The Importance of Procurement
In any organization, the procurement department plays a vital role in the successful development of a product. The procurement department, whether related to the fast-moving consumer goods industry or retail, generally refers to the procurement of raw materials. However, the procurement department can be associated either with business continuity activities such as inventory purchasing or for business support like that done for the Information technology department. It is therefore evident that this resource needs effective management. This is where category management comes into play.
According to a study, companies that have successful category management programs have a mean lead supplier time of only 6 days vis a vis the normal time of 14 days.
Some key points associated with the global markets that are to be noted here are:
-Transportation and logistics activities account for 10-12% of global GDP.
-The United States is ranked tenth in terms of trade logistics performance.
-According to 50% of respondents, the transformative capabilities of technologies such as advanced software and AI have a significant impact on their performance.
-It is expected that by 2024, more than 60% of G2000 manufacturing organizations will use advanced technologies such as AI to cut costs by up to 20%.
What are Category Management and Category Intelligence?
Category management is a strategic approach to acquiring raw materials for manufacturing. While sourcing is all about making the right purchasing decisions, category intelligence assists an organization in making the right purchasing “yes” or “no” decisions. This not only aids in resource optimization but also cost reduction.
The term “category intelligence” is not new, but it is surprising that even after the introduction of best practices for category intelligence, category managers have failed to maintain effective category intelligence documents.
The image below illustrates four broad areas that an effective category intelligence system affects.
The Role of a Category Intelligence Manager
This is a specialized role in which a category manager is responsible for a specific function or category of goods or services, such as the purchasing department or stock maintenance units. The role could include a variety of responsibilities ranging from procurement to strategic sourcing, as well as developing a sourcing plan and reporting.
In general, these functions are becoming more specialized, with category managers increasingly requiring specialized degrees in their respective domains.
Process of Category Intelligence
Identifying opportunities, translating trends, understanding the factors, providing guidance, and understanding stakeholder needs are all steps in the category intelligence process. These are explained in greater detail below:
-Identifying Opportunities: This step helps to cut down the cost, reduce the risk of competitors and increase the efficiency of the organization.
-Translate major trends and industry events: The second most important step is to translate these events into an actionable strategy that can be broadly put into categories.
-Understand the underlying drivers: All the underlying factors must be understood completely to understand what will be their business impact.
-Timely Guidance: Time-to-time guidance is provided to reduce the risk in the long-term sustainability of the business.
-Understand evolving business needs and stakeholder demands: This is done to ensure that the strategies and approaches are fitting well.
How category intelligence helps
Intelligent procurement or having an effective category intelligence system can help an organization in several ways. Also known as intelligent procurement, it simply means managing all aspects of vendor spending in one central digital place so that one can have a holistic view of their spending.
-Access to market intelligence:
Sourcing managers will have to keep track of multiple sources of information in order to be on top of things. For example, procurement of food grains requires one to not only be up to date with the prices but also the prices in different markets, the supply and demand dynamics, and the cost implications of various decisions.
-In supplier selection:
Finding the right supplier for an organization can be a challenging task as it requires risk evaluation as well as things such as how reliable a supplier is. This can consume a considerable time as the search for the right supplier entail testing their services as well as making a decision on the long-term reliability of the supplier for an organization.
-Curbing excess spending:
A quick response to changing market dynamics is one of the core tests to check the effectiveness of an efficient procurement department. An effective category intelligence system helps curb any excessive spending by the procurement department by providing correct information and helping in making effective predictions and decisions.
According to a study random, unplanned buying can account for 30-45% of all indirect purchases while in the case of smaller organizations it can account for almost 80-90% of the indirect purchase.
Category intelligence reports empower the procurement department to better negotiate the pricing and terms of agreement with its suppliers.
-Assessing supplier performance:
Getting past data or historical information about the suppliers and establishing benchmarks to assess the performance of suppliers is a difficult challenge for any organization.
A good category intelligence system envisages correcting this situation by not only providing access to data but also benchmarking and forecasting. A good category intelligence report aids in listing KPIs and benchmarking data thereby assisting in effective supplier management.
-Tracking multiple sources of data:
Effective category intelligence helps in tracking multiple sources of data from several marketplaces thereby ensuring ease in information handling. Having an on-demand intelligence system helps with access to previously unknown sources of information such as market size, market potential, and supplier coverage for businesses seeking to grow. Such an intelligence system helps a company in taking care of decisions at a local as well as a global level.
Category intelligence systems not only help in cost savings for a firm but also saves considerable man hours required for gathering and processing data.
Magistral’s Services on Category Intelligence:
Our Category Intelligence services help clients stay on top of indirect categories like Marketing Services, Professional Services, Travel and Lodging, MRO, Information Technology, HR, Transportation, and Utilities, among others. Our insights help corporations build the right category strategy with significant cost benefits.
Our major service offerings are:
-Demand and Market Supply Analysis:
In this analysis, we make category landscape reports, create the demand drivers, identify major players and analyze through Porter’s 5 Force model of analysis.
-Pricing Movements and Forecast:
In Pricing movements, we study the various pricing strategies and perform primary research to obtain quotations and RFPs.
-Major Players and Profiles:
Major company profiles are identified and SWOT analysis is done on them to manage the risk of the companies.
In this analysis of pricing is done and also competitive analysis is taken care of.
In this service, newsletters are made, also the developments across the categories are tracked proactively.
Here, we provide custom direct and indirect sourcing.
In this, all the events are assessed like Geo-political events, Natural disasters.
It is created to have a comprehensive view of category and impacting factors.
About Magistral Consulting
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is in Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research.
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The article is Authored by Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to email@example.com