Assessment of the purchasing portfolio As was mentioned in the introduction to this section, the volume of spend in a category may not always be the most reliable guide to its importance. Organisations appear to be using several criteria for selecting their most important categories. The top three are level of spend (79.4%), importance of the supplies in the make-up of the organisation’s products and services (71.1%) and the contribution of the category to profit margins (41.2%).
Figure 15: WHICH OF THE FOLLOWING CRITERIA DO YOU USE TO SELECT THE MOST IMPORTANT CATEGORIES OF PRODUCTS AND SERVICES THAT ARE PROCURED IN YOUR ORGANISATION?
Level of spend Importance of category in the make-up of your products and services Contribution of category to profit margins Underlying risk of category
79.4%
71.1%
41.2%
26.8%
Size of supplier(s)
18.6%
Number of suppliers in category Nature of spend category (e.g. direct versus indirect)
16.5%
11.3%
0
10%
20% 30%
40%
50%
60%
70%
80%
We noted earlier that the majority of survey respondents (73.2%) underestimate the underlying risks when assessing the importance of a category. Using the purchasing category portfolio, a two-dimensional model (see figure 4), enables categories to be assessed on both their contribution to profit margins and their level of supply risk. The top three criteria that organisations use to assess a category are all profit-related considerations, whereas the bottom four criteria are supply-risk-related considerations. There is an inclination towards focusing on profit more than on risk when assessing the importance of a category. That imbalance can lead to inefficient category management as the internal view of the management of a category can help an organisation to optimise the prioritisation of time and effort in developing category strategies and tactics. Cost-saving initiatives Cost saving has always been an objective of a procurement function. However, the participants in our workshops stressed that the demand for cost savings has increased during the past few years as economic stagnation has impacted their businesses. The majority of organisations (75.3%) have designed a programme of cost-saving initiatives, while about one in five have not.
Figure 16: DO YOU HAVE A PROGRAMME OF COST-SAVING INITIATIVES?
No Yes
75.3%
19.6%
Don’t know
5.2%
0
10%
20% 30% 40% 50%
60%
70%
80%
30
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