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Sourcing is all about making the right buying choices, while category intelligence helps procurement organizations make the right “buy or no buy” decisions. Over a period of time, category intelligence has begun to play a strategic role by helping procurement to sustain cost optimization opportunities. However, only a fraction of category managers currently maintain comprehensive category intelligence documents.
Now let us look at how category intelligence adds dynamism to procurement decision making.
- Access to the Right Type of Market Information
Sourcing managers will have to keep track of multiple marketplaces to be really on top of their game. For example, a purchasing manager in charge of buying Printed Circuit Boards (PCBs) will have to have access to information relating to the pcb market, supply, cost, and pricing analysis. And not just that – sourcing teams need access to find data on cost, TCO models, and performance benchmarks. All of these need to be weaved in along with macroeconomic and regional trends impacting cost, supply, and other market dynamics.
- Supplier Selection – Finding the Right-fit Supplier
While there are multiple suppliers in the market, identifying and selecting the right supplier that can fulfill the organizational requirement is time-consuming for procurement professionals. Finding the right supplier to fulfill an organization’s business needs can take weeks or months. Who has time for that these days?
A good Category Intelligence report should not only contain a list of suppliers but also call out relevant suppliers for the purchasing organization. This can be done based on the internal context given to third-party research firms should a company choose to hire their services.
- Curtailing Maverick Spend
Maverick spend is an unplanned or uncontrolled spend, which increases the overall cost of procurement. A department may be prompted to buy materials or services independently, without involving the procurement teams. And such lack of centralized procurement system often leads to this problem.
For a large manufacturing company, maverick buying accounts for 30 to 45 percent of all indirect purchase value. For a smaller company, it may account for more than 80 to 90 percent of indirect purchase value.
A category intelligence report that provides easy access to vendor details and product/service prices could be handy as the information can be shared internally with business stakeholders in order to avoid maverick orders. Also, category intelligence empowers procurement managers to negotiate with suppliers for better pricing and save costs through consolidated purchases.
- Measurement of Supplier Performance
Assessing supplier performance is an essential element of procurement operations. More often than not, key performance indicators (KPIs) and benchmarking data are not commonly available, which makes measuring supplier performance a tough task — especially in several categories that fall under Indirect spend.
Organizations can benchmark their suppliers against industry peers to identify problem areas by effectively using market intelligence. This helps them to make informed decisions on supporting the suppliers in improving their performance and competitiveness.
A good category intelligence report should also list out KPIs and benchmarking data, which will help in effective supplier management.
- Simultaneous Tracking of Multiple Marketplaces
While generic category intelligence is widely available in the alleyways of the internet, it’s not always easy to locate relevant, reliable, and specific intelligence that would fit the buyer’s sourcing context. On-demand market intelligence provides the necessary inputs such as market size, market potential, and supplier coverage for businesses looking at market expansion. Since each market varies in terms of demand and supply, procurement teams can adopt market intelligence to make decisions that suits both their global as well as regional operations.
For instance, environmental and sustainability measures taken by various governments across the globe are expected to support a growth in the recycling of PCBs. Development of PCB designs, which can maximize the utilization and minimize cost, including replacement of base materials, are expected to gain currency in the months to come. Category Intelligence will help procurement to track many such market developments.
- Effective Utilization of Time
Procurement teams always run a tight schedule. And amidst the constant factor of time-crunch, gathering intelligence may not be a priority as it can be both a labor and time-intensive effort. Also, not all organizations have a full-sized category intelligence team to be constantly surveying the markets and suppliers.
Deep sourcing is done for more strategic categories where procurement managers would spend a lot of time to understand the market and market players. This is done so that the teams are better positioned to form a mid- to long-term strategy. During deep sourcing, category intelligence of varying depths is continuously sought in order for procurement teams to be prepared for negotiation and also to sanity check supplier input and arguments.
Conclusion
Overall, one should be clear about when and how to use category intelligence during the sourcing cycle. If used well, category intelligence can add an extra dimension to purchasing decisions.
About Beroe
Beroe is unique in its exclusive focus on Procurement. We enable Procurement decision making in Fortune 500/G2000 companies by providing access to category specific market intelligence, risk management and green procurement services across the globe.
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