We all have often looked at the fundamental resources and knowledge to which Category Managers need to have access. e.g. spend by supplier, category, small business unit etc. (see the standard model that we have produced further down.) Suprisingly perhaps when most people come to try to find this type of information, it’s not easy to find. Category management experts can be found ripping their hair out struggling along with overworked and / or under prepared documentation of numerous different sorts to find the info they need to complete a full picture of their categories state of affairs.
This article seeks to determine another level of category knowledge that’s unique and not found somewhere else to the best of our knowledge. Tier 2 is more specialised information which will vary according to the profile of the category and the potential value that could be obtained simply by building on the information and understanding from Tier 1. The effort to extract this kind of information however can be worthwhile since the knowledge obtained can be of a extremely high value.
In many cases this results in more informed negotiations on prices, much better cost management, more capture of supplier innovation and also identifies even more options available to get value improvement.
Ten ways Procurement People make use of category data
Category Management data — Ten important gaps it is essential to fill:
1 Breakdown the Cost: Cost breakdown or PPCA activity determines the key cost factors that are generally incurred by the supplier providing services or products. By calculating the Percentage share of the supplier’s total price that is likely to be attributable to each cost component, side by side somparisons can be done across suppliers. Obviously, using this method also avoids making assumptions and helps to recognise not only what makes up any particular price as well as exactly what drives it. For example, where logistics is definitely a high % of the total cost price then a increase in gasoline or diesel prices will most likely impact the total cost.
2 Specification Mapping: When you are evaluating savings from the supplier, this categorisation method is a huge help. A part of the category strategy should go into greater detail to find cost reduction opportunities which should be scheduled as part of the whole process. A great deal of analysis is needed to do this. It has to go in to the smallest detail of the constituent part of a product or a service because they might be the main drivers driving the cost price. This data will make it possible for comprehensive Value Analysis activity to be succesfully done. For instance, this could be linked to the performance specification for part numbers of electronic components, departure times for defined air travel sectors, or even the addresses associated with high-street network branches getting alarm system reactive maintenance.
3 End Product Linkage: This requires an understanding of which sub-categories supplied by the supplier are utilized in which end products provided to customers and then making this obvious to the supplier. Use this to successfully persuade suppliers to offer best prices and/or innovation, so that they feel instantly connected to business development with the end consumer which allows them to influence demand for their own products and services.
4. Unitisation & Benchmarking: Breaking up costs right down to the single unit helps establish a benchmark value. Spend is simply divided up with a variable which is appropriate such as height or customer feedback. This enables benchmarking across varied suppliers or areas of an organisation, so that variances in general performance should be identified. The next step is to discover the reasons for the differences, eradicate any poor practices and then talk about the best practices that produce lower prices across the business. For other ways to look at this, please consider checking out: geobotany izcvolqepycqwhpsc uncorrectly. An example well worth sharing is how the total cost per retail outlet of marketing spend resulted in regional accents being used in radio adverts.
5 The Value of Operations Data: Cost variations between alternate products or services which are exactly like the very first item are typically simple to evaluate. On the other hand, where a alternate has a completely different anticipated overall performance, the verification of any pricing difference is more challenging. Evaluating the total cost of ownership is achievable with the aid of operations data files which in addition to verifying pricing differences may well realise additional opportunities. Examples of these rewards includes situations such as where a electric battery is identified as lasting for a longer period compared to the previous one or where the different additive increases shelf-life by 20% extra.
6 Revenue & Profitability Overlays: Discovering areas where purchasing people are able to improve cost prices and/or revenue over the course of category reviews is required practice. The main focus will finally be on the combined costs of the completed products or services. Cross-functional teams can then get the job done collaboratively to either determine probable cost reduction opportunities or support the peace of mind of high 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 method of operating.
7. Supplier Perception Data: This is structured qualitative responses coming from suppliers and internal stakeholders concerning the current condition of a relationship. It detects areas of weakness and also possible areas for development in working relationship quality. The added benefit of learning how necessary the business is to the supplier is also identified. Questions you should ask will include: Are your strategies aligned? How successfully does the working relationship function? How well are the organisation’s business requirements being delivered through the relationship? What improvement opportunities are readily available? If you have this info easy to get to and also plainly linked to the relevant categories, improvement opportunities can be made visible, incorporated throughout category strategies and executed.
8 Overlaying Market Data: Passing up important industry information such as futures trading prices would most likely clearly be a mistake. Monitoring any changes in vital areas like these is essential for both cost reduction opportunities as well as the good of the suppliers sales and profits.
9 Consumption Profile This is useful to have an understanding of if the organization has got an end consumer demand profile that’s not flat, and varies throughout the year. This kind of empathic approach with suppliers supports your SRM (Supplier Relationship Management) as their preferences are better understood and planned for.
Next Steps and Insights:
You can find information worth looking at on this topic by Future Purchasing UK Procurement Consultancy. on their website.
The top category managers will create a strategy based on a strong procurement knowledge. They’ll do it with less difficulty and the methodology needn’t be hard for them. The likelihood of successful change programmes are raised as a result. A ‘Procurement Ready’ knowledge base is one of the differentiators between Category Management Front-runners and Followers and results in the 46% additional cost savings that Leaders benefit from versus Followers.
Making sure that all of the category managers adhere to the exact same approach is crucial therefore the approach should be planned out to ensure uniformity.
A further development we come across, from leading companies, is to set up a specialist function within the purchasing team specialising in producing this data — liberating category managers to concentrate on building more effective category strategies, faster.
Prioritising the requirement for a Knowledge base is fundamental to being successful and must be designed and prioritised so that they can really transform ways of working.
Neglecting Category Management in present day procurement departments isn’t an option and should get prioritised.
Both public and private sector companies must provide procurement kpi’s efficiently and competently. Following the method above will bring about an organisations step change in providing value. Getting a procurement consultant to help you throughout the process is generally the best way to go and keeping away from a variety of pitfalls out there..