We all have frequently considered the essential information and data to which Category Managers require access. e.g. spend by service provider, category, business unit etc. – there’s a decent example of this mapped out in the following paragraphs. For the reason that we have pointed out, this data is normally much less readily obtainable as would be liked. Category management experts can be found pulling their hair out wrestling along with overworked and / or under prepared records of many different types in order to find the info they must have to complete a complete picture of the categories state of affairs.
At present we are turning our focus to a 2nd tier of category information which has not ever been written about or codified so far as we are aware. The secondary level data is of a granular kind and definitely will vary significantly between categories significantly when even the most simple questions have not already been answered. The time and effort to acquire this knowledge however will be worthwhile since the information acquired may be of a very high value.
The main importance of putting in the additional effort is gained whenever negotiating with suppliers as the information gained can give valuable insight to costs and determine opportunities to go after a reduction and / or add value sufficient to provide a transformation to the relationship with the supplier also making management of them much easier.
10 ways Procurement Teams use category knowledge
We have identified 10 types of Tier 2 category specific information:
1. Cost Breakdowns: Cost breakdown or PPCA action figures out the key cost factors that are generally incurred by the supplier giving you a product or service. By calculating the % split of the supplier’s price that is likely to be attributable to every cost component, side by side somparisons can be done across suppliers. Obviously, using this method also avoids making assumptions and helps to understand not only what makes up almost any particular price as well as what drives it. As an example, where logistics is a really high % of the total cost price then a hike in petroleum prices will definitely impact the total cost.
2 Understanding Specs: When looking for savings from a supplier, this kind of categorisation strategy is a major help. However, when discovering opportunities during the creation of a category strategy, it is vital to review spend in depth. A great deal of analysis is required to do this. It must go into the smallest details of a constituent part of a product or a service as these could be the most important drivers driving the cost price. This information will make it possible for detailed Value Analysis activities to be performed. Do not disregard the tiniest detail of any products or services, it might be the key to the next opportunity to minimize cost.
3. Finished Product Cross-fertilisation: This calls for an awareness about which sub-categories provided by the supplier are utilized in which finished products provided to customers and then making this accessible to the supplier. Just one of the plus sides of this for the supplier is that they are much closer to the thinking of the consumer. This might be powerful while discussing an improved cost price.
4. Benchmarking and Unit Value: Breaking up costs down to the single unit helps to establish a benchmark value. Spend is simply divided by a variable that’s appropriate such as height or customer feedback. This allows benchmarking across different suppliers or parts of a company, in order that variances in general performance are often identified. Cost reduction occurs when good habits are identified and then shared while damaging processes are got rid off or re-engineered. An example of this approach applied by ourselves, was the analysis of unitised total FM costs per square metre in eighty depots for a British bus business.
5. Operations Data Overlay: Cost variations among alternative products or services which are exactly like the original product are typically straightforward to assess. Of course, identifying price variations where a alternative product or service is not the same is a lot more challenging. Evaluating the total cost of ownership can be accomplished with the aid of operations data which in addition to verifying pricing variances may well realise far more potential opportunities. For instance, these total cost opportunity scenarios can take place where a brand new chemical is used which is twice as effective as the previous one, or where a latest motor oil filter for a motor vehicle is claimed to last x miles longer before replacement, compared to the present filter.
Modelling Knowledge in Procurement
Developing a standardised approach to Procurement Information assists you when discovering and consequently quantifying an opportunity. Being familiar with which value levers to pull is a vital skill for almost all category managers to look for a cost reduction opportunity.
The Supply Chain Footprint:
This requires mapping 1st level suppliers and then identifying the geographic locations from where they supply your business. 1 step over and above this is to map the location of minor suppliers and more importantly exactly where products and services involved in the chain originate. This knowledge of suppliers and manufacturing addresses in the supply chain allows supply risk (e.g. guarantee of supply), reputation risk ( e.g. suppliers CSR practices) and commercial risks (e.g. switching costs) to be identified and then overseen. To learn more, please check out: geobotany izcvolqepycqwhpsc uncorrectly.
6 Overlaying Profitability and Revenue: By looking at end product sales revenue and profitability overlays you are able to discover particular target areas where procurement activities will be used to help support or improve existing levels of income and profit. The attention will now be on the consolidated costs of completed products or services. Cross-functional groups are able to work collaboratively either to determine probable cost reduction opportunities or retain the confidence of high revenue sales. When working in this way, cross category opportunities are usually discovered that might not have already been identified when pursuing the individual category targeted way of working.
7 Supplier Perception Data: Measuring the supplier relationship can be performed both internally in the company but also, even more importantly by the suppliers theirselves. Carrying this out will often flush out exactly where things are running both well and not so well. The additional benefit of learning how significant the organization is to the supplier may also be identified. Typical subject areas asked about may include: How well do the tactical activities of the two of you align? How successfully does the working relationship work? Is the relationship successfully providing the benefits necessary for the organisation? Have any potential opportunities not been acknowledged? By having this data 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 Market Data Overlay: Market place information that include utility costs, metals costs, chemical costs, labor costs etc. should be available to relevant purchasing team members. Tracking any changes in very important areas like these is crucial both for cost reduction opportunities and also for the good of the suppliers profitability.
9 Consumption Profile Anywhere seasonal demand profiles can be found they need to be prepared for and analysed. This kind of empathic approach with suppliers assists your SRM (Supplier Relationship Management) as their requirements are better understood and planned for.
Next Steps and Insights:
You may at this point wish to take a look at the Knowledge Hub operated by Future Purchasing Procurement Transformation Consultants. which has a wealth of important information.
The very best category managers will definitely develop a strategy based on a solid procurement knowledge. They will do it with less difficulty and the methodology is straightforward for them. As a result this builds greater momentum for change. Investing in this strategy is a hallmark of top rated category management exponents and typically can result in over 45% more savings compared to those whose approach is less vigorous.
To be able to use a “Procurement Ready” base of knowledge our recommendation is that a standardized process is created and trained to ensure that a vocabulary is established across the procurement team.
Another development we have seen, at leading organisations, is to create a specialised operation inside the procurement team specialising in developing this data ,freeing up the category management team to use the data for their strategic thinking.
Prioritising the requirement for a Knowledge base is fundamental to being successful and has to be structured and prioritised in order to improve ways of working.
Making category management a core business competence of modern procurement departments should be a top priority.
Both public and private sector organizations must supply procurement kpi’s correctly and competently. Putting into action a ‘Procurement Ready’ strategy is an essential building block to deliver outstanding value faster. Selecting the right procurement consultancy that can help you through the process is often the best way to go and avoiding a variety of hurdles out there..