By: Sakthi Prasad --
25 August, 2014
In collaboration with Sairamnath A, Lead Analyst
The world of procurement is moving from "discrete" to "continuous" mode; it is moving from project management to category management.
But what entails category management? Let us explore this idea from the point of view of tablet press machine category, whose market is worth $1 billion. The buyers are spoilt for choices as it is a highly competitive market with suppliers spread across various geographies.
What does a category manager look for while purchasing a tablet press machine? The foremost factor is of course the price. In a discrete world of project management -- with its sole aim of cost savings -- a category manager may not look beyond price.
On the other hand, in the dynamic world of category management, which is in turn supported by continuous intelligence, category managers will look beyond cost savings and consider the following options:
Let us now examine various tablet press machines manufactured in emerging and developed economies respectively.
Tablet press manufacturers from emerging regions match their counterparts from developed ones in terms of product output -- but not necessarily on technology or patents.
However, emerging economy players sell their machines at one-third the price offered by an OEM based in say Germany, Italy or Spain.
When confronted with such choices, category management will impel procurement teams to take Total Cost of Ownership (TCO) into consideration.
Maintenance cost is one of the critical factors of TCO. Technically advanced machines require lesser maintenance effort as their design ensures that dust containment is way better than the ones manufactured by a LCC OEM.
When there is better "dust containment," the involvement of an auxiliary device such as WIP (Wash-In-Place) would be minimal, which in turn reduces the maintenance downtime and man hours -- another key factor determining the TCO.
Category management approach would point towards TCO when making the buying decision, which means going in for a machine that is not necessarily "cheaper"; but there is no right or wrong answers here. It is based on individual choice. If category managers are focused more on production capacity then they can go in for a supplier who offers the least price.
For a detailed exposition of Category Management please read CEO Vel Dhinagaravel's blog post.