of unitised total FM costs in each square metre throughout 80 depots for a British coach company.

5 Operations Data Overlay: Getting a substitute product or service that directly compares with the old one is not hard to validate in terms of price differences. Needless to say, finding out price differences when a substitute product or service is not the same is much more difficult. This is when the overlay of operations data could very well make it possible for a total cost of ownership (TCO) evaluation to take place and even more challenging potential opportunities and related cost differences checked. A example of these kind of rewards would include circumstances such as where a battery pack is identified as lasting for a longer period in comparison to the old one or where a new ingredient increases shelf-life by 20% more.

The ‘Procurement Ready’ Knowledge Model

Using a consistent approach to Procurement Information helps whenever identifying and consequently quantifying an opportunity. Knowing which value levers to pull is the main skill for many category managers to find a cost reduction opportunity.

Supply Chain Footprints:

This involves mapping first level vendors and finding out the geographic locations from where they supply the organization. The next phase is to map other levels of the supply chain and relevant production facilities. Pinpointing these locations ensures that important supply chain risks can be monitored including guarantee of supply; standing as well as, business oriented costs.

6. Revenue & Profitability Overlays: By evaluating end product sales revenue and also profitability overlays you’re able to identify particular target areas where procurement activity will be used to help support or boost existing levels of income and profit margin. If you have an opinion about the Internet, you will maybe claim to read about geobotany izcvolqepycqwhpsc uncorrectly. The main focus is now on the combined costs of the finished products or services. At this point individuals from various other business units are usually important in helping to validate opportunities to reduce price. One of the biggest advantages however as a result of working across all of the different categories is usually that many more opportunities are exposed to the category purchasing teams.

7. Supplier Perception Data: This is structured qualitative feedback coming from suppliers and also internal stakeholders relating to the existing condition of a relationship. Doing this will often flush out where things are progressing both well and not so well. It assists you to determine exactly how important the organisation is as a customer to the supplier. Questions to ask will include: Are your systems aligned? Is the relationship with the supplier functioning effectively? Is the business relationship properly supplying the benefits required by the business? Have any opportunities not been identified? Using this feed back and accepting it is not easy however category managers will find it priceless when talking about strategies.

8 Overlaying Market Data: Marketplace data such as utility prices, materials costs, chemical prices, labour rates etc. must be made available to appropriate procurement team members. This could be simply because the organisation is directly buying the thing in question, or it is a key element of a supplier’s cost base and the organization needs to monitor a change in the cost base.

9 The Profile of Consumption: This is beneficial to understand when the organization has an end consumer demand profile which isn’t flat, and can vary during the year. When mapping the demand profile and consequently thinking about its affect on certain suppliers, more details can be shared with them, much stronger relationships developed and more strategic talks attempted.

Summary & Recommendations for Action:

There is resources worth looking at on this topic by Future Purchasing Category Management Consultants. on their site.

Using a high quality “Procurement Ready” knowledge base, creating a formidable category strategy is easier and quicker. As a result this encourages increased momentum for change. A ‘Procurement Ready’ knowledge base is among the differentiators between Category Management Frontrunners and Followers and makes a contribution to the 46% extra savings that Business leaders benefit from versus Followers.

To be able to create a “Procurement Ready” base of knowledge it is recommended that a standardized process is developed and also trained to make certain that a vocabulary is established across the purchasing team.

A further development we come across, at leading companies, is to set up a specialist function inside the purchasing team specialising in creating this information — releasing category managers to concentrate on building more effective category strategies, a lot quicker.

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

Making category management a central business competence of modern procurement teams should be a high priority.

Multi-site organisations from the private sector and large government departments in the public sector demand “one way of working” capable of unlocking value in a very fast and flexible manner. Using a ‘Procurement Ready’ strategy is an essential building block to generate great value more quickly. A good procurement consultant will be invaluable in saving time, energy and money when beginning this type of journey and its highly recommended..

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