Category Management
1
Category Management
What is Category Management?
•
"organising the resources of the procurement team in such a way as to focus externally onto the supply markets of an organisation in order to fully leverage
purchasing decisions”. - Definition from Chartered Institute of Purchasing & Supply
•
A ‘category’ is the logical grouping of similar expenditure: paint, parts and labour, which in turn influence the Repair of vehicles, i.e. the repair category.
Category management is the supply chain process used to manage these categories to satisfy business needs and strategy while maximising the value delivered
from the supplier base.
8 Step Cycle
1.
2.
3.
4.
5.
6.
7.
8.
Define the category (i.e. what products are included/excluded).
Define the role of the category within the business.
Assess the current performance.
Set objectives and targets for the category.
Devise an overall Strategy.
Devise specific tactics.
Implementation.
The eighth step is one of review which takes us back to step 1.
Sample
Below you will find a sample of a category plan which is aimed at the Insurance
Motor vehicle repair market, more specifically on parts. .
This should give you a high level example and view of how this works
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Motor Repair – Parts
Motor Category Plan Presentation 2013/4
Overall Strategy
Indemnity
Expense
Customer
Flexibility
2
Control indemnity
Leveraging controllable volume by consolidating spend where possible
Drive improved repair methodology
Manage internal costs in line with total cost ownership
Create flexible model to deal with peaks and troughs of work during the year
Balance outsourcing with in-house spend to achieve optimum spend
Move up the NPS score
Constantly asses and audit customer services structures to asses gap analysis
Target service at the right cost.
Allow flexibility to cater with changes is the marker
Flexible suppliers and model to adapt with changes in the lines of business
How should we approach Motor Parts sourcing?
BOTTLENECK
Market Complexity & Risk
• Widen specification / Substitutes
•Increase competition
•Develop new suppliers
•Medium-term contracts
•Technical relationships
•Decrease uniqueness of suppliers
•Manage closely
Ensure supply continuity
ROUTINE
STRATEGIC
• Encourage innovation
•Supplier Relationship Management
•Prepare contingency plans
•Analyse market / competitors
•Use functional specifications
•Increase role of selected suppliers
Develop collaborative relations
LEVERAGE
• Increase role of systems
•Reduce buying effort
•Rationalise supply base
•Automate requisitioning (e.g. EDI etc)
•Stockless procurement
•Minimise admin costs
Automate and Simplify
• Concentrate business
•Maintain competition
•Promote competitive bidding
•Exploit market cycles/trends
•Procurement co-ordination
•Industry standards
Maximise commercial advantage
Value or Profit Impact
5
Parts Market – PESTLE Analysis
POLITICAL
Legislation challenging constantly the
insurance market.
Need to ensure all structures are put in
place to cater for this.
TECHNOLOGY
Various systems like Audatex provide
both a strong assessment method and
ability to show how best to use
alternative parts.
6
Confidential
ECONOMIC
SOCIAL
General Economic downturn means
alternative economical parts such as
green parts are growing in demand and
availability.
Challenges on belief that non original
parts are of lesser quality is still
apparent though less when cost have to
be absorbed directly by the customers.
LEGISLATION
Legislation like BLOC exemption
stopping Manufacturers from creating
an oligopoly in the market and provision
of parts .
ENVIRONMENTAL
Category management may show how
the market is changing and the
increased technology makes it easier to
acquire used-recycled parts of traceable
quality.
SWOT Analysis
STRENGTHS
•Range of suppliers can provide broad range of
solutions for parts consumption.
• Availability of a mature distribution network
means parts are being supplied locally very
quickly.
• Legislative effects increase the ability for large
buyers such as Insurers to contain Manufacturer
costs.
OPPORTUNITIES
•Cut down on layers and contract directly with
Manufacturers to agree inflation busting and
agreed price list buying of parts.
•Removes burden for repairers to have to pay
for parts themselves (cashflow), and can
influence the spend on the labour portion.
•Generate indemnity & income benefit by
substitution alternative and green parts.
7
WEAKNESSES
•Numerous suppliers and levels of supply also
mean that a margin is made at every level.
• Logistics and distribution is weakened as
soon as volumes are consolidated into a
smaller number of suppliers, which impacts
CPD.
THREATS /RISKS
•Growth in vehicle telematics.
Manufactuers notified when vehicle
involved in collision, broken down etc.
•E-call 2015. Losing FNOL control to
Manufacturers.
Parts Category: a view of the market..
The Parts market
• Parts have been experiencing a downturn in growth, influenced by the
auto sales and the market conditions since 2008; forecasted to hit
12.3billion turnover in 2013 which is negative growth of - 2.7% over the
five years.
• An ageing car park = older parts to be held for longer, and OEM’s to
produce older stock for longer.
• Parts currently purchased by body shops through: OEM’s, and
wholesaler, which include alternative, OES and green parts.
• Alternative cheaper options, more efficient repair over replace = OEM’s
or Manufacturers losing share, though cost of parts is kept lower.
• Car sales trends show that there is a greater sale of supermini’s and
lower medium cars, which will influence the spare parts replacement Ford Fiesta have been sold the most!
8
Parts Market and Insurance
Parts usage in a repair is controlled by the workflow management systems, to
ensure the Insurance companies have a clearer view of the usage.
Systems can suggest both substitute parts, and green parts for the
replacement of a part, in line with the work providers rule set.
Parts are charged by body shops as a discount on manufacturers retail
price.(except for NRCM – at cost)
Manufacturers are aware of the trends and the growth of repair over replace
and alternative parts, so have realised that where an insurer does not
specify use of original parts in the policies and supply chain, they lose the
share, therefore keen on having direct relationships with Insurers and in
some cases have been able to establish this.
Parts Category and Company
Spend
Parts going forwards
•
Market fragmentation, substitutes, means
Manufacturers losing revenue and looking to
solve this.
•
Manufacturers are implementing through
partners direct distribution channels in the UK to
allow direct purchase.
•
Major Purchasers like Insurers have a window of
opportunity to agree with manufacturers.
•
Recycled parts and substitute parts are being
pushed into the network at very competitive
rates.
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Company Parts going forwards
•
Opportunities can be through OES and direct
buying.
•
Due to the complexity of looking into direct parts
procurement and distribution, Company has used
it’s efforts more on improving other areas of repair
rather than parts.
•
Company should use the supply chain currently in
place to drive more innovation on buying parts in
the market. By leveraging the consolidated buying
power.
VAUXHALL
(NEW) ZAFIRA
FORD FIESTA
14%
28%
FORD FOCUS
18%
VAUXHALL
(NEW) ASTRA
18%
NISSAN
QASHQAI
22%
KIA
TOYOTA
VOLVO
HONDA
AUDI
MERCEDES-BENZ
CITROEN
BMW
RENAULT
PEUGEOT
VOLKSWAGEN
NISSAN
VAUXHALL (NEW)
£16,000,000.00
£14,000,000.00
£12,000,000.00
£10,000,000.00
£8,000,000.00
£6,000,000.00
£4,000,000.00
£2,000,000.00
£-
FORD
Company Part Category
• In 2012 Company spent X m on parts, of which 87% of the spend was with 14
manufacturer brands.
• The cost in the managed network for parts was of Xm, with an average cost per
repair of £X with 35% (18m) of this spend through Repairer A.
• Company does not buy parts directly from manufacturers or distributors, but
through garages
• Distribution on the network is the responsibility of each repairer, and each one buys
from different distributors.
• The use of alternative parts is not as common in the Company supply chain as it could
be, although this is due to Company not requesting this..
Company Parts Strategy
Time taken to develop
Flexibility
Indemnity
Customer
Indemnity
Year 3
Have all solutions in place to cater for changes in
customers needs, business lines, and legislations
Year 3
Implement alternative parts and recycled parts
procurement through a tender for this.
Year 2
Use greater control to push for better service through
buying power for sourcing of parts
Year 1
Further consolidated supply chain by mandating parts
bought from direct distribution networks
Greater control of spend
2
Activity Map: Year 1 – Year 3
Year 3
(2015/6)
Year 2
(2014/5)
Year 1
(2013/4)
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Develop strong relationships with both alternative market and VM ensuring all repair
contracts are contracted to use mandated parts solutions
Tender alternative and
green parts
Pilot alternative and green parts
Develop Manufacturer relationships and
commence pilots for direct procurement of
parts and development on distribution
network.
Tender all parts provider
contracts
Motor Repair – Parts
Thank you