Category Management Best Practices Following Sourcing
SpendHQ’s CEO, Tom Beaty, joins Ardent Partners Procurement Influencer Series for a discussion around Category Management
SpendHQ’s Tom Beaty continues his conversation with Andrew Bartolini of Ardent Partners in their latest addition of their Procurement Influencer Series. Check out part 1 of this series for a closer look into how procurement organizations can best leverage their data and convert that data to intelligence. In part 2, Tom shares insight into how procurement organizations can identify top categories and establish best practices around the management of those categories.
Andrew Bartolini: So how do you work with clients to identify the top categories? And how do you help them establish best practices around the management of those categories?
Tom Beaty: One of the trends that we’ve seen is that the aperture of procurement has widened significantly, although I don’t think this is “new” news. Advertising Age Magazine had a cover that said procurement has arrived for advertising, and that was five or six years ago. We’re certainly seeing a tremendous uptick in activity in categories that historically we didn’t work in. For example, we’re getting into legal services – we’re negotiating advertising agency agreements for Fortune 500 companies. And we recently created a repair program for retailers that sells and repairs electronics. They had a very localized way of addressing repairs, but it was inefficient and wasteful. So we instituted a national program and it removed about 60% of the costs. I think what’s happening is that the companies that fully buy into procurement really open the doors to anything and everything – essentially anywhere price and terms have to be determined.
The second major trend that we’ve seen and that we’re very excited about (and I think where we’re at the forefront of) is to address the question of “What comes after sourcing?” Because we have so much data with SpendHQ (we have about $1.5 trillion worth of historical data), we see a lot of folks doing great sourcing work and building pipelines, but they’re driving low compliance. On average, about 60% of the spend is going to the correct supplier when a preferred supplier has been identified.
For example, we’ve got a multi-billion dollar retailer for which we sourced about 65 categories, which in my experience is a tremendous number of categories. We hit everything. They engaged us to help manage these categories on a multi-year basis, and we’ve been working with them for four or five years. Every month we get the data from the vendors; we ensure the pricing is correct and that people are using the right contracts by leveraging the spend data from SpendHQ. We’ve developed category management analytics to try to identify new opportunities to remove cost through demand management and other areas. One of the things that was stunning was in many of those categories, the vendor didn’t correctly implement the pricing or they later changed the pricing. So we found that very active category management had to be undertaken to successfully capture all the original savings and then of course hopefully capture more.
To take the example further, we found there was about a 15% potential savings leakage through what I would call supplier non-compliance or gamesmanship. So you take this 15% savings leakage and add it to our 40% internal non-compliance savings leakage – that’s pretty significant. I mean, over half the savings isn’t happening. Long ago, we developed technology to address this for certain categories. Our strategy is that you have to get category specific because the way to optimize every category is a little bit different. For example, temp labor categories are very different than a small parcel shipping – there are different things you analyze. So we’ve developed a category management software at SpendHQ for all our GPO categories – for example, MRO and things like that. Now we’re building an entire business unit around category analytics and category management support. It’s not outsourcing, per se, but it’s going to be very innovative and solve a lot of these issues.
Read the article in its entirety here and dive deeper into specific examples for how organizations can prevent potential savings leakage. For additional category management best practices, check out our webinar recording, “When Sourcing in Procurement Falls Short: Strategies To Effectively Manage Your Categories”.
SpendHQ is a spend analysis solution that provides rapid, accurate and detailed visibility into enterprise spend data. This full-service SaaS (Software-as-a-Service) spend analytics solution delivers actionable insight for sourcing and procurement professionals.
Recognized for innovation and industry impact in the procurement space, SpendHQ was named to the 2015 Red Herring Global 100 list, and listed as a finalist in the 2017 SIIA CODiE Awards as a “Best Big Data Reporting & Analytics Solution” and “Best Data Visualization Technology” solution. With SpendHQ at their fingertips, clients ranging from Fortune 500s to mid-market companies are finally able to see their enterprise spend clearly and drive savings confidently.
As a standalone extension of Insight Sourcing Group, SpendHQ is built by industry leaders with unmatched sourcing knowledge. Inc. Magazine has ranked Insight Sourcing Group among the fastest-growing private companies in America every year since 2008. In 2017, Insight Sourcing Group was also named the #1 Boutique Consulting Firm in the U.S. by Vault.com and the #1 Small Strategy Firm by Consulting Magazine.
Learn more about SpendHQ’s spend analysis solution and start taking control of enterprise spend data at www.spendhq.com and request a free spend analytics demo today.
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CPO Rising is a news and media site written for and about Chief Procurement Officers and other supply management executives. It is also the largest website focused on procurement and supply management. Our mission is to engage executive leaders with a steady stream of top-quality, progressive, and original content. CPO Rising is published by noted analyst, Andrew Bartolini, the Chief Research Officer at Ardent Partners.
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