Important Knowledge in Category Management — the specifics for Purchasing Employees

The most important info and numbers essential for professionals employed to work as Category Managers has been documented countless times, for example, supplier spend, category spend along with individual business unit spend — there’s a really good illustration mapped out in the following paragraphs. Suprisingly sometimes when most people come to seek out this type of information, it’s not easy to locate. Category management individuals are found ripping their hair out wrestling with overworked and / or under prepared documents of countless differing types to find the info they should have to complete a 100 % picture of the categories state of affairs.

Right now we are switching our focus to a 2nd level connected with category knowledge that has not been written about or codified so far as we are aware. This kind of second level data is of a granular kind and may vary significantly between categories notably when even the most basic questions haven’t already been answered. This gives absolutely really advanced information and category strategies that will fully connect with the business enterprise.

In many cases this can lead to far more informed negotiations, improved cost management, more capture of supplier innovation and pinpoints additional options available for value growth.

Types of Tier 2 Category Specific Knowledge

We have recognised 10 different kinds of Tier Two category specific knowledge:

1. Cost Breakdowns: Purchase Price Cost Analysis (PPCA – an alternative name for “cost breakdown” is the job of determining the primary factors that make-up any distinct cost from the supplier for the service (or product). By estimating the % split of the supplier’s total price that is likely to be attributable to each cost component, comparisons can be done across suppliers. Cost breakdowns also build greater knowledge of underlying value drivers which includes specifications, production methods and service delivery processes etc.

2 Understanding Specs: Segmenting spend into categories and sub-categories is usually sufficient whenever estimating prospective savings. Part of the category strategy should go into greater detail in order to find cost reduction opportunity and this needs to be scheduled as part of the process. A great deal of analysis is necessary to do this. It must get into the smallest details of a constituent part of a product or a service because these could be the principal drivers behind the cost price. When successfully completed, analysis of the conclusions to ascertain value is possible. For instance, this can be linked to the performance specification for part numbers of electronic components, departure schedules for defined flight sectors, or even the addresses of high street network branches receiving alarm system reactive maintenance.

3 End Product Linkage: To appreciate specifically what products link to other sorts of products (or services) used by end customers the particular suppliers sub-categories will have to be matched up with the finished item. One of the plus sides of this for your supplier is that they are much nearer to the thinking of the consumer. This might be convincing when discussing an improved cost price.

4. Benchmarking and Unit Value: Breaking up costs down to the individual unit helps establish a benchmark value. Spend is simply divided up with a variable that’s appropriate such as height or customer feedback. This enables benchmarking across different suppliers or parts of a business, to ensure that variances in general performance will be identified. Cost reduction takes place when very good habits are recognised and then shared while undesirable practices are removed and / or re-engineered. A good example of this method applied by ourselves, was the analysis of unitised total FM costs in each square metre across eighty depots for a English coach business.

5 The Value of Operations Data: Purchasing a alternate product or service that directly compares with the previous one is straightforward to validate in terms of price difference. But, when a alternate provides a totally different anticipated performance, the verification of any price difference could be more problematic. That’s where the overlay of operations knowledge could very well enable a total cost of ownership (TCO) assessment to take place and more complex opportunities and associated cost differences verified. For instance, these types of total cost opportunity scenarios could happen where a brand new chemical is used which is twice as effective as the former one, or where a new oil filtration system for a vehicle is claimed to be able to last x kilometers further before buying a replacement, compared with the current filtering system.

The ‘Procurement Ready’ Knowledge Model

Working with a consistent approach to Procurement data helps whenever discovering and quantifying an opportunity. Dig up more about geobotany izcvolqepycqwhpsc uncorrectly by browsing our striking article. Knowing which value levers to pull is the main skill for many category managers to find a cost reduction opportunity.

Supply Chain Footprints:

This requires mapping 1st level suppliers and also identifying the geographic regions from where they supply the organization. The next task is to map further levels of the supply chain and linked manufacturing addresses. Identifying these particular addresses means that important supply chain risks are able to be looked after including assurance of supply; reputation as well as, business costs.

6. Overlaying Profitability and Revenue: By reviewing end product sales revenue and productivity overlays you are able to detect target areas where procurement activities will be used to sustain and / or increase existing levels of sales revenue and profit. Instead of focusing on the cost of unique part numbers or sub-categories, the cost of these are grouped together around a consumer end product or service. Cross-functional groups are able to get the job done collaboratively either to determine possible cost reduction opportunities or retain the reassurance of high revenue sales. By working in this way, cross category opportunities might also be discovered which may not have been identified by pursuing the individual category centred way of working.

7 Supplier Perception Data: This is structured qualitative feed back from suppliers and internal stakeholders regarding the existing state of a relationship. This process will often flush out exactly where things are progressing both well and not very well. It can help to determine how significant the business is as a customer to the supplier. Questions you should ask will include: How well do the strategic agendas of both sides align? How effectively does the working relationship work? How well are the organisation’s commercial requirements being delivered through the relationship? What improvement business opportunities are available? Using this feedback and accepting it is not easy but category managers will find it important whilst talking about strategy.

8 Overlaying Market Data: Bypassing important sector knowledge such as commodity prices would likely clearly be a mistake. Tracking all changes in very important areas such as these is essential both for cost reduction opportunities and also for the good of the suppliers sales and profits.

9. Consumption Profile This can be useful to have an understanding of if the organisation has got an end consumer demand profile which isn’t flat, and can vary during the year. This empathic approach with suppliers will help your SRM (Supplier Relationship Management) as their particular demands are better understood and prepared for.

Summary & Recommendations for Action:

You may at this stage like to check out the Knowledge Hub operated by Future Purchasing Procurement Transformation Consultants UK. that has a great deal of related information.

Using a higher quality “Procurement Ready” knowledge base, developing a strong category strategy is easier and quicker. The likelihood of successful change programs are improved as a result. Taking this methodology is known as a characteristic of top rated category management exponents and frequently can result in in excess of 45% additional savings compared to those where the approach is less vigorous.

Making certain that every one of the category managers stick to the same exact process is crucial and so the process needs to be mapped out to guarantee consistency.

Another development we have seen, from the leading companies, is to create a expert operation inside the procurement team specialising in providing this data ,freeing up the category management team to make use of the knowledge for their strategic thinking.

Prioritising the need for a Knowledge base is fundamental to success and has to be designed and prioritised in order to improve ways of working.

Overlooking Category Management in modern-day purchasing departments is no longer an option and should be prioritised.

Both public and private sector organisations should deliver procurement kpi’s efficiently and accurately. Putting into action a ‘Procurement Ready’ strategy is an integral building block to generate significant value much faster. A procurement consultant can be invaluable in saving time, energy and money whilst beginning this journey and its highly recommended..

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