If you consider that a typical organization (manufacturing or service provider ) may procure thousands of different products and services to support the creation\/manufacture of its own product \u2013 then it would be sensible to consider that a free for all procurement approach (buy anything from anywhere) would not drive down cost \u2013 so what could the answer be? The answer for many organizations is commodity management.<\/p>\n
What is a commodity?<\/p>\n
The process of developing a segmented approach to procurement is known as commodity management. Commodity management is the categorization of individual parts, products and suppliers into groups known as commodities. There are various goals of commodity management \u2013 but commonly it targets to:<\/p>\n
1\/ Provide a method of spend analysis and aggregation
\n2\/ Develop insight into the market
\n3\/ Meet business targets on cost, delivery and quality<\/p>\n
Examples of commodities<\/p>\n
While there is no hard and fast rules of how you group your spend there are common commodities categories that are utilized within industry \u2013 these include<\/p>\n
1\/ Electronics
\n2\/ Fabrication
\n3\/ Raw Materials
\n4\/ Stationery
\n5\/ Bearings
\n6\/ Chemicals<\/p>\n
Implementing commodity management<\/p>\n
Organizations that choose to adopt commodity management will typically structure their procurement organization into teams (mirroring the commodities managed) these teams will have responsibility for analyzing spend and developing and deploying an appropriate strategy for sourcing, supplier management and spend profiles<\/p>\n
Need for analysis<\/p>\n
Robust data is required to support commodity management \u2013 this is typically the same data used in a spend analysis system \u2013 in that you need to know as a minimum by supplier (and in some cases by part) the spend and demand profile. Coupled with this there may also need to be some requirements gathering to ensure that the completed commodity strategy meets the needs of business in terms of future needs, QCD requirements and other non price related variables.<\/p>\n
Need for specialist commodity managers<\/p>\n
Given how spend is grouped into commodities \u2013 many organizations choose to recruit specialist commodity managers who are likely to have specific expertise in that field for example
\n\u2022\tProduct knowledge
\n\u2022\tSupplier knowledge
\n\u2022\tMarket knowledge<\/p>\n
This is especially true of complex commodities such as electronics. A commodity manager may lead the strategic aspects of the purchasing function for that group.<\/p>\n
Summary<\/p>\n
For medium to large sized organizations commodity management is commonplace. It helps to segment spend allowing the supporting teams to develop focused strategies and develop key skills and knowledge for their niche. While often used as a cost reduction tool \u2013 commodity management can drive a range of improvements to a previously fragmented supply chain not least risk reduction through continuity of supply.<\/p>\n","protected":false},"excerpt":{"rendered":"
If you consider that a typical organization (manufacturing or service provider ) may procure thousands of different products and services to support the creation\/manufacture of its own product \u2013 then it would be sensible to consider that a free for all procurement approach (buy anything from anywhere) would not drive down cost \u2013 so what […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[28],"class_list":["post-89","post","type-post","status-publish","format-standard","hentry","category-blog","tag-purchasing"],"aioseo_notices":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7Ittq-1r","_links":{"self":[{"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=\/wp\/v2\/posts\/89","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=89"}],"version-history":[{"count":1,"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=\/wp\/v2\/posts\/89\/revisions"}],"predecessor-version":[{"id":90,"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=\/wp\/v2\/posts\/89\/revisions\/90"}],"wp:attachment":[{"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=89"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=89"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/supplychain-mechanic.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=89"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}