A major step in understanding where to spend your effort when building an e-procurement attack list is to understand your companies P&L and how it can point you in the right direction for maximum impact.
I meet with buyers or other e-procurement knowledge workers on a regular basis that want to know what categories are the best to select in the short term to prove the benefit of e-procurement or e-negotiation tools. This quite honestly is not a bad approach for pilot selection as it creates an almost sure thing that results in a lot of excitement and the energy to move the process forward within a company.
Quite often before meeting with a new client, I will analyze their annual report and their summary P&L to get a good idea of where the opportunities are hiding that can have quick hit impact. However in order to have long term viability as a way to conduct the business of buying, a more detailed analysis is required. Quite frankly before you can even begin to discuss vendor or supplier selection, management or evaluation this process is critical to long term success.
Key data required to prepare you for this analysis can consist of but is certainly not limited to the following. All of this data is readily available from a variety of industry sources. Quite often the data is a year old but you can bet it is better than anything else your customer may be using today.
1. Research and accumulate your specific Industry data
2. Analyze last years P&L
3. Compare your cost of goods with your Industries averages
4. Compare your gross margins with you Industry averages
5. Compare your net earnings with your industry averages
6. Conduct the same comparisons with selected retailers with whom you compete
7. Compare your departmental sales and contribution margin results to those of your specific industry.
8. Look for department level anomalies
9. Look for specific product anomalies within major and sub departments.
10. Select top categories that are below plan and outside industry average for cost of goods and margin.
11. Select top products that are underperforming to industry averages and plan
An example of the above might be to look at the major department of grocery and the major category of pet care then drill down to the sub category of cat and dog products and a list of all accessories. Now look at what products are underperforming to the industry and plan. Continue your analysis with other underperforming categories.
Ask you e-procurement provider how they can assist you in accomplishing this with their tools.
We look forward to and appreciate your comments.