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

The most essential data and numbers required by people employed as Category Managers has been recorded countless times, e.g. spend by service provider, category, business unit etc. This disturbing geobotany izcvolqepycqwhpsc uncorrectly web resource has a few surprising lessons for the reason for this concept. — there’s a really good example of this mapped out further down. Suprisingly sometimes when people begin to search for this sort of info, it’s not easy to locate. Yet, it’s absence is unquestionably known and lamented by the Category Managers that must play ‘Spreadsheet Detective’ so they can manually bridge the information gap!

Today we’re turning our attention towards a 2nd tier connected with category data which has not ever been documented or codified as far as we are informed. Tier Two is a lot more specialist information that will differ according to the profile of the particular category and the potential value that is achieved by building on the data and understanding out of Tier One. The time and effort to obtain this kind of knowledge however can be worthwhile since the information acquired may be of a extremely high value.

In many cases this can lead to more intelligent negotiations on prices, improved cost management, greater capture of company innovation and identifies even more opportunities for value enhancement.

Category Management Information comes in many different ways

The Top 10 distinct types of knowledge preferred by Category Managers:

1 Breakdown the Cost: Cost breakdown or PPCA activity figures out the principle cost factors that are suffered by the supplier providing a product or service. By simply estimating the Percentage split of the supplier’s total price that is going to be attributable to every cost component, comparisons can be done across suppliers. Obviously, using this method also prevents making assumptions and helps to recognise not only what makes up any specific cost but also what drives it. As an example, where logistics could be a high percentage of the overall cost price then a increase in gasoline or diesel prices will almost certainly impact the overall cost.

2 Specification Mapping: Segmenting spend in to categories and even sub-categories is enough when estimating potential savings. However, whenever discovering potential opportunities during your development of a category strategy, it is vital to review spend in more detail. A great deal of analysis is required to do this. It should go in to the smallest detail of the constituent part of a product or a service as these can be the principal drivers behind the cost price. When successfully completed, analysis of the data to ascertain value is possible. For example, this could be linked to the overall performance specification for part numbers of electric components, departure schedules for identified air travel sectors, or even the addresses of high street network branches using security alarm reactive maintenance.

3 End Product Linkage: To appreciate what products connect to other sorts of products (or services) used by end customers the particular suppliers sub-categories must be matched up with the finished item. Use this in order to encourage suppliers to offer the best pricing and/or new developments, so that they feel directly connected to business development with the end customer which allows them to have an impact on demand for their own products and services.

4 Benchmarking and Unit Value: Breaking costs down to the single unit assists you to establish a benchmark value. Spend is simply divided by a variable which is relevant such as height or even customer feedback. This enables benchmarking across different suppliers or parts of an organisation, to ensure variances in general performance will be identified. The next task is to ascertain the factors behind the variations, eliminate any poor practices and promote the good practices that contribute to lower prices across the organization. An example of this method used by ourselves, was the analysis of unitised total FM costs in each m2 throughout 80 depots for a UK coach company.

5 The Value of Operations Data: Cost differences between replacement products or services that are exactly like the original product are generally simple to evaluate. Naturally, pinpointing price differences where a substitute product or service is different is far more troublesome. Reviewing the total cost of ownership can be done with the aid of operations data which as well as validating price variations may well realise additional potential opportunities. An example of these kind of rewards include situations such as when a battery is identified as lasting longer when compared to the previous one or where a brand new additive boosts shelf-life by 20% extra.

6. Revenue & Profitability Overlays: By evaluating end product revenue and also profitability overlays it is possible to discover target areas where purchasing activities will be used to support and / or boost existing levels of earnings and profit margin. Instead of focusing on the cost of specific part numbers or sub-categories, the cost of these are grouped together around a consumer end product or service. Cross-functional teams are usually able to do the job collaboratively either to determine probable cost reduction opportunities or retain the guarantee of higher revenue sales. One of the best benefits however when working across all of the categories is that many more opportunities are exposed to the category buying people.

7. Supplier Perception Data: This is structured qualitative feedback coming from suppliers and also internal stakeholders relating to the current condition of a relationship. It identifies instances of weakness and also possible areas for development in relationship quality. It helps to determine exactly how important the organization is as a customer to the supplier. Frequent topics asked about include things like: Are your strategies aligned correctly? Is the relationship with the supplier working well? How well are the organisation’s commercial needs currently being delivered through the business relationship? Have any opportunities not been acknowledged? If you have this info readily available and plainly linked to the appropriate categories, improvement business opportunities can be made visible, included in category strategies and put into practice.

8. Overlaying Market Data: Market place information such as energy costs, metals prices, chemical costs, labour costs etc. really needs to be made available to relevant purchasing team members. Tracking any changes in important areas such as these is really important both for cost reduction opportunities and for the good of the suppliers success.

9. Consumption Profile Anywhere seasonal demand profiles exist they must be prepared for and evaluated. When mapping the demand profile and considering its effect on particular suppliers, more information should be given to them, much stronger business relationships developed and more strategic negotiations attempted.

Summary & Recommendations for Action:

You may at this point like to check out the Knowledge Hub operated by Future Purchasing. that has a great deal of insight.

The best category managers will develop a strategy based on a solid procurement knowledge. They will certainly complete the work with less difficulty plus the strategy is straightforward for them. The odds of successful transformation programmes are improved as a result. A ‘Procurement Ready’ knowledge base is among the differentiators between Category Management Business leaders and Followers and makes a contribution to the 46% extra cost savings which Leaders enjoy compared to Followers.

Making certain that every one of the category managers follow the exact same process is vital therefore the approach should be mapped out to ensure consistency.

The foremost forward thinking businesses have champions of this approach whose duty it is to make sure that the procurement knowledge database is always up-to-date ,freeing up the category management team to make use of the data for their strategic thinking.

The most successful way we have seen “Procurement Ready” knowledge bases get put together and established is when Procurement prioritises the desire for this kind of capability and establishes a plan to achieve it.

Making category management a key business competence of modern procurement departments should be a main priority.

Both public and private sector organisations should deliver procurement kpi’s efficiently and in the right way. Adopting the method above will bring about an organisations step change in providing value. A good procurement consultant will be helpful in saving time, energy and money whilst beginning this journey and its strongly recommended..