Spend Matters welcomes this guest post from Amit Bedaye of A.T. Kearney.
Janitorial and Sanitation (Jan-San) supplies are a common spend area for many companies. Companies with sizable spend in this area often look to conduct strategic sourcing events to select preferred suppliers and negotiate favorable discounts. However, beyond just achieving pricing reduction, there is significant opportunity in this category to realize 10 to 20-percent incremental benefits over those achieved from price negotiations (estimate based on recent A.T. Kearney optimization projects). To realize these incremental benefits, companies need to pursue comprehensive SKU optimization initiatives.
The Jan-San category typically includes sub-category purchases such as paper products (towels, dispensers), liners, soaps, chemicals, cleaning tools, and more. Companies that have multiple business units, locations, or suppliers but have never streamlined their requirements tend to end up purchasing a huge number of SKUs and brands. For something as simple as paper towels, it is common to see huge SKU variations due to differences in brands, size, length, thickness, paper recycling content, embossing, and dispensing techniques.
To fully optimize Jan-San spend and reduce complexity, companies must undertake a structured process for SKU optimization. Here are some recommended steps for realizing value in Jan-San SKU optimization.
Baseline analysis and complexity mapping
As a first step, it is important to capture SKU level information for all current purchases such as SKU number, brand, category, description, unit of measure, packaging quantity, current price, annual volume, spend, and green requirements. In general, the incumbent suppliers do a good job of capturing this information and should be able to share this information quickly with customers.
After capturing this information, various analyses can be run to identify optimization opportunities and priority areas to focus on. Some types of analyses to conduct include spend by sub-categories; number of SKUs accounting for 75 to 80 percent of sub-category spend; spend on branded versus private label products; and price differences for similar SKUs.
In addition, it is essential to do complexity mapping for top-spend SKUs. For example, mapping complexity for paper towels will reveal variations in ply (one or two-ply), sizes (standard or jumbo), width, lengths, paper color, recycling content, and so forth. Complexity mapping is a very effective tool for showing areas where optimization can lead to savings.
Distributor and manufacturer collaborations
While baseline analysis and complexity mapping will reveal good opportunities, it is also essential to collaborate with your preferred distributors and manufacturers in tapping their knowledge and expertise for the market’s best available options. Hold brainstorming sessions with these partners to discuss program objectives and collect their SKU level and broader ideas for optimization.
Solution validation and testing
From baseline analysis, complexity mapping, and partner workshops, companies will be able to identify good opportunities for specification standardization, brand changes, private label applications, SKU reductions, and more. However, before companies adopt these recommendations, it is essential that they collect product samples and test them to ensure the new SKUs will be functionally equivalent to the SKUs being replaced. Testing will reveal any changes in usage or effectiveness from switching to the optimized SKUs.
It is prudent not to assume that all stakeholders or end-users will simply buy into all optimization recommendations and proposed changes. In fact, quite often stakeholders will resist changes even for products such as paper towels or soaps. Therefore, it is best to involve key stakeholder groups such as cleaning teams, safety teams, and property managers in this process early so that they have a chance to provide feedback on recommendations prior to the implementation phase.
In summary, the Jan-San category provides huge opportunities for savings from conducting a structured SKU optimization process. By approaching each sub-category strategically and exploring optimization areas comprehensively, companies can expect to achieve sizable benefits while still meeting or exceeding end-user needs.