Costs do not disappear – Category management reduces costs sustainably
Example financial service provider
When costs have to be reduced in a company, there are two major optimization levers: personnel and procurement. However, both are only sustainable if costs do not simply disappear through budget cuts, but costs are reduced and adapted to requirements. Category management in the procurement of financial service providers ensures a sustainable cost adjustment and costs do not simply reappear.
Costs and benefits at financial service providers can be optimally controlled by procurement via category management. In this way, active cost management can be established from procurement. Examples here are printed products, marketing requirements or even fleet management. However, this approach can be used for all requirements in various forms.
The digitalization of ordering processes creates the freedom for Category Management to manage a customer-oriented assortment that is optimized for the procurement market. Only in this way can bundling effects and cost advantages be implemented sustainably. The digitalization of procurement processes creates the time freedom for procurement, creativity and design of assortments and ensures compliance.
Category management in procurement for financial service providers
The study conducted by ADCONIA in the insurance industry in 2017 revealed the following optimization levers in addition to the need for digitalization in procurement.
The five points from the 2017 study:
- procurement as a business partner in the company
- thinking ahead with customer processes
- innovation management
- active cost management
- solutions for all issues
Looking at the Best-Practice BME Benchmark 2019, it seems that a lot has already happened for service companies, but still far behind the other industries. The fact that the volume of procurement is responsible for 92% of the purchasing volume is still well behind the other sectors. Especially for financial service providers, the question of the total purchasing volume is always interesting – does this also include customer needs?
The continuing high demand for further digitalization is reflected in the costs per order transaction, where service providers are still more expensive than other industries.
Goal: Reduce costs and not shift them in the value chain
Regardless of the process costs, the goal must be to reduce costs and not to postpone them. Not within an organization and not towards a supplier. Costs cannot disappear but can be reduced in a targeted manner along the value chain.
This is where ADCONIA’s Category Management for financial service providers comes in. Based on our project experience, three categories of procurement types at a financial service provider can be divided:
- Single Client – all requirements of a special department (e.g. marketing, IT),
- Many Clients – all the needs of the (almost) entire house and
- End Consumer – Requirements that are procured directly for the external customer.
While category management, i.e. the definition of the type of requirements, takes place in the specialist department at the Single Client, with active support from procurement, and a comparable process takes place with a specialist department at the End Consumer, the requirements of the Many Clients are difficult to specify. Category Management by procurement is absolutely essential here. Procurement extends its tasks to include the creation of requirements, specifications, and the breadth of the assortment.
If ten departments have defined their own specifications to date, for example, for paper quality, Procurement takes over the task of Category Management, depending on the desired functionality. But such a change in the culture of cooperation within a company hurts. For the person who can no longer determine everything himself and for the other person who should not only carry out, but shape.
In order to reduce costs sustainably, it is therefore not enough to change rules. Instead, change management must be installed when category management is introduced. And the tools of change management must permanently accompany this process.
With our experience from retail, fashion, industry and service companies, we have led or designed a large number of cost reduction projects in recent years. One thing we have learned: successful projects do not make costs disappear temporarily but reduce them sustainably in the sense of a cultural change.
Managing Director, ADCONIA GMbH