Supply Excellence — Building Category Credibility

Building Category Credibility

July 10th, 2008 · by Jean-Pierre Lauer · No Comments · best practices, sourcing, supply management

Being confronted with an unknown category can easily make buyers feel uncomfortable, particularly in indirect goods and services, where buyers are likely to influence a higher proportion of the organization’s spend. While supply chain professionals may feel capable of applying procurement techniques to any category, they are often left with the issue of credibility with their internal stakeholders and/or management.

However, building credibility can be as simple as a three step process.

Identify what is important to your stakeholders. The common perception is that category intelligence resides in the knowledge of industry facts, figures and supplier names. Unfortunately some stakeholders will limit their understanding of category management to this information. But if these are their expectations, then they need to be met. Rather than buying expensive market reports, buyers can typically get sufficient information from industry associations and supplier annual reports. Numerous free online supplier directories can help identify potential vendors. However, buyers whose organizations have access to a supplier network will have a significant efficiency advantage.
Research the fundamentals. Knowing the dynamics of a market is an essential step in understanding an unknown category. While the cost drivers of typical expenditure categories are well documented, approaching a new category will require the buyer to establish the cost components himself. A successful approach is to identify the highest cost element, such as labor or raw materials. Another approach is to leverage the suppliers’ knowledge through face to face meetings, however this isn’t a very scientific approach since the results may be biased by a limited number of responses. The safest option is to include questions on the cost drivers and their weightings in your Request For Information. That provides the buyer with a panel of responses to utilize in the decision making process.
Report results. Fulfilling the stakeholders’ expectations in terms of category knowledge is clearly a requirement in establishing a strong, respected procurement department. But at the end of the day, a buyer’s credibility will be measured by the results of the sourcing project and the long term benefits following implementation. Buyers should try not only to report the savings achieved, but also explain the various elements that were fine tuned to achieve success. This process must start early, for example, when preparing the Request For Proposal and its cost breakdown. Buyers explaining the details of the actions and their benefits are more likely to be credited with deep category knowledge by their stakeholders.

Jean-Pierre Lauer is a Category Manager for Services in Ariba’s Global Services Organization. Based in London, Jean-Pierre works with corporations through EMEA.

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