The most important data and numbers required by professionals working as Category Managers may possibly be documented countless times, e.g. spend by service provider, category, business unit etc. (see the standard model that we have produced in the following paragraphs.) For the reason that we have pointed out, this data is frequently much less readily available as would be liked. Yet, it’s absence is definitely known and reported by the Category Managers that have to have fun playing ‘Spreadsheet Detective’ in an effort to manually close the information gap!
Today we're switching the focus to a 2nd level regarding category knowledge which has in no way ever been written about or codified as far as we are aware. This kind of secondary level information is of a granular variety and will differ considerably between categories notably where even the most basic queries have not already been addressed. Your time and effort to acquire this kind of knowledge however is definitely well worth it as the knowledge acquired is usually of a very high value.
The main importance of putting in the extra effort is found when negotiating with suppliers because the information gained gives beneficial insight to operating costs and identify the opportunity to go after a reduction and / or add value enough to provide a transformation to the relationship with the supplier furthermore making management of them less complicated.
Top 10 ways Procurement People benefit from category knowledge
We've recognised 10 types of Tier 2 category specific data:
1 Cost Breakdowns: Purchase Price Cost Analysis (PPCA - a different name for “cost breakdown†is considered the process associated with identifying the key elements that comprise every particular cost from a supplier for the service (or product). By simply calculating the % share of the supplier’s price that's going to be attributable to every cost component, side by side somparisons can be made across suppliers. Obviously, this process potentially helps prevent making assumptions and will help to recognise not just what makes up any specific price as well as what normally drives it. Visiting category management procurement certainly provides warnings you should tell your mom. For instance, where logistics could be a high % of the overall cost price then a hike in petrol prices will almost certainly impact on the overall cost.
2. Specification Mapping: When looking for savings from the supplier, this kind of categorisation method is a major help. Part of the category strategy ought to go into greater detail in order to find cost reduction opportunities and this should be planned as part of the process. A great deal of analysis is required to achieve this. It has to go in to the tiniest details of the constituent part of a product or a service as these might be the main drivers behind the cost price. This level of detail will enable in depth Value Analysis activities to be completed. Do not ever disregard the smallest detail of your product or service, it may be one of the keys to the next chance to minimize cost.
3 Finished Product Cross-fertilisation: This calls for an awareness about which sub-categories provided by the supplier are being used in which finished products sold to consumers and then making this visible 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 customer. This can be powerful when discussing a better cost price.
4 Benchmarking and Unit Value: Breaking costs right down to the single unit helps establish a benchmark value. Spend is simply divided up with a variable that's relevant such as height or customer feedback. By doing this several suppliers can be assessed alongside each other and differences identified. The next phase is to search for the causes of the variances, get rid of all damaging practices and then talk about the best practices that result in lower costs across the organization. An example well worth sharing is where the total cost for every retail outlet of advertising spend resulted in local accents being used in television advertising campaigns.
5. Operations Data Overlay: The purchase of a substitute product or service that directly compares with the previous one is very easy to validate with regards to price differences. Unfortunately, where a alternate has a different expected general performance, the validation associated with a price difference could be more complicated. This is when the overlay of operations information may make it possible for a total cost of ownership (TCO) analysis to take place and much more complicated opportunities and associated cost differences verified. For example, these types of total cost opportunity scenarios can take place where a brand new additive is used that's twice as effective as the old one, or when a latest motor oil filtering system for a vehicle is claimed to be able to last x miles further before replacing, compared to the present filtering system.
Modelling Knowledge in Procurement
In all cases category managers should give some thought to which value levers are likely to produce new business opportunities needed for obtaining extra value and which types of ‘Procurement Ready’ data will help to identify and quantify these opportunities.
The Supply Chain Footprint:
Plotting your current suppliers on a map in order to show their address is typically the 1st step to carry out while building a footprint. To get extra information, please consider checking out: purchasing consultants. One step beyond this is to chart the address of small suppliers and most importantly where products involved in the chain come from. This knowledge of vendors and also production locations in the supply chain enables supply risk (e.g. guarantee of supply), reputation risk ( e.g. Identify further about purchasing consultants chat by navigating to our tasteful website. suppliers CSR practices) and commercial risks (e.g. switching costs) to be revealed and managed.
6. Revenue & Profitability Overlays: When analyzing end product sales revenue and also productivity overlays you're able to detect particular target areas where procurement activities can be used to support and / or increase existing levels of income and profit margin. Rather than focusing on the price of specific part numbers or sub-categories, the price of these are typically grouped together around a customer end product or service. At this stage people from several other business units tend to be invaluable in helping to validate opportunities to reduce cost. By working in this way, cross category possibilities can also be identified that may not have been identified when following a individual category targeted method of operating.
7. The Suppliers View on Data This is structured qualitative feed back from suppliers and internal stakeholders regarding the existing condition of a relationship. The process will often flush out exactly where things are progressing both well and not so well. It helps you to identify how important the organization is as a customer to the supplier. Questions you should ask will include: How well do the strategic agendas of the two of you align? Is the business relationship with the supplier functioning well? How well are the organisation’s business requirements being delivered through the business relationship? What development opportunities are obtainable? Using this feedback and then accepting it is not necessarily easy however category managers will find it priceless whilst discussing strategy.
8 Market Data Overlay: Marketplace information that include utility prices, materials costs, chemical prices, labour rates etc. ought to be made available to appropriate purchasing team members. Monitoring any changes in important areas such as these is crucial both for cost reduction opportunities and for the good of the suppliers profitability.
9. The Profile of Consumption: Anywhere seasonal demand profiles exist they need to be prepared for and analysed. This empathic approach with suppliers aids your SRM (Supplier Relationship Management) as their particular demands are better understood and prepared for.
Next Steps and Insights:
You can find help and advice worth referring to about this subject by Future Purchasing Category Management Training Consultants. on their website.
Having a high quality “Procurement Ready†base of knowledge, establishing a solid category strategy is quicker and easier. The odds of successful change programs are improved as a result. A ‘Procurement Ready’ base of knowledge is one of the differentiators between Category Management Front-runners and Followers and makes a contribution to the 46% extra savings that Front-runners enjoy compared to Followers.
Making certain that all category managers keep to the same exact method is a must therefore the method has to be planned out to ensure consistency.
The foremost forward thinking businesses have champions of this technique whose role it is to make certain the procurement knowledge database is always updated -- releasing category managers to focus on developing more effective category strategies, faster.
Quite possibly the most effective way we have seen “Procurement Ready†knowledge bases be put together and established is where Procurement prioritises the desire for this capability and creates a plan to achieve it.
Making category management a key business competence of modern procurement departments should be a high priority.
Multi-site organisations from the private sector and large government departments in the public sector need “one method of working†capable of unlocking value in a fast and versatile manner. Implementing a ‘Procurement Ready’ strategy is an essential basis to deliver great value more quickly. A procurement consultancy can be beneficial in saving time, energy and your money whilst embarking on this type of journey and is highly recommended..
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