Mandatory Knowledge in Category Management – the essentials for Purchasing Teams

The most vital information and numbers essential for professionals employed as Category Managers may possibly be recorded millions of times, examples include, supplier spend, category spend and individual business enterprise unit spend (see the standard model that we have created below.) As we have said, this data is normally significantly less readily obtainable as might be preferred. Category management specialists are found pulling their hair out wrestling with overworked and / or under prepared records of numerous different types in order to find the information they will need to complete a 100 % picture of their categories state of affairs.

Now we are switching our attention to the 2nd tier regarding category knowledge that’s not been written about or codified so far as we are informed. This kind of 2nd level data is of a granular variety and often will differ substantially between categories significantly when the most elementary questions haven’t already been answered. Your time and effort to obtain this data however can be worthwhile since the knowledge obtained is usually of a extremely high value.

In most cases this leads to far more intelligent negotiations on terms, much better cost management, greater capture of company innovation and pinpoints even more options available for value improvement.

Category Management Knowledge comes in several unique ways

We’ve identified 10 types of Tier Two category specific data:

1 Breakdown the Cost: Purchase Price Cost Analysis (PPCA – another name for “cost breakdown” is considered the process associated with determining the main elements that make up every particular cost from the supplier for the service (or product). By simply estimating the Percentage split of the supplier’s price that’s likely to be attributable to each cost component, side by side somparisons can be done across suppliers. Price breakdowns always build greater understanding of fundamental value drivers such as specifications, production methods and service delivery processes for example.

2 Specification Mapping: Segmenting spend down into categories and sub-categories is usually adequate when calculating potential cost savings. Part of the category strategy should go into significantly greater detail in order to find cost reduction opportunities which must be planned as part of the whole process. A great deal of analysis is needed to do this. It should go in to the smallest details of the constituent part of a product or a service because they can be the most important drivers behind the cost price. Once completely finished, analysis of the conclusions to ascertain value is possible. For example, this can be linked to the performance specification for part numbers of electrical components, departure schedules for identified flight sectors, or even the addresses associated with high street network branches getting security alarm reactive support.

3 Finished Product Cross-fertilisation: This requires an understanding about which sub-categories provided by a supplier are used in which finished products sold to consumers and then making this obvious to the supplier. One of the plus sides of this for the supplier is that they are much nearer to the thinking of the consumer. Dig up more on our related use with by going to geobotany izcvolqepycqwhpsc uncorrectly. This can be convincing when negotiating a better cost price.

4 Unitisation & Benchmarking: Breaking costs down to the individual unit assists you to determine a benchmark value. Spend is divided with a variable that is appropriate such as height or even customer opinions. Using this method different suppliers can be evaluated alongside one another and difference identified. The next task is to discover the reasons behind the variances, eradicate any bad practices and talk about the best practices that may produce lower prices throughout the business. One example worth sharing is how the total cost for every retail store of marketing spend resulted in regional accents being used in radio ads.

5 Operations Data Overlay: Getting a alternate product or service which directly compares with the original one is simple to validate when it comes to price difference. On the other hand, where a substitute has a very different predicted performance, the validation associated with a cost difference may appear far more difficult. Studying the overall cost of ownership can be done with the use of operations data files which in addition to validating pricing differences may well realise far more opportunities. Examples of these added benefits would include scenarios such as where a battery pack is identified as lasting for a longer period when compared to the previous one or where a new chemical boosts shelf-life by 20% more.

6. Overlaying Profitability and Revenue: Finding areas where purchasing people are able to make improvements to cost prices and/or revenue throughout the course of category reviews is essential practice. The focus will now be on the combined costs of the completed products or services. Cross-functional teams are able to do the job collaboratively to either identify potential cost reduction opportunities or support the peace of mind of higher revenue sales. One of the best advantages however when working across all of the different categories is usually that many more potential opportunities are exposed to the category purchasing people.

7 The Suppliers View on Data Measuring the supplier relationship can be carried out both internally in the organization but also, even more importantly by the suppliers themselves. The process can identify exactly where things are going both well and not very well. The additional benefit of learning how necessary the business is to the supplier is also discovered. Standard themes covered may include: How well do the tactical agendas of the two of you align? How effectively does the working relationship work? How well are the organisation’s business requirements being delivered through the business relationship? What development business opportunities are obtainable? If you have this info at your disposal and plainly linked to the appropriate categories, improvement opportunities can be made visible, incorporated in category strategies and executed.

8. Market Data Overlay: Marketplace information that include utility costs, materials prices, chemical costs, labor costs etc. need to be available to appropriate purchasing team members. This could be simply because the organisation is directly purchasing the commodity in question, or it’s a key component of a supplier’s cost base and the organization needs to keep track of a change in the cost base.

9 Consumption Profile Where seasonal demand profiles exist they need to be prepared for and evaluated. This kind of empathic methodology with suppliers assists your SRM (Supplier Relationship Management) as their particular requirements are better understood and also planned for.

Next Steps and Insights:

You’ll find help and advice worth looking at on this subject matter by Future Purchasing Procurement Consultancy Services. on their website.

With a high quality “Procurement Ready” base of knowledge, building a strong category strategy is quicker and easier. The prospect of successful change programmes are improved as a result. A ‘Procurement Ready’ knowledge base is among the differentiators between Category Management Frontrunners and Followers and contributes to the 46% extra savings that Front runners benefit from compared to Followers.

So that you can use a “Procurement Ready” knowledge base it is recommended that a standardized process is developed and then trained to make certain that a language is established throughout the purchasing team.

Another development we come across, from the leading companies, is to set up a expert operation within the procurement team that specialises in providing this information — liberating category managers to focus on building more effective category strategies, more quickly.

One of the most effective way we have seen “Procurement Ready” knowledge bases get put together and developed is where Procurement prioritises the need for this kind of proficiency and creates a plan to acheive it.

Making category management a central business competence of modern procurement teams should be a high priority.

Both public and private sector businesses must supply procurement kpi’s efficiently and competently. Using a ‘Procurement Ready’ strategy is an essential building block to provide outstanding value faster. Finding a procurement consultancy to help you through the process is generally the easiest way to go and steering clear of the numerous pitfalls out there..