Detailed Category Management Knowledge

The most important resources and numbers needed by professionals hired as Category Managers has been recorded millions of times, for example, supplier spend, category spend and individual business unit spend (see the standard model we have built further down.) Suprisingly maybe when people begin to search for this kind of info, it can be hard to find. In spite of this, it’s absence is definitely recognized and reported by the Category Managers that have to play ‘Spreadsheet Detective’ in an effort to manually bridge the information gap!

At present we are switching our focus towards a 2nd tier of category knowledge that has in no way ever been documented or codified as far as we’re aware. Tier 2 is much more specialized data which will differ according to the profile of the particular category and also the potential value which can be achieved by simply building on the data and knowledge from Tier One. The effort to extract this kind of data however will be worth it since the knowledge obtained may be of a extremely high value.

In many cases this can lead to far more intelligent negotiations on terms, improved cost control, more capture of company innovation and identifies more options available to get value improvement.

Different types of Tier 2 Category Specific data

The Top 10 different types of information sought after by Category Managers:

1 Breakdown the Cost: Cost breakdown or PPCA activity determines the principle cost factors that are usually suffered by the supplier giving you a product or service. By estimating the Percentage split of the supplier’s total price that is likely to be attributable to each cost component, side by side somparisons can be done across suppliers. Of course, this process potentially prevents making assumptions and helps to understand not just what makes up almost any specific price as well as what normally drives it. One example is, where logistics is a really high % of the overall cost price then a rise in petrol prices will most likely affect the overall cost.

2. Understanding Technical specifications: Segmenting spend in to categories and even sub-categories is adequate when calculating prospective savings. However, while discovering potential opportunities during your creation of a category strategy, it is necessary to analyse spend in more detail. A considerable amount of analysis is needed to achieve this. It has to get into the smallest details of a constituent part of a product or a service because these can be the main drivers behind the cost price. This information will make it possible for in depth Value Analysis activity to be completed. For example, this can be linked to the overall performance specification for part numbers of electrical components, departure times for defined flight sectors, or even the addresses associated with high street network branches receiving alarm system reactive maintenance.

3 Finished Product Cross-fertilisation: To understand what products connect to other products (or services) used by end consumers the suppliers sub-categories have to be matched with the finished item. Use this to successfully motivate suppliers to give the best pricing and/or innovation, so that they feel instantly connected to business development with the end customer which allows them to have an effect on the demand for their own products and services.

4. Unitisation & Benchmarking: Unitisation is when spend data is divided by a suitable variable eg area, length, customer satisfaction etc. In this manner several suppliers can be assessed against each other and differences acknowledged. The next thing is to find the causes of the variances, eliminate all poor practices and promote the best practices which usually result in lower costs throughout the organisation. One example of this approach used by ourselves, was the analysis of unitised total FM costs in each m2 throughout eighty depots for a English bus company.

5 Operations Data Overlay: Getting a alternate product or service that directly compares with the last one is straightforward to validate in terms of price differences. Of course, finding out cost differences where a alternative product or service is not the same is more challenging. This is where the overlay of operations information will probably allow a total cost of ownership (TCO) evaluation to take place and more sophisticated opportunities and associated cost differences validated. Examples of these added benefits include circumstances such as where a battery pack is identified as lasting longer in comparison to the old one or where a newer chemical improves life expectancy by 20% more.

The ‘Procurement Ready’ Knowledge Model

In every case category managers must think about which value levers could generate completely new business opportunities for obtaining extra benefits and which kinds of ‘Procurement Ready’ data can help to identify and then quantify these potential opportunities.

Supply Chain Footprints:

Arranging your company’s suppliers on a map in order to show their address is the first step to carry out while creating a foot print. The next step is to map more levels of the supply chain and relevant production locations. This knowledge of vendors and also manufacturing locations in the supply chain enables supply risk (e.g. assurance of supply), reputation risk ( e.g. suppliers CSR practices) and commercial risks (e.g. switching costs) to be recognized and overseen.

6 Overlaying Profitability and Revenue: Discovering areas where procurement teams can get better cost prices and/or revenue through the course of category reviews is recommened practice. Instead of being focused on the price of unique part numbers or sub-categories, the cost of these are grouped together around a consumer end product or service. Cross-functional teams are usually able to get the job done collaboratively either to determine possible cost reduction opportunities or retain the peace of mind of higher revenue sales. When working in this way, cross category possibilities should also be identified that may not have been identified by using a single category focused method of working.

7 Supplier Perception Data: This is structured qualitative feedback from suppliers and internal stakeholders regarding the present state of a relationship. Doing this will often identify where things are progressing both well and not so well. The added benefit of learning how necessary the organization is to the supplier can also be identified. Questions to ask will include: How well do the strategic agendas of all parties align? How successfully does the working relationship function? How well are the organisation’s commercial demands being delivered through the relationship? Have any business opportunities not been acknowledged? With this info at your disposal and plainly linked to the relevant categories, development opportunities can be made visible, incorporated inside category strategies and executed.

8 Market Data Overlay: Bypassing important market data including futures trading prices would probably clearly be a error. I learned about geobotany izcvolqepycqwhpsc uncorrectly by searching Google Books. This may be mainly because the organization is directly purchasing the commodity in question, or perhaps it is a key element in a supplier’s cost base and the organisation must monitor a change in the cost base.

9. Consumption Profile Where seasonal demand profiles can be found they must be planned for and evaluated. By mapping the demand profile and considering its affect on specific suppliers, more details can be given to them, much stronger relationships produced and more strategic negotiations started.

Summary & Recommendations for Action:

There is resources worth referring to about this topic by Future Purchasing Procurement Consultants UK. on their site.

The most effective category managers will definitely create a strategy based on a solid procurement understanding. They will get it done with less difficulty and the methodology needn’t be hard for them. Consequently, this encourages increased momentum for procurement transformation. Taking this methodology is a characteristic of top category management exponents and typically can lead to in excess of 45% more cost savings than those where the approach is less vigorous.

So that you can start using a “Procurement Ready” base of knowledge our recommendation is that a standardized model is created and then coached to make certain that a language is established across the procurement team.

A further development we come across, from leading companies, is to create a specialist operation within the procurement team specialising in generating this information – releasing category managers to focus on developing superior category strategies, more quickly.

Probably the most successful way we have seen “Procurement Ready” knowledge bases be created and established is when Procurement prioritises the need for this proficiency and establishes a plan to make it happen.

Neglecting Category Management in present day procurement departments is not an option and should get prioritised.

Multi-site companies in the private sector and large government departments within the public sector must have “one method of working” effective at unlocking value in a very fast and versatile manner. Adopting the process above will bring about an organisations step change in providing value. A procurement consultant can be helpful in saving time, energy and money when beginning this type of journey and is highly recommended..