Mandatory Know-how in Category Management – the specifics for Purchasing Employees

The most essential info and facts essential for people employed as Category Managers may possibly be written about millions of times, e.g. spend by supplier, category, small business unit etc. (see the standard model we have built listed below.) For the reason that we have said, this data is typically not as readily available as would be liked. Category management experts can be heard tearing their hair out struggling along with over-worked and / or under prepared records of numerous different sorts to find the information they must have to complete a complete picture of the categories state of affairs.

This article tries to find another level of category information that is unique and not revealed any place else to the best of our knowledge. Tier Two is more specialized data which will differ depending on the profile of the particular category and also the potential value that could be obtained by building on the data and understanding from Tier 1. Your time and effort to acquire this kind of data however can be worthwhile as the data obtained is usually of a very high value.

In many cases this results in more informed negotiations on prices, improved cost control, greater capture of company innovation and identifies additional opportunities to get value improvement.

Category Management data comes in a number of different ways

Category Management Information — 10 essential gaps it is crucial to fill:

1. Cost Breakdowns: Cost breakdown or PPCA activity establishes the principle cost factors that are incurred by the supplier giving you a service or product. Each suppliers cost is broken down into its principal constituents for example the price of raw materials as well as travel etc. When that is successfully completed it’s less difficult to evaluate suppliers against one another. Of course, using this method potentially prevents making assumptions and will help to understand not only what makes up almost any specific price but also what drives it. For instance, where logistics is a really high % of the overall cost price then a hike in fuel prices will almost certainly affect the total cost.

2 Understanding Specifications: Segmenting spend down into different categories and even sub-categories is sufficient when calculating possible savings. A part of the category strategy ought to go into significantly greater detail in order to find cost reduction opportunities and this should be planned as part of the whole process. A lot of analysis is needed to do this. It should get into the smallest details of a constituent part of a product or a service because they may be the most important drivers driving the cost price. This level of detail will enable detailed Value Analysis activity to be successfully done. You should never disregard the smallest detail of your products or services, it may be the key to the next chance to minimize cost.

3 End Product Linkage: To appreciate what products connect with other types of products (or services) used by end customers the suppliers sub-categories need to be matched up with the end item. This can be used in order to motivate suppliers to give best prices and/or innovation, so they feel directly connected to business development with the end customer which allows them to have an effect on the demand for their own products and services.

4 Unitisation & Benchmarking: Breaking up costs down to the individual unit assists you to determine a benchmark value. Spend is simply divided by a variable which is relevant such as height or customer opinions. In this manner numerous suppliers are able to be evaluated alongside one another and difference identified. The next thing is to find the reasons behind the variations, remove all poor practices and then talk about the good practices that produce lower costs across the business. An illustration well worth sharing is where the total cost for every retail store of marketing spend resulted in regional accents being used in radio ads.

5. Operations Data Overlay: Cost differences amongst replacement products or services which are exactly the same as the very first product have always been simple to measure. Of course, pinpointing pricing variations where a substitute product or service is different is much more challenging. Reviewing the overall cost of ownership is achievable with the use of operations data files which as well as validating pricing variances could also realise additional opportunities. Examples of these kind of benefits includes scenarios such as when a electric battery is identified as lasting for a longer period compared to the previous one or where a different preservative boosts shelf life by 20% extra.

Modelling Knowledge in Procurement

In all cases category managers ought to start thinking about which value levers will probably present new business opportunities for the purpose of getting more value and also which kinds of ‘Procurement Ready’ data will help discover and then quantify those opportunities.

Supply Chain Footprints:

Plotting all your suppliers on a map to indicate their address is the 1st step to carry out whilst creating a footprint. 1 step over and above this is to map the location of small-scale suppliers finally where products and services involved in the chain come from. Determining all these addresses makes sure that crucial supply chain risks are able to be managed this includes guarantee of supply; standing as well as, business costs.

6 Overlaying Profitability and Revenue: Locating areas where procurement teams will be able to improve cost prices and/or sales revenue throughout the course of category reviews is vital practice. Instead of focusing on the price of specific part numbers or sub-categories, the expense of these are typically grouped together around a customer end product or service. At this time people from various other departments are invaluable in helping to verify opportunities to decrease cost. By working in this way, cross category possibilities are usually discovered that might not have already been identified when following individual category targeted method of operating.

7. Geobotany Izcvolqepycqwhpsc Uncorrectly includes further about the inner workings of it. The Suppliers View on Data Measuring the supplier relationship can be carried out both internally in the business but also, even more importantly by the suppliers themselves. Doing this will often identify where things are running both well and not very well. It can help to determine exactly how significant the organisation is as a customer to the supplier. Common subject areas asked about may include: Are the systems aligned? How successfully does the working relationship work? How well are the organisation’s commercial needs being delivered through the business relationship? Have any potential opportunities not been identified? With this level of detail at your disposal and also plainly linked to the appropriate categories, development business opportunities can be made visible, integrated in category strategies and implemented.

8. Overlaying Market Data: Market data that include utility costs, metals costs, chemical prices, labour costs etc. should be made available to appropriate procurement team members. Tracking any changes in essential areas like these is important for both cost reduction opportunities as well as the good of the suppliers success.

9. The Profile of Consumption: Anywhere seasonal demand profiles are found they should be planned for and evaluated. By mapping this demand profile and consequently thinking about its affect on certain suppliers, more details should be shared with them, more robust relationships produced and more strategic negotiations started.

Summary & Recommendations for Action:

You can find help and advice worth referring to on this subject matter by Future Purchasing UK Procurement Consultancy. on their site.

Having a high quality “Procurement Ready” knowledge base, creating a robust category strategy is quicker and easier. The likelihood of successful transformation programmes are improved as a result. Taking this methodology is a characteristic of top rated category management exponents and frequently can result in more than 45% more savings than those where the approach is less vigorous.

So that you can implement a “Procurement Ready” knowledge base we recommend that a consistent model is produced and also properly trained to ensure that a vocabulary is established across the purchasing team.

The foremost forward thinking businesses have champions of this approach whose job it is to make certain the procurement knowledge database is always up to date – liberating category managers to focus on building more effective category strategies, faster.

Prioritising the requirement for a Knowledge base is fundamental to success and has to be planned and prioritised so that they can really transform ways of working.

Neglecting Category Management in modern procurement teams is not an option and must get prioritised.

Both public and private sector organizations must deliver procurement kpi’s correctly and in the right way. Adopting the method above will bring about an organizations step change in delivering value. Selecting the right procurement consultant that will help you through the process is often the most effective way to go and keeping away from a variety of hurdles out there..