The most essential information and numbers essential for people employed to work as Category Managers has been documented countless times, e.g. Category Management Consultants is a wonderful resource for supplementary resources concerning the purpose of this view. If you know anything at all, you will perhaps desire to explore about rate us online. spend by supplier, category, small business unit etc. — there’s a really good example mapped out further down. Suprisingly perhaps when most people come to search for this type of info, it can be difficult to locate. Category management experts can be heard ripping their hair out wrestling with over-worked or under prepared files of numerous different types in order to find the information they will need to complete a full picture of the categories situation.
Right now we are switching our focus towards a 2nd tier of category information that has not ever been documented or codified so far as we’ve been informed. Tier Two is a lot more specialized data that will vary depending on the profile of the particular category and also the potential value which may be achieved by simply building on the data and knowledge out of Tier One. The effort to obtain this kind of information however will be well worth it since the data acquired may be of a very high value.
In many cases this can lead to far more intelligent negotiations on terms, much better cost control, more capture of supplier innovation and also pinpoints further options available to get value improvement.
Ten ways Purchasing People profit from category information
The Top Ten different kinds of knowledge wanted by Category Managers:
1. Cost Breakdowns: Cost breakdown or PPCA action establishes the primary cost elements that are suffered by the supplier providing a product or service. By simply calculating the % share of the supplier’s total price that is going to be attributable to each and every cost component, comparisons can be done across suppliers. Of course, using this method also prevents making assumptions and will help to recognise not only what makes up any specific cost as well as exactly what drives it. For instance, wherever logistics is a high % of the overall cost price then a increase in gasoline prices will probably impact the overall cost.
2 Understanding Specs: When you are evaluating cost savings from a supplier, this categorisation technique is a major help. However, whenever discovering potential opportunities during the development of a category strategy, it’s really important to analyse spend in greater detail. This involves the analysis of the specific part numbers and / or services purchased, identifying the technical specs and/or performance behind them and connecting all of them to the related costs and volumes. Once completed, analysis of the findings to establish value is possible. You should never disregard the tiniest detail of any product or service, it may be one of the keys to the next chance to reduce cost.
3. End Product Linkage: This calls for an awareness of which sub-categories provided by the supplier are utilized in which end products sold to customers and making this accessible to the supplier. On the list of plus sides of this for the supplier is that they are considerably nearer to the thinking of the customer. This might be powerful when negotiating a better cost price.
4 Benchmarking and Unit Value: Unitisation is where spend information is divided by a relevant variable such as area, length, customer satisfaction etc. This allows benchmarking across varied suppliers or parts of a company, so variations in performance will be identified. The next phase is to look for the reasons behind the variances, eradicate all poor practices and talk about the best practices which usually result in lower costs across the organisation. One example of this approach applied by ourselves, was the analysis of unitised total FM costs per m2 in 80 depots for a UK bus company.
5 The Value of Operations Data: Pricing differences among substitute products or services that are exactly the same as the very first product tend to be simple to assess. Naturally, figuring out cost variations when a replacement product or service is different is far more troublesome. This is when the overlay of operations data will probably enable a total cost of ownership (TCO) analysis to take place and many more sophisticated potential opportunities and related cost differences checked. For instance, these total cost opportunity situations could happen when a new compound is used which is two times as successful as the previous one, or where a modern engine oil filtration system for a motor vehicle is claimed to be able to last x kilometers longer before replacement, in comparison with the present filtration system.
The ‘Procurement Ready’ Knowledge Model
Creating a consistent approach to Procurement Information can help when analyzing and quantifying the opportunity. Knowing which value levers to pull is the main skill for almost all category managers to identify a cost reduction opportunity.
Supply Chain Footprints:
This involves mapping 1st tier suppliers and then identifying the geographic sites from which they supply your company. The next task is to map additional tiers of the supply chain and associated production facilities. This knowledge of suppliers and manufacturing locations in the supply chain enables supply risk (e.g. assurance of supply), reputation risk ( e.g. vendors CSR practices) and commercial risks (e.g. switching costs) to be recognized and then overseen.
6. Overlaying Profitability and Revenue: Discovering areas where procurement teams will be able to make improvements to cost prices and/or sales 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. During this period people from several other departments tend to be important in helping to verify opportunities to help reduce cost. One of the greatest benefits however as a result of working across all different categories is that many more potential opportunities are exposed to the category buying people.
7 The Suppliers View on Data Measuring a supplier relationship can be performed both internally in the company but also, most importantly by the suppliers theirselves. It discovers areas of weakness and potential areas for development in relationship quality. It assists you to identify how significant the organization is as a customer to the supplier. Questions you should ask will include: Are the procedures aligned? How effectively does the working relationship function? Is the relationship appropriately supplying the benefits necessary for the organisation? Specifically what improvement business opportunities are readily available? Using this feed back and then accepting it is not always easy nevertheless category managers will find it very useful when discussing strategies.
8 Overlaying Market Data: Marketplace information such as energy costs, metals prices, chemical costs, labor rates etc. really needs to be made available to relevant procurement team members. Monitoring any changes in essential areas such as these is essential for both cost reduction opportunities as well as for the good of the suppliers profitability.
9. Consumption Profile Anywhere seasonal demand profiles are found they should be prepared for and evaluated. When mapping this demand profile and consequently considering its effect on certain suppliers, more details could be given to them, much stronger business relationships developed and more strategic negotiations started.
Next Steps and Insights:
You will find help and advice worth referring to about this topic by Future Purchasing Procurement Consultancy. on their site.
The best category managers will definitely develop a strategy based on a sound procurement knowledge. They’ll get it done with less difficulty plus the approach needn’t be hard for them. The odds of successful transformation programmes are improved as a result. Investing in this method is regarded as a characteristic of leading category management exponents and typically can result in in excess of 45% additional savings than those whose methodology is less vigorous.
So that you can implement a “Procurement Ready” knowledge base we recommend that a standardized method is developed and also properly trained to make sure a language is established throughout the purchasing team.
The most forward thinking businesses have champions of this methodology whose duty it is to make sure that the procurement knowledge database is always updated ,freeing up the category management team to use the knowledge in their strategic thinking.
The most successful way we have seen “Procurement Ready” knowledge bases get put together and established is when Procurement prioritises the need for this capability and establishes a plan to achieve it.
Making category management a core commercial competence of modern procurement teams should be a high priority.
Both public and private sector businesses must supply procurement kpi’s correctly and accurately. Adopting the process above will bring about an organizations step change in providing value. A procurement consultant will be beneficial in saving time, energy and money when beginning this journey and its highly recommended..