Analyzing and Mapping the Purchase Portfolio – Segmentation of Purchases

The term “purchase portfolio” defines the expenses under the responsibility of the buyer. The necessary information for its analysis is scattered throughout the company.

As the head of the procurement department, it is essential to ensure that each purchase portfolio is well defined. This involves gathering all available information to provide an overall view and segmenting them into “purchase families.”

Figure 1 – Purchases Mapping, the First Step of the Purchase Process

Analyzing and Mapping the Purchase Portfolio - Segmentation of Purchases
Purchase Performance : Performance
achat

Contracting : Contractualisation
Tendering : Appel d’offres
Understanding Needs and Purchase Mapping : Connaissance des besoins et cartographie des achats
Market Understanding : Connaissance du marché

Identifying Database Sources

The source data can be found in the company’s information systems. Here’s a non-exhaustive list of information to obtain for thorough analysis:

Purchase Base:

  • List of suppliers and their addresses (are there redundancies?),
  • Supplier location (local, regional, international, low-cost zone?),
  • Frequency of supplier base updates,
  • Closing unused accounts,
  • Existence of a classification of supplier accounts based on purchase typologies,
  • Supplier referencing and purchasing conditions (purchase price, discounts, shipping costs, incoterms, payment code, delivery time, etc.),
  • Number of orders, order frequency, order amounts, payment conditions,
  • Tracking purchase value by supplier/month/year.

Accounting Base:

  • Number of invoices, actual payment times,
  • Is the same supplier base used in both the purchase and accounting databases? Are they linked?,
  • Number/amount/frequency of invoice/order discrepancies.

Article Base:

  • Products used in the company (quantity, seasonality, etc.),
  • Are there any bills of materials (part hierarchies)?,
  • What are the connections to the purchase databases?

Commercial Base:

  • Understanding order books, work schedules, and business plans,
  • Identifying regulatory changes impacting business operations.

Quality Database:

  • Determining types of quality problems,
  • Nature, frequency, and number of disputes attributed to suppliers,
  • Root causes of disputes.

Supply Chain Database:

  • Determining the number of deliveries, frequency, and delivery points,
  • Calculating the service rate (number of order lines delivered on time).

These pieces of information are crucial for understanding the company’s rhythm and genetic code. Some companies operate minute-to-minute, while others can tolerate a few days’ delay or even more.

Identifying renewal frequencies of needs allows for synchronization and optimization of daily work.

Supplementing Source Data with Interviews

This requires questioning stakeholders about the reliability of information during interviews. Existing files on computers might already contain the required data, and only updates would be necessary.

Searching for Qualitative Data

Procurement involves more than just numbers; it’s important to learn about the history of the supplier relationship and any issues encountered. Are internal or end customers satisfied with products/services from the supplier?

Measuring the Reliability of Collected Information

Are these databases connected? Who ensures updates? How are changes tracked? Database updates aren’t always systematic. Information reliability must be validated by gathering order-of-magnitude data from suppliers before launching tenders.

Analyzing Collected Quantitative and Qualitative Data

This involves cross-referencing information and identifying potential discrepancies. Anomalies could lead to cost-saving opportunities. For instance, comparing orders with invoices can reveal whether minor additional charges are regularly billed. Remember the SCPCP principle: “If It Passes, It Passes!”

Classifying All Data

Following the 80/20 principle, expenses per supplier will be structured, and their evolution analyzed. Data is categorized into “purchase families,” which are specific to the company. Data is also classified based on strategic (amount importance) or critical (risks for the company) significance.

Completeness of the Approach

In a quest for comprehensiveness, all expenses related to external entities will be listed, even if the procurement department isn’t involved in the purchasing process. Some expenses historically involve various parts of the company. For example:

  • General management for consulting missions,
  • Finance department for banks or insurance,
  • Transport manager for regularized express transport on invoices,
  • Human resources for benefits like insurance, canteen services, temp staffing.

At this stage, the aim isn’t to evaluate the approach’s relevance but to comprehensively measure all expenses: those requiring procurement’s action and others. This will calculate the “procurement coverage” rate.

Contractualization

Knowing the company’s formal commitments involves quickly finding answers to questions like:

  • Are contracts listed in a database?,
  • How many contracts are signed?,
  • Who initiated the contract, the supplier, or the buyer?,
  • What services or equipment are involved?

An initial quick analysis of contracts can check price revision clauses, automatic renewal clauses, and most importantly, expiration dates. Avoid renewing a three-year contract and discovering its renewal the next day. Sometimes, contracts for discarded equipment can still exist.

This search for the company’s external commitments can be time-consuming. Contracts are rarely documented in a centralized and well-maintained database. Some commitments haven’t involved the procurement department.

Therefore, it might be useful to inquire with suppliers during the first meeting about existing contractual commitments to avoid surprises. It might be beneficial to initially revise the ongoing contract with the same supplier for quick gains before launching extensive inquiries.

This seemingly tedious process is necessary. If the work has already been done, ensure regular updates are in place.

Analyzing and Mapping the Purchase Portfolio PDF

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