Category Management Necessities for Procurement Teams
The most important info and facts essential for professionals hired as Category Managers has been documented thousands of times, e.g. spend by supplier, category, business unit etc. - there's a decent illustration mapped out in the following paragraphs. For the reason that we have mentioned, this data is frequently significantly less readily obtainable as would be liked. However, it’s absence is undoubtedly recognized and reported by the Category Managers that must engage in ‘Spreadsheet Detective’ so they can manually close the information gap!
This article attempts to determine an additional type of category info that is different and not identified any place else to the best of our knowledge. This kind of 2nd tier data is of a granular type and definately will differ substantially between categories significantly where even the most elementary questions haven't already been addressed. This provides you with genuinely really advanced knowledge and category strategies that fully connect with the particular business.
In many cases this can lead to more intelligent negotiations, much better cost control, more capture of supplier innovation and pinpoints additional opportunities to get value growth.
Ten ways Procurement People use category knowledge
The Top 10 distinct types of knowledge wanted by Category Managers:
1. Cost Breakdowns: Purchase Price Cost Analysis (PPCA - another term for “cost breakdown” is the process associated with pinpointing the major factors that constitute any particular cost from a provider for the service (or product). Every suppliers price is categorised in to its main elements for instance the cost of raw materials and transportation and the like. Once that is completed it can be less difficult to compare and contrast suppliers against one another. Price breakdowns of course build greater knowledge of fundamental cost drivers which includes technical specifications, production methods plus service delivery processes etc.
2 Understanding Specs: When looking for cost savings from a supplier, this type of categorisation technique is a huge help. However, when identifying opportunities during your development of a category strategy, it's really important to review spend in depth. This requires the analysis of the specific part numbers as well as services bought, determining the specs and/or performance behind them and associating these to the related costs and amounts. Once completely finished, analysis of the data to ascertain value is possible. For instance, this could be linked to the performance specification for part numbers of electronic components, departure schedules for defined flight sectors, or even the addresses associated with high-street network branches getting security alarm reactive support.
3. End Product Linkage: This requires an understanding about which sub-categories supplied by a supplier are used in which finished products provided to consumers and making this obvious to the supplier. This can be used in order to encourage suppliers to offer the best prices and/or new developments, to allow them to feel directly connected to business development with the end consumer which allows them to influence the demand for their own products and services.
4. Unitisation & Benchmarking: Unitisation is when spend information is divided by a appropriate variable eg area, length, customer satisfaction etc. Using this method different suppliers are able to be evaluated against each other and difference acknowledged. Cost reduction takes place when excellent habits are recognized and then shared whilst damaging processes are removed and / or re-engineered. One example of this approach applied by us, was the analysis of unitised total FM costs in each square metre in eighty depots for a English coach business.
5. Operations Data Overlay: Pricing variations amongst replacement products or services that are exactly like the original product are almost always straightforward to assess. Needless to say, finding out pricing differences when a alternative product or service is different may appear far more troublesome. Studying the total cost of ownership can be accomplished with the use of operations data files which as well as validating price variances might also realise more potential opportunities. Examples of these kind of advantages would include situations such as in which a battery pack is identified as lasting longer in comparison to the current one or when a newer additive improves shelf life by 20% extra.
Modelling Knowledge in Procurement
In all cases category managers will want to consider which value levers can potentially present new kinds of opportunities for getting extra benefits and also what types of ‘Procurement Ready’ knowledge will help to discover and quantify these opportunities.
The Supply Chain Footprint:
This requires mapping 1st level suppliers and establishing the geographic sites from which they supply the organisation. The next thing is to map further layers of the supply chain and related production addresses. Check This Out is a fresh database for extra info about the inner workings of it. Identifying these locations means that essential supply chain risks can be monitored including assurance of supply; reputation and ultimately, business oriented costs.
6 Revenue & Profitability Overlays: When evaluating end product revenue and profitability overlays you are able to identify particular target areas where procurement activities could be used to support or enhance current levels of product sales and profit margin. Instead of focusing on the price of specific part numbers or sub-categories, the cost of these are grouped together around a customer end product or service. At this stage people from several other departments tend to be crucial in helping to validate opportunities to help reduce cost. When working in this way, cross category possibilities are usually identified which may not have already been identified by following single category focused method of working.
7 Supplier Perception Data: Measuring a supplier relationship can be carried out both internally in the company but also, even more importantly by the suppliers theirselves. This process may well flush out exactly where things are running both well and not so well. The added benefit of learning how significant the organisation is to the supplier may also be identified. Questions you should ask will include: Are the tactics aligned correctly? Is the business relationship with the supplier functioning well? Is the relationship properly delivering the benefits needed by the business? Specifically what improvement opportunities are readily available? Using this feedback and accepting it is not necessarily always easy but category managers will find it priceless when discussing strategy.
8. Overlaying Market Data: Passing up essential sector data such as futures trading prices would probably clearly be a error in judgment. Keeping track of all changes in essential areas like these is really important both for price reduction opportunities and for the good of the suppliers sales and profits.
9. Consumption Profile Where seasonal demand profiles can be found they must be prepared for and analysed. This empathic methodology with suppliers assists your SRM (Supplier Relationship Management) as their needs are better understood and planned for.
Next Steps and Insights:
There's resources worth referring to about this subject by Future Purchasing Procurement Consultancy. on their site.
The very best category managers will develop a strategy based on a sound procurement understanding. Get more on our related site by visiting open in a new browser. They will certainly get it done more easily and the strategy needn't be hard for them. The prospect of successful transformation programmes are raised as a result. Taking this strategy is known as a hallmark of the leading category management exponents and frequently can result in over 45% additional savings in contrast to those whose approach is less vigorous.
So that you can start using a “Procurement Ready” knowledge base it is recommended that a consistent model is designed and coached to make sure a language is established throughout the procurement team.
A further development we have witnessed, from foremost organisations, is to build a specialised operation inside the procurement team that specialises in producing this information ,liberating the category management team to use the information for their strategic thinking.
Prioritising the requirement for a Knowledge base is fundamental to achieving success and must be designed and prioritised to be able to really transform ways of working.
Dismissing Category Management in modern day procurement departments isn't an option and should be prioritised.
Multi-site companies from the private sector and large gov departments within the public sector require “one method of working” effective at unlocking value in a very quick and flexible manner. Developing a ‘Procurement Ready’ strategy is a key basis to deliver outstanding value faster. A good procurement consultancy can be invaluable in saving time, energy and your money whilst beginning this journey and its strongly recommended..
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