Detailed Category Management Knowledge

We all have often considered the fundamental information and knowledge to which Category Managers need access. e.g. spend by supplier, category, small business unit etc. (see the standard model we’ve built further down.) Suprisingly maybe when most people come to seek out this type of information, it’s not easy to locate. Category management individuals can be found ripping their hair out wrestling along with over-worked and / or under prepared documentation of countless different sorts to find the data they need to complete a 100 % picture of the categories situation.

Right now we are turning our focus to a second tier connected with category information which has not been documented or codified as far as we’ve been aware. Tier Two is much more specialised information which will differ according to the profile of the particular category and the potential value that might be obtained by simply building on the information and knowledge out of Tier One. The time and effort to extract this kind of data however will be worth it as the knowledge acquired can be of a very high value.

The main importance of putting in the additional effort is gained whenever negotiating with suppliers because the knowledge obtained will give important insight to prices and determine opportunities to go after a reduction and / or add value sufficient to provide a transformation to the relationship with the supplier at the same time making management of them less difficult.

Types of Tier 2 Category Specific Knowledge

The Top 10 distinct types of knowledge preferred by Category Managers:

1 Breakdown the Cost: Cost breakdown or PPCA action establishes the primary cost factors that are usually incurred by the supplier giving you services or products. By calculating the Percentage share of the supplier’s price that is going to be attributable to each cost component, side by side somparisons can be done across suppliers. Cost breakdowns also build greater understanding of fundamental value drivers such as specifications, manufacturing processes plus service delivery operations for example.

2. Understanding Technical specs: Segmenting spend in to different categories and even sub-categories is sufficient when estimating possible savings. However, whenever discovering potential opportunities during the development of a category strategy, it is important to analyse spend in great detail. A considerable amount of analysis is required to do this. It has to go into the smallest detail of a constituent part of a product or a service because they may be the principal drivers behind the cost price. This data will make it possible for detailed Value Analysis activities to be succesfully done. Remember not to disregard the smallest details of your products or services, it could be the key to a new opportunity to help reduce cost.

3. Finished Product Cross-fertilisation: To appreciate what products connect with other sorts of products (or services) used by end consumers the suppliers sub-categories really needs to be matched with the finished product. One of the plus sides of this for your supplier is that they are much closer to the thinking of the consumer. This can be persuasive when discussing a better cost price.

4. Unitisation & Benchmarking: Unitisation is when spend information is divided by a suitable variable such as area, length, customer satisfaction etc. This enables benchmarking across diverse suppliers or parts of a company, to ensure variations in performance can be identified. The next task is to find the causes of the variations, remove any poor practices and then talk about the best practices that result in lower costs throughout the organisation. An example worth sharing is where the total cost for every retail store of marketing spend led to local accents being used for television ads.

5. Operations Data Overlay: Cost variations between alternative products or services that are exactly the same as the original item have always been simple to measure. On the other hand, when a substitution has got a different predicted general performance, the validation associated with a cost variation is much more difficult. Reviewing the total cost of ownership can be carried out by using operations data files which in addition to validating cost differences may well realise far more opportunities. For instance, these kind of total cost opportunity situations could happen when a new chemical is used that’s twice as successful as the old one, or when a modern engine oil filtration system for a motor vehicle is claimed to last x miles longer before replacing, compared to the present filtration system.

The ‘Procurement Ready’ Knowledge Model

In all cases category managers will need to give some thought to which value levers are likely to generate brand new business opportunities for the purpose of obtaining additional value and what types of ‘Procurement Ready’ knowledge can help to identify and quantify these opportunities.

Supply Chain Footprints:

This involves mapping 1st level vendors and also pinpointing the geographic regions from which they supply the organisation. The next thing is to map more layers of the supply chain and linked manufacturing locations. Identifying these addresses means that crucial logistics risks are able to be looked after including assurance of supply; standing and ultimately, business oriented costs.

6 Overlaying Profitability and Revenue: When evaluating end product sales revenue and productivity overlays you’re able to find target areas where purchasing activity will be used to sustain and / or boost existing levels of earnings and profit margin. Rather than concentrating on the price of unique part numbers or sub-categories, the price of these are typically grouped together around a customer end product or service. Cross-functional teams are able to do the job collaboratively to either determine probable cost reduction opportunities or retain the peace of mind of high revenue sales. One of the biggest benefits however as a result of working across all of the different categories is that many more potential opportunities are exposed to the category purchasing people.

7 The Suppliers View on Data This is structured qualitative responses coming from suppliers and internal stakeholders relating to the present state of a relationship. The process can identify where things are progressing both well and not very well. It helps you to identify exactly how significant the organization is as a customer to the supplier. Things to ask will include: Are your tactics aligned? How effectively does the working relationship work? How well are the organisation’s business requirements currently being delivered through the relationship? Have any business opportunities not been identified? By having this information easy to get at and plainly linked to the appropriate categories, improvement opportunities can be made visible, integrated throughout category strategies and implemented.

8. Market Data Overlay: Marketplace information such as utility prices, metals prices, chemical costs, labor costs etc. My boss discovered geobotany izcvolqepycqwhpsc uncorrectly by browsing webpages. need to be made available to appropriate purchasing team members. This may be simply because the organisation is directly buying the thing in question, or it’s a key element in a supplier’s cost base and the organisation must keep track of a change in the cost base.

9 Consumption Profile This is beneficial to understand if the organisation has got an end consumer demand profile that is not flat, but varies throughout the year. This empathic approach with suppliers assists your SRM (Supplier Relationship Management) as their particular requirements are better understood and planned for.

Next Steps and Insights:

You might at this point wish to check out the Knowledge Hub run by Future Purchasing Procurement Transformation Consultants UK. that has a wealth of help and advice.

By using a higher quality “Procurement Ready” knowledge base, developing a robust category strategy is easier and quicker. Consequently, this builds greater momentum for procurement transformation. Investing in this method is known as a hallmark of top category management exponents and typically can lead to more than 45% more cost savings than those where the methodology is less demanding.

Ensuring that all of the category managers stick to the exact same method is crucial so the method has to be mapped out to ensure consistency.

The most forward thinking businesses have champions of this methodology whose duty it is to ensure that the procurement knowledge database is always up-to-date ,freeing up the category management team to use the information in their strategic thinking.

One of the most successful way we have seen “Procurement Ready” knowledge bases be produced and developed is when Procurement prioritises the desire for this proficiency and creates a plan to achieve it.

Neglecting Category Management in present day purchasing departments is no longer an option and must get prioritised.

Multi-site companies from the private sector and large gov departments inside the public sector need to have “one method of working” capable of unlocking value in a fast and versatile way. Following the method above will bring about an organizations step change in providing value. A procurement consultancy will be beneficial in saving time, energy and money whilst beginning this type of journey and is highly recommended..

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