Description
Commodity grouping or procurement categorization is one of the steps in the Landscape Assessment stage where the sourcing specialist will identify groupings of
similar goods or services with common supply and demand drivers and suppliers.
Example: A chair is a good whereas “furniture” is the procurement category or commodity group in which a chair will be categorized.
A commodity group or procurement category can be defined at any level above a single procurement.
Categories will vary according to size and type of organization and the supply market.
Objective
To obtain the optimum grouping of similar items /services that share similar supply processes, internal uses, specifications and technology.
Output:
A commodity group or category definition.
Sub-group/category: a logical subgrouping within a category with similar goods/services/market characteristics as shown for Travel and Accommodation example
WHY USE COMMODITY GROUPS / PROCUREMENT CATEGORIES?
Procurement categories can improve procurement processes and increase productivity. Procurement categories allow you to:
- develop targeted strategies for the best way to procure similar goods/services;
- get a better picture of procurement spend across your organisation;
- generate significant discounts; and
- establish aggregated supply arrangements to cover a category of multiple transactions.
Example: Rather than approaching different suppliers for different items, work out exactly how much your organisation spends
on all furniture items and what those items are.
You can then develop an agreement with one or a limited number of suppliers to meet your requirements.
This approach can generate significant discounts and greater procurement efficiency.