a category in terms of spend management, contracts management, supplier management, compliance, risk management, category and market awareness, and demand management. As illustrated in the figure below, spend analysis and category analysis are essential tools for identifying and prioritising cost-saving opportunities and scheduling them in a sourcing timeline or “wave plan”.
Figure 18: CATEGORY PLANNING PROCESS
Prioritisation of cost saving opportunities
Spend analysis
Category analysis
How do organisations select the categories of spend that have the greatest potential to save money? In our survey, 71.1% of all respondents said that the level of competition between suppliers is the most important factor in determining the cost-saving potential of a spend category, followed by the level of spend and the launch of new products and services in the market.
Figure 19: WHICH OF THE FOLLOWING CRITERIA DO YOU USE TO SELECT THE CATEGORIES OF PRODUCTS AND SERVICES WHICH HAVE THE GREATEST POTENTIAL FOR COST SAVINGS?
Level of competition between suppliers Level of spend
71.1%
50.5%
Introduction of new products or services in the market
44.3%
Potential to reduce the number of suppliers in the category Termination of contract(s) with existing supplier(s) Changes in the external environment Potential to challenge the internal demand Existing effectiveness of management in the category
41.2%
36.1%
35.1%
29.9%
25.8%
Other
1%
0
10%
20% 30%
80%
40%
50%
60%
70%
Market competition, the launch of new products and services, and changes to both the macroeconomic and microeconomic environment are all external factors that affect the potential for cost savings in a particular category. Industry reports may contain figures on estimated cost savings per category, but these estimates are based on industry (or other external) assumptions. Careful consideration should be given to the maturity of supply management and underlying assumptions in relation to such figures. We believe that internal category analysis provides a view of the internal capabilities and the effectiveness of management of each category and that analysis pinpoints where opportunities for cost savings lie in your organisation, rather than just the industry in general. We note that the least selected criterion (25.8%) for assessing cost-saving opportunities is the existing level of effectiveness in managing a category. From our experience, this is an indicator that has proven extremely helpful in prioritising cost-saving opportunities.
32
Powered by FlippingBook