Mandatory Knowledge in Category Management — the essentials for Purchasing Organizations

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Oct 9th, 2018
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The most important data and details essential for people employed to work as Category Managers may have been written about a million times, examples include, supplier spend, category spend along with individual business enterprise unit spend — there is also a good illustration mapped out in the following paragraphs. Suprisingly maybe when most people begin to hunt for this type of information, it can be difficult to locate. Yet, it’s absence is unquestionably recognized and reported by the Category Managers that have to play the game ‘Spreadsheet Detective’ in order to manually bridge the information gap!

This document seeks to find another level of category info that is unique and not found elsewhere to the best of our knowledge. Tier Two is more specialist data which will differ according to the profile of the category and also the potential value that could be achieved simply by building on the information and knowledge out of Tier 1. This provides you with truly ground breaking information and category strategies that fully connect with the business.

In many cases this can lead to far more intelligent negotiations, improved cost control, greater capture of company innovation and identifies even more opportunities to get value improvement.

Category Management data comes in many different ways

We’ve recognised 10 types of Tier Two category specific information:

1. Breakdown the Cost: Cost breakdown or PPCA activity figures out the key cost factors that are generally incurred by the supplier providing services or products. Each suppliers cost is categorised in to its most important elements for example, the price of raw materials as well as travel etc. Once that is successfully completed it can be much easier to assess suppliers against one another. Price breakdowns of course build improved understanding of underlying price drivers such as specifications, manufacturing methods plus service delivery operations etc.

2. Understanding Technical specs: Segmenting spend in to different categories and sub-categories is sufficient when estimating possible cost savings. However, when discovering opportunities during your development of a category strategy, it is important to review spend in greater detail. A large amount of analysis is required to do this. It should get in to the tiniest details of the constituent part of a product or a service because they may be the most important drivers driving the cost price. When completed, analysis of the conclusions to determine value is possible. For example, this can be linked to the performance specification for part numbers of electrical components, departure times for defined flight sectors, or even the addresses of high street network branches getting security alarm reactive support.

3 End Product Linkage: This calls for an understanding about which sub-categories provided by a supplier are used in which finished products provided to consumers and then making this accessible to the supplier. This can be used to successfully encourage suppliers to give the best pricing and/or innovation, to allow them to feel directly connected with business development with the end consumer which allows them to influence the demand for their own products and services.

4. Dig up further on geobotany izcvolqepycqwhpsc uncorrectly by browsing our impressive link. Benchmarking and Unit Value: Breaking costs right down to the individual unit helps set a benchmark value. Spend is divided by a variable that is appropriate such as height or even customer opinions. By doing this several suppliers are able to be assessed against one another and difference identified. The next phase is to discover the reasons for the differences, eradicate all damaging practices and promote the excellent practices which contribute to lower prices throughout the business. An illustration worth sharing is where the total cost for every retail store of advertising spend resulted in local accents being used for radio advertisements.

5. The Value of Operations Data: Pricing variations between replacement products or services that are identical to the very first item tend to be straightforward to assess. But, where a alternative provides a very different predicted performance, the validation associated with a pricing variation may appear far more challenging. This is why the overlay of operations knowledge can allow a total cost of ownership (TCO) evaluation to take place and much more complex opportunities and related cost differences validated. For instance, these types of total cost opportunity scenarios can occur if a brand new compound is used that is two times as effective as the last one, or where a modern engine oil filtering system for a motor vehicle is claimed to last x kilometers further before renewal, compared with the present filter.

6. Overlaying Profitability and Revenue: By analyzing end product revenue and earnings overlays it is possible to discover particular target areas where purchasing activity will be used to sustain and / or increase current levels of sales revenue and profit margin. The focus will now be on the consolidated costs of finished products or services. Cross-functional groups are usually able to do the job collaboratively either to identify probable cost reduction opportunities or support the reassurance of high revenue sales. One of the greatest benefits however when working across all different categories is the fact that more opportunities are exposed to the category buying teams.

7 Supplier Perception Data: This is structured qualitative feed back from suppliers and also internal stakeholders regarding the existing state of a relationship. It identifies areas of weakness and possible areas for improvement in working relationship quality. The additional benefit of learning how important the organization is to the supplier can also be identified. Questions you should ask will include: Are the tactics aligned? How effectively does the working relationship function? Is the relationship appropriately delivering the benefits needed by the organisation? What improvement opportunities are obtainable? By having these details readily available and also plainly linked to the appropriate categories, improvement opportunities can be made visible, incorporated throughout category strategies and executed.

8 Market Data Overlay: Passing up key market data including futures trading prices would certainly clearly be a error. This might be simply because the business is directly purchasing the commodity in question, or perhaps it’s a key element in a supplier’s cost base and the business should observe changes in the cost base.

9 The Profile of Consumption: This is useful to have an understanding of if the organisation has got an end customer demand profile that is not flat, and can vary throughout the year. This kind of empathic methodology with suppliers aids your SRM (Supplier Relationship Management) as their particular preferences are better understood and also planned for.

Next Steps and Insights:

You can find help and advice worth looking at about this subject by Future Purchasing Category Management Procurement Training Consultants. on their website.

The best category managers will generate a strategy based on a strong procurement understanding. They will get it done with less difficulty and the strategy needn’t be hard for them. The probability of successful transformation programmes are increased as a result. Investing in this strategy is regarded as a characteristic of prominent category management exponents and frequently can lead to over 45% more savings than those whose methodology is less demanding.

Making certain every one of the category managers follow the same exact process is vital so the approach needs to be mapped to guarantee consistency.

One other development we have seen, at leading organisations, is to create a specialised function within the purchasing team specialising in providing this data ,freeing up the category management team to use the information in their strategic thinking.

The most successful way we have experienced “Procurement Ready” knowledge bases get created and established is when Procurement prioritises the need for this proficiency and establishes a plan to make it happen.

Making category management a core business competence of modern procurement departments is a high priority.

Multi-site companies in the private sector and large gov departments in the public sector demand “one way of working” capable of unlocking value in a quick and flexible way. Adopting the method above will bring about an organisations step change in giving value. Getting a procurement consultant to help you through the process is often the easiest way to go and avoiding a variety of stumbling blocks out there..

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