Creating Lasting Savings in High SKU Count Indirect Categories

Posted by Daniel Anzevino on Nov 3, 2014 10:03:00 AM

It is no simple task to generate savings in a high SKU category. It is even more difficult to create savings that will last. The CoVest whitepaper, on high SKU count in indirect categories, will start you on your journey to optimize pricing. 

indirect spend

I'm sure you've wondered how your procurement team is able to generate savings over 10% to 20% every time a category is sourced. It's hard to believe that suppliers can cut their prices by so much every three years or so. When working with a large number of SKUs and high SKU turnover, this phenomenon is even more likely to occur. Commonly, companies establish pricing and calculate savings for the most recent high volume items during an RFP process. However, the annual turnover or "churn" of these high volume systematically erodes these savings. So when the next RFP cycle comes around there is a built in "savings" on new high volume items which is really a capture of losses incurred due to the "churn".  

We can optimize pricing by aggregating spend, and eliminate the
category price creep so often seen in indirect categories, by
implementing a disciplined approach to creating the right contract
pricing and through annual category price maintenance activities. 

In the CoVest whitepaper, "Creating Lasting Savings in High SKU Count Indirect Categories", we cover how even at a modest 30% turnover, returning a supplier to their original margin level - by updating the high volume item pricing periodically -  can generate an additional 10% savings over the life of a three year contract. This can often be seen in a category such as office supplies,where turnover is moderate. But when turnover is high, which is more common for MROs categories like industrial supplies, the situation becomes more exaggerated and the opportunity increases. 

Download the whitepaper to discover several key practices to eliminate this margin creep with suppliers. You will learn how to create lasting results and enable longer-term agreements to be signed confidently. The whitepaper will also explore the five steps to commit to create strategic relationships with suppliers that will get you the most aggressive pricing. 

Indirect Categories

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Topics: Educational

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