1. Purchasing Predictive Tool For
Category Cost
Bill Kohnen
An Analytic Tool for Predicting Cost For
Corporate Purchasing Commodity Categories
Bill Kohnen August 2013

2. Summary
• Professional Corporate Purchasing Departments manage total spend by
assigning it to a Spend Category and with further description within the
category
• Within each category there can be variation in cost savings potential
• Projecting potential costs can be time consuming but is important for goal
setting and resource allocation
• To expedite the process the following tool has been developed based on
proprietary data and experience
• This open version is very accurate and useful (think commercial GPS level)
• It is a framework for analysis with the real value coming from input by
Purchasing Professional's with specific category expertise
Bill Kohnen August 2013

3. Overview of Tool
• Number of Suppliers
• Interchangeability of Products or
Services
• Business Conditions of Supplier
• Business Conditions of Buyer
• Influence of Other Groups at
Buyer
• Percieved Importance to Buyer
• Scope of Requirements
• Perceived Sunk Costs
• Actual Cost to Change
• Potential Optional Approaches
• Qualified Options
• Available Disruptive Options
• Cost of Alternatives
• Final Score of options Indicates
Potential for Savings or Increase
• A Professional Purchasing
Commodity Manager Should be
able to Complete the Initial
Scoring on their Own
• For Large Organizations Can have
Each Site Complete then Review
and revise at Global Category
Workshops
Areas to Consider
Bill Kohnen August 2013

4. Category Score
1 Number Suppliers
1 literally one supplier 10 is unlimited #
2 Interchangibilty of products or service
1 is Unique 10 comletely interchangibility
3 Business Conditions Supplier
1 is Growing, market Leader, Customers approaching them
10 Losing share problems with product industry in down cycle
4 Business Conditions Buyer
1Lossing share problems with product industry in down cycle
10 Growing, market Leader, Customer approaching them
5 Influence other Groups
1 Completely uncontrolled with decisions based on influence
10 Decision making completely objective and impartial
6 Perceived Importance to Buyer
1 High 10 Low
7 Scope of Buyer Requirement
1 is at a single local site
10 Global Multisite Usage
8 Perceived Sunk costs with current
1 high 10 None
9 Perceived cost to switch
1 More than Annual total spend 10 No cost to change
10 Potential optional approachs
11 Qualified optional approaches
12 Cost relative to current of options
1 is higher 5 equal cost 10 zero cost
13 Disuptive technology of competitors
1 No new technology 10 Multiple availible in Market
Score 0
Tool Format and Description
Bill Kohnen August 2013

5. Results Analysis
Score 13 26 39 52 65 78 91 104 117 130
Potential
Reduction 0% 1% 2% 3% 5% 6% 7% 10% 15% 50%
Potential
Increase 20% 15% 10% 5% 0% 0% 0% 0% 0% 0%
0%
10%
20%
30%
40%
50%
60%
13 26 39 52 65 78 91 104 117 130Score
Potential Commodity Savings or Increase
Potential Reduction
Potential Increase
Bill Kohnen August 2013