SKU/Supplier Rationalization and Demand Management: Four Key Tips Not to Forget

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.

When it comes to thinking through the best means of rationalization SKUs and suppliers for both basic and complex categories – and not having a centralized procurement function fall flat on its face when it comes to having the business successfully implement a program following a sourcing exercise – there are many lessons learned from those procurement organizations that have embarked on such programs before.

My colleague Peter Smith encapsulates four of the most important tips that companies should not forget.

First, “don’t make assumptions about standardizing products or services particularly when you’re looking at complex spend categories (e.g. with international requirements and supply markets). Standardization is a good and appropriate goal – but has to be approached carefully.” In other words, engage the business early and often – and don’t assume something that you might look on as potentially trivial regarding a supplier, SKU, or service is in fact a small item.

Second, “gathering requirements from budget holders and users of the goods or services (internal or external) is a vital stage in the process – really understand their needs and don’t just assume you can impose standardization.” Center-led or even fully centralized procurement does not provide the type of mandate many at the core of such efforts believe it does. Which is why we should remember the importance of true stakeholder engagement throughout the process.

Third, “understand the market or markets where the purchased items will be used, including cultural, geographic, national and consumer preferences or legislation.” If there was ever an argument in favor of not having a centralized procurement function drive supplier/SKU selection across different regions/countries as part of a single integrated effort, this is it. But smart organizations get around the challenge by allowing for localized preference and selection as part of the category/supply market research process.

Fourth, “consider using tools and/or external support to support the management of complex spend categories and situations.” What’s our take on this point on this side of the Atlantic? Don’t “consider” tools as Peter so politely points out. Use them aggressively. And just as you would not apply the same category strategy across different areas, don’t use the wrong tool for the wrong category or purpose.

Curious about the topic? Download Peter’s paper, Managing Complex Categories – Beware the Complexity of Standardisation!

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