Category Management Prerequisites for Procurement Teams
We’ve often looked over the essential information and knowledge to which Category Managers require access. e.g. spend by service provider, category, business unit etc. – there’s a decent illustration mapped out below. As we have pointed out, this data is normally significantly less readily obtainable as would be liked. Category management experts are found ripping their hair out struggling along with overworked and / or under prepared documents of countless different types in order to find the information they will need to complete a complete picture of the categories state of affairs.
This short article tries to find another type of category knowledge that’s different and not identified anywhere else to the best of our knowledge. This secondary tier data is of a granular variety and definately will vary greatly between categories particularly where even the most simple queries have not already been addressed. This gives absolutely advanced insight and category strategies that will fully connect with the organization.
In most cases this can lead to far more informed negotiations, much better cost management, more capture of company innovation and identifies further options available to get value improvement.
Category Management Knowledge comes in numerous differing ways
Category Management Information — 10 fundamental gaps it’s important to fill:
1 Breakdown the Cost: Cost breakdown or PPCA activity establishes the primary cost elements that are usually suffered by the supplier supplying services or products. Every suppliers cost is separated into its main elements for example, the cost of raw materials and transportation etc. When this is successfully completed it is much easier to assess suppliers against each other. Of course, this process also prevents making assumptions and helps to recognise not just what makes up almost any specific price as well as exactly what drives it. For instance, where logistics is definitely a high % of the total cost price then a increase in gasoline prices will almost certainly affect the overall cost.
2. Understanding Technical specifications: Segmenting spend into different categories and even sub-categories is enough whenever estimating potential cost savings. However, whenever identifying opportunities during the development of a category strategy, it’s very important to review spend in great detail. A great deal of analysis is necessary to achieve this. It must get in to the tiniest detail of the constituent part of a product or a service because these might be the principal drivers driving the cost price. Once completely finished, analysis of the results to establish value can be done. Never overlook the tiniest details of any products or services, it could be one of the keys to the next chance to minimize cost.
3. End Product Linkage: This requires an awareness of which sub-categories provided by the supplier are being used in which end products sold to customers and then making this accessible to the supplier. On the list of plus sides of this for the supplier is that they are much nearer to the thinking of the consumer. This may be persuasive when discussing an improved cost price.
4. Unitisation & Benchmarking: Unitisation is when spend information is divided by a appropriate variable eg area, length, customer satisfaction etc. By doing this different suppliers are able to be evaluated against each other and difference identified. Cost reduction takes place when beneficial habits are identified and shared while poor practices are eliminated and / or re-engineered. An example of this method used by us, was the analysis of unitised total FM costs per square metre in 80 depots for a English coach company.
5. Operations Data Overlay: Pricing differences among alternative products or services that are exactly the same as the very first item will definitely be simple to measure. However, finding out cost differences where the alternative product or service is not the same may appear far more challenging. That’s where the overlay of operations knowledge may enable a total cost of ownership (TCO) assessment to take place and many more complicated potential opportunities and associated cost differences validated. For instance, these types of total cost opportunity situations can happen when a new compound is used that’s two times as successful as the previous one, or where the latest oil filter for a car or truck is claimed to last x kilometers longer before replacement, compared with the present filtering system.
6 Revenue & Profitability Overlays: Discovering areas where purchasing people can make improvements to cost prices and/or revenue through the course of category reviews is required practice. Rather than concentrating on the buying price of specific part numbers or sub-categories, the expense of these are grouped together around a customer end product or service. Cross-functional groups may then get the job done collaboratively to either establish possible cost reduction opportunities or retain the peace of mind of higher revenue sales. When working in this way, cross category possibilities should also be discovered that may not have been identified when using a individual category targeted way of operating.
7 The Suppliers View on Data This is structured qualitative feed back from suppliers and also internal stakeholders regarding the current condition of a relationship. Doing this will often identify where things are going both well and not so well. The added benefit of learning how vital the organization is to the supplier is also discovered. Frequent matters asked about include: How well do the tactical agendas of both sides align? Is the relationship with the supplier functioning well? Is the business relationship properly supplying the benefits needed by the business? Have any business opportunities not been acknowledged? With this level of detail easy to get at and plainly linked to the appropriate categories, development opportunities can be made visible, included inside category strategies and executed.
8. Market Data Overlay: Market place information and facts that include utility prices, metals costs, chemical prices, labor rates etc. should really be available to relevant purchasing team members. Keeping track of all changes in vital areas such as these is essential for both cost reduction opportunities as well as for the good of the suppliers profitability.
9. Consumption Profile Anywhere seasonal demand profiles are found they should be prepared for and evaluated. This kind of empathic methodology with suppliers aids your SRM (Supplier Relationship Management) as their demands are better understood and prepared for.
Next Steps and Insights:
You’ll find information worth referring to about this subject by http://www.futurepurchasing.com on their website.
The very best category managers will produce a strategy based on a strong procurement knowledge. They’ll get it done more easily plus the methodology is straightforward for them. As a result it generates increased momentum for change. A ‘Procurement Ready’ knowledge base is one of the differentiators between Category Management Front runners and Followers and contributes to the 46% additional cost savings which Business leaders enjoy compared to Followers.
In order to create a “Procurement Ready” knowledge base our recommendation is that a consistent model is produced and coached to make sure a vocabulary is established throughout the purchasing team.
The foremost forward thinking businesses have champions of this methodology whose duty it is to make certain the procurement knowledge database is constantly updated ,freeing up the category management team to make use of the data in their strategic thinking.
Probably the most successful way we have experienced “Procurement Ready” knowledge bases be put together and developed is where Procurement prioritises the desire for this capability and establishes a plan to acheive it.
Making category management a central business competence of modern procurement departments is a high priority.
Multi-site businesses from the private sector and large government departments in the public sector have to have “one method of working” capable of unlocking value in a quick and flexible manner. Adopting the process above will bring about an organizations step change in providing value. A procurement consultant will be helpful in saving time, energy and money when beginning this journey and its highly recommended.
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