SKU/Supplier Standardization in Procurement: Simple Best Practices

The following post is based on a paper by Peter Smith, Managing Director, Spend Matters UK/Europe, titled Managing Complex Categories – Beware the Complexity of Standardisation! The paper is part of the free Spend Matters research library and is available for download with or without membership to Spend Matters Plus/PRO.

The more complex a category (e.g., specialized services such as legal or marketing spend), the more likely an inexperienced procurement organization is to specify a supplier, SKU, or particular service that is likely to prove unpopular with stakeholders. But what best practices can centralized procurement and category management teams deploy for both basic and complex spend areas to avoid the “failure to implement savings” trap. My colleague Peter Smith has some ideas. As he writes:   

“… [While] standardization is a worthwhile goal of category management programs, when we are dealing with complex categories, care must be taken to understand thoroughly the internal requirements for the particular goods or services, and the external factors such as local or national preferences or regulatory issues. It is essential to make sure these issues are understood before the core supplier selection and negotiation stages of the category management process are undertaken. That is perhaps even more most important if what is being bought is to be used in a consumer facing environment, rather than just inside the organization. 

So, gathering information about the internal needs in a structured and careful manner is vital for procurement. This can be a difficult task in a complex multi-national environment. Similarly, there is a challenge when internal users genuinely have different needs. Understanding these needs, then developing appropriate contracting strategies and a structured compliance management process are necessary to ensure good results can be delivered, even given this complexity. 

Leading organizations are also drawing on external support … to help manage complex categories. Some look to use expert resource, which may be consulting, temporary staff or even full outsourcing provision. The prime argument here is generally that individuals or firms who focus consistently on a particular
category spend area can bring deeper expertise to bear than internal staff, who may have a wider range of responsibilities and less time to develop very specific expertise.”

Besides turning to external experts for help in the area, another practice we’re seeing more and more (at least in the US) is procurement organizations working with new intermediaries such as group purchasing organizations (GPOs). Even in complex spend areas, these intermediaries are providing input on structuring and purchasing complex categories more effectively, factoring into account a range of criteria that include but are not limited to unit cost.

Curious about the topic? Download Peter’s paper, Managing Complex Categories – Beware the Complexity of Standardisation! Also stay tuned for additional analysis to come on Spend Matters as we explore some of Peter’s summary recommendations.

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