What is a Product Group?

A product group refers to a categorization/classification of similar goods, products or services that are grouped together based on common characteristics, properties or uses. They play a fundamental role in organizing and managing procurement activities, enabling companies to effectively source and manage a wide range of items.

Efficient organization of procurement activities through Product Groups:

The primary purpose of commodity groups in procurement is to streamline and simplify the procurement process by grouping related items that are often purchased together or have similar specifications, requirements, or suppliers.

By organizing items into product groups, companies can better organize their sourcing activities, facilitate spend analysis, and make more informed purchasing decisions.

Product groups can be structured in different ways depending on the needs of the company, the industry and the complexity of the supply chain. They can be organized hierarchically, with parent categories or groups containing subcategories or child groups.

What are examples of Product Groups?

• Raw materials: Materials used to make products, such as metals, plastics or textiles.
• Components: Parts or assemblies that are incorporated into the manufacture of products, such as screws, electronic components or engines.
• Resources: Equipment, tools, or machines needed to operate a business, such as computers, vehicles, or production facilities.
• Services: Services provided by external providers, such as transportation, maintenance or consulting services.

Categorization of items into product groups is typically based on factors such as product type, function, use, industry standards and internal requirements.

For example, in a manufacturing company, product groups may be divided according to the type of raw materials or components used in production, e.g. B. “Metals”, “Plastics” or “Electronics”. In a retail environment, product groups may be organized by product categories such as “apparel,” “electronics,” or “household goods.”

Improved transparency and cost analysis through Product Groups:

Commodity groups serve as the basis for various procurement activities, including procurement, supplier management, contract negotiations and inventory management. By categorizing items into product groups, companies can better identify and evaluate suppliers that specialize in specific product categories, negotiate favorable terms and pricing agreements, and manage supplier relationships more effectively.

One of the key benefits of product groups in procurement is improved visibility and analysis of spend. By categorizing spend data into product groups, companies can gain insights into spending patterns, identify cost savings opportunities, and optimize procurement strategies.

Strategic procurement decisions and supplier management using Product Groups:

Analyzing spending by category allows companies to identify areas of irregular spending, consolidate purchases and take advantage of volume discounts, resulting in cost savings and greater efficiency.

Product groups also play a crucial role in inventory management and demand planning. By organizing items into product groups, companies can better predict demand, optimize inventory levels, and ensure adequate inventory availability for essential items. This helps minimize stock-outs, reduce inventory costs, and improve overall inventory management efficiency.

Product groups not only facilitate procurement processes, but also support strategic decision-making and the management of supplier relationships. By categorizing items into product groups, companies can better align their sourcing strategies with business goals, identify strategic sourcing opportunities, and build long-term relationships with key suppliers.

Commodity groups help companies identify emerging trends, anticipate market changes, and proactively address supply chain risks.

What are best practices for Category Management?

To effectively manage and optimize categories, companies should implement best practices in category management:

• Regular review and updates: Companies should regularly review and update their product categories to ensure they meet changing business needs and market conditions.

• Strategic procurement planning: Strategic procurement planning helps companies determine their priorities for each product group, define procurement goals and develop appropriate procurement strategies.

• Optimization of supplier relationships: Actively managing and maintaining supplier relationships in every product group is crucial to ensuring that companies receive the best possible conditions and services from their suppliers.

• Implementation of technology: Using procurement software and tools can help companies efficiently manage their product categories, track expenses, monitor suppliers, and make data-driven decisions.

Product Group: Conclusion:

Overall, commodity groups are a fundamental part of supply management, allowing companies to effectively categorize, organize and manage a wide range of goods, products and services.

By structuring procurement activities based on product groups, companies can streamline their processes, improve spend visibility, optimize inventory management, and increase strategic value across the entire procurement cycle.