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Category management in purchasing

Category management is generally referred to as the supreme discipline of strategic purchasing: Those who set up an efficient category management system can tap to enormous savings potential for their company. What exactly is behind the term, what challenges entail a category management and how you can set it up according to ECLASS , you can find out here.

What is category management?

The idea behind category management is to manage merchandise categories as strategic business units. Accordingly, all products in a company’s procurement portfolio are bundled into groups based on common features. Material groups should ideally be arranged hierarchically so that a structured view across several levels is possible. Especially in times of digitalization, the bundling of products is an essential factor because only in this way can the same or similar products be identified and perfected, for example for product data optimization or supplier matching.

The terms “product group management” or “material group management” are often used synonymously with category management.

Challenges in category management:

Category management is not as simple as it sounds. It holds more challenges and stumbling blocks than many expect:

  • The right choice of material groups
  • Missing key figures and metrics in purchasing
  • Insufficient transparency in data
  • Insufficiently maintained master data
  • Lack of communication and training for users
  • Inhomogeneous ERP system landscape
  • Manual merging of evaluations
  • Lack of qualifications and tools for continuous category management
  • No standardized and consistent source-to-contract and source-to-pay processes
  • Lack of internal interface management

Data transparency as the basis for your category management

To establish a strategic, clear and holistic category management, the veil that has settled over the data graveyards in the companies must first be lifted. This is the only way to transparently retrieve the procurement volumes per material group, per supplier and per company unit.

Since this data is not available at the push of a button in many companies, master data from suppliers often has to be analyzed, harmonized and consolidated first. Depending on the data quality, processes and company software, this preliminary work is very time-consuming and labor-intensive. We at D&TS would be happy to support you in optimizing your basic data.

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Implementation of category management

To cluster the procurement portfolio and form material groups, companies either define their own material group keys or use existing standards such as ECLASS. The latter has the advantage that

  • the assignment of material groups can be uniform across different company divisions, countries and even across companies;
  • synergies are exploited in the use of standards, which offer clear advantages;
  • you don’t have to develop anything new because structure, features, keywords, multilingualism and quite a few more are already available.

Subsequently – depending on supply and demand power – strategies are developed for the individual material groups and measures are derived that are useful for achieving the strategy goals. For this purpose, companies use, for example, the purchasing chessboard by A.T. Kearney* (see picture). *https://www.kearney.com/web/the-purchasing-chessboard

Creation of a material group structure according to ECLASS

D&TS advises and supports you in setting up your material group structure using different methodologies (text analysis, forward and backward setup). Especially when deriving material groups from ECLASS, rules have to be followed and general requirements have to be derived on a company-specific basis. We advise the following if possible:

  • Always select a class at the fourth level. Thus, a link can be established from a higher-level object to a more specific object. This approach offers the great advantage of being able to derive from a lower to a higher grade level (backward setup – from detailed to coarse).
  • Avoid the ECLASS collective classes (“Parts”, “Spare parts”, “Other”) as they are not useful for cross-company application.

If these rules are not followed, then the company deprives itself of the possibilities to conduct exact analyses, to realize specific tenders and also to select suppliers precisely. We also support you in applying and supplementing the general requirements for a material group system to your company. This means that

  • Your material groups must be fundamentally analyzable and balanced. However, these requirements may compete with the previously mentioned rule (“fourth level”). Since ECLASS is partly very detailed on the fourth level, one decides, among other things, for economic reasons or because of a better analyzability, to assign the products already at third or even second level (forward setup – from coarse to detailed). 
  • Your material groups should have the claim to be user-friendly. Here, the terminology of your employees must be considered, as ECLASS cannot cover the company-specific terminology and should be supplemented/replaced by company-specific keywords. This point is essential because already the requester should specify the (correct) material group in the order request.

These rules and requirements clearly show that a high level of ECLASS competence is necessary to set up a material group structure according to ECLASS.

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Our recommendation: Derive material groups backwards

The substantial advantage of backward construction is that every article in the system is classified up to the fourth level. The material group structure clusters the individual categories and very precise SPEND analyses can be performed. The backward setup enables a detailed and accurate analysis of the ECLASS categories, resulting in an optimal material group structure.

 

Derive product groups backwards

 

How D&TS supports you in category management

Our standardized approach to data optimization and the introduction of a material group structure is based on our extensive project experience. Our approach is continuously optimized. It provides a project framework, offers initial support, and can be customized for specific companies as needed.

1. Analysis and concretization

The first and crucial step is to develop a common understanding of your industry and company-specific requirements. With an analysis, we objectively examine your actual condition, e.g.,

  • the currently existing material group system
  • the current processes regarding the determination of material groups and methods of analysis
  • encrypted material and service master data
  • SPEND analysis of free text orders

and identify the current challenges and opportunities. In the subsequent target analysis, the individual recommendations for action are determined for your specific classification system (material group system).

2. Data harmonization

To establish a clear category management, the necessary transparency in the data must first be created. The preparation of master data in the form of harmonization is thus the basis for all further steps. In the process, the relevant data is bundled and designations are harmonized.

3. Structure of material group system (classification system) and classification

Prior to classification, the rules and requirements for the classification system are defined, such as limiting the classification standard to certain areas, adding additional classes, removing/expanding features and keywords, etc.

 D&TS then classifies the different materials (standard and catalog parts) according to the standard classification system ECLASS, a defined company-specific structure or a mixed form. Company-specific classes are to be developed for drawing parts, based on different methods (according to ECLASS, according to geometric similarities or according to process techniques, e.g., milled part, turned part, etc.). During classification, the materials go through several steps, with the optimum result being achieved by automatic preparation (e.g., comparison with manufacturer catalogs) and an additional manual check.

4. Data attribution and data enrichment

If you also need properties for the relevant classes, these can be transferred from ECLASS. In addition, D&TS supplies fully defined and practice-oriented lists of characteristics. Missing property content can be taken from the ClassCOCKPIT Knowledge Database (constantly growing database with catalogs of manufacturers/suppliers).

 5. IT-based category management

D&TS offers software solutions that support the construction of the material group structure and the classification process. With the  ClassCOCKPIT SAP  software, you can integrate your own classification system into SAP. You quickly and simply create your structure in the form of classes and properties in the SAP system.

D&TS builds a material group structure together with you – whether it is ECLASS or a company-specific structure.

 

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