by ProcureDeskLast Updated : Aug-16-2019
How to use purchasing catalogs to improve the purchasing experience?
Purchasing catalogs or vendor catalogs play a significant role in enabling the consumer shopping experience for the corporate purchase.
Every procurement team wants to provide a shopping experience like this
And every procurement system out there promises you this experience. All you need to provide this awesome experience in setting up catalogs in the system and you are good to go.
The reality is that even after implementing an e-procurement system, end-users purchasing might look like this and your users are left with filling in forms for creating the requisitions or orders.
The truth is that enabling catalogs needs strong collaboration with suppliers and a well-thought strategy about content curation.
This is the first thing we work on with our customers, understand their purchasing history and then provide a complete roadmap on how to build catalogs to enable a better purchasing experience.
In this post, we will cover a step-by-step approach to building supplier catalogs and thereby increase the adoption of your new purchasing system.
Table of Contents
When we say we need “Amazon” like experience – what does that mean?
We think it is important to clearly define what that experience looks like and then work on a plan on how to reach there.
Let’s explain with an example – Let’s take a simple example of computer accessories like mouse and keyboard.
Just a quick search on Amazon.com will show you multiple results for such computer accessories and you can see that are a lot of options to choose from.
So even though the user has so many options – Which one they should choose?
One would argue that the user can choose based on the reviews available on these sites.
Now, continuing with the sample example – IT has already defined the corporate standard for this accessory based on the overall value (price and durability).
So what is a good experience for the end-user?
Go through multiple options to figure out the best keyboard + mouse combo or just pick up what is the recommended choice by the IT group?
We feel it is the latter.
Rather than going through multiple choices to select the right product, it is best if the end users can leverage the time already spent by the IT group in the evaluation and set up a standard product.
The obvious benefit for IT is that it standardizes the product and reduces the support cost. The other side benefit is that you get lower overall cost – since you are purchasing the same product, you can leverage the volume to get a better discount.
A good experience can be measured by a single factor – minimal friction to achieve what the users are trying to purchase.
For example – if you are looking to purchase fire protection supplies, then it would be great to see all product options in one single place.
Not all end users are created equal – they have different needs and some are best served by catalogs and some are not.
So a catalog-based process might work great for a certain cohort of users and for some it might not work that well.
Some guidelines for good user experience
That item then should be routed to the right purchasing team.
We call it catalog optimization
Let’s first define the types of catalog a procurement team can create to better support buying experience for their end-users.
There are primarily two types of catalogs
Catalogs that are maintained by the procurement team – also called Internal catalogs.
And the catalogs which are maintained by the suppliers on behalf of the buyer – also called external catalogs.
Let’s see what are the criteria for deciding whether a catalog should be internal or external.
As we mentioned earlier, internal catalogs are managed by the procurement or someone internal within the organization.
Internal catalogs, of course, need to be maintained. As and when the product mix changes or you add more suppliers to the purchasing mix, the catalog needs to be updated.
Since it needs maintenance, companies should clearly think through whether a catalog has to be Internal or can be supported by the vendor as an external catalog.
The internal catalog makes sense in the following scenarios
1. The content of the catalog is static and doesn’t change that often. For example, raw material items you purchase for manufacturing goods you sell.
2. There is a limited set of items purchased per vendor.
3. The price of the items doesn’t change that often and even when it changes, it is vetted by the procurement team to ensure accuracy.
4. There is enough information available to create an internal catalog. For example, descriptions, images, etc. so that you can offer a superior purchasing experience to the end-users.
5. You have team members who can dedicate time to building and managing catalogs on an ongoing basis.
External catalogs on the other hand are managed by the suppliers on behalf of the buyer.
There are primarily two types of external catalogs – Punch out catalogs and supplier self-managed catalogs.
The external catalog makes sense in the following scenarios.
1. The supplier offers a huge spread of items so it doesn’t make sense to self-manage the catalog. For example, office supplies.
2. The content is not static and keeps on changing, for example – the vendor is continuously adding more items to the mix. A good example of this is substitute products – for example, Staples might add their own brand of post-it notes – which is a functional equivalent of 3M post-it notes.
3. The pricing change of the items doesn’t have a huge impact on your business. For example – The cost of paperclips went up a few cents, of course, that is not going to have a huge impact on your bottom line.
Contrary to that, a few cents change in the raw material cost might have a material impact on the bottom line due to the purchase volume.
4. The supplier has resources dedicated to catalog management and can provide support when needed.
External catalogs can be further classified into two buckets
Hosted by Buyer – Managed by Supplier
As the name suggests, these catalogs are hosted by the buyer in the buyer’s purchasing system but the suppliers are given access to create and maintain the catalog.
This is not a very common use case since it needs an internal review by the buyer before the changes can be published by the supplier.
Moreover, supplier access needs to be continuously managed. For example, if the supplier catalog contact leaves then you need to deactivate the user and onboard and train new users on the system.
Due to the overheads, it is advisable to limit such external catalogs.
A more common scenario for supplier-managed catalogs is punchouts. Simply put – A punch-out catalog is a catalog managed by the supplier which is accessed through your purchasing system.
The end-user has to first log in to the purchasing system, click on a link to open a supplier punchout catalog. For example – users going to Amazon.com punchout
Once the user selects what they are looking for, they are sent back to the purchasing system to complete the transaction.
Once the user is back in the purchasing system, they have to go through your regular purchasing process before the order can be shipped to the supplier.
You get an awesome shopping experience as well as purchasing control.
The one main issue with punchout catalogs is the ability to audit the price changes.
Since the price could change anytime – it is difficult to track price changes.
For this reason, it is not advisable to use punchouts for items that are price sensitive.
Internal vs. External Catalogs
Now you have an understanding of the different types of catalogs.
Let’s look at how to go about creating the catalogs for your procurement tool rollout.
There are primarily two approaches for catalog curation as described below
In this strategy, you are building the catalogs before the rollout of the procurement system. This approach takes more time as you need to understand the purchase history and what to put in a catalog.
This approach requires the following steps
1. Understand your purchasing history and identify what suppliers and what items need to be added to the catalog.
This approach requires a detailed purchase history and purchase order line items information is more preferable.
If you don’t have a purchase order system, it will be very time-consuming to gather this information by looking at individual invoices.
2. If line item details are not available, you can look at the spending by the supplier and evaluate if it makes sense to create catalogs for a certain set of suppliers.
The benefit of an upfront catalog strategy is that helps you to shape the user experience from day one of the implementation – assuming you are implementing a new purchasing system.
Though it is an ideal approach, sometimes you either don’t have resources to invest in upfront catalog curation or you don’t have good purchase history to understand your purchasing patterns.
If that is the case, you can use the Smart catalog curation strategy
In simple terms, this catalog curation strategy is about creating catalogs by identifying the Spend as and when it happens.
Assume you don’t have a good purchase history and you are not in a position to start your catalogs with few vendors.
In that case, you can roll out the system without the catalogs, and then as and when transactions happen in the system, use that information to create catalogs.
Now it is important to note that we are not suggesting that you automatically add every item added on the purchase order to a catalog. Instead, we are suggesting the following
For example, if the purchase frequency is consistent for a supplier, that supplier could be a potential candidate for a catalog.
1. Based on the purchase history and transaction data, you can then identify what line items should be added to the catalog.
2. The item descriptions should be enhanced before the catalog is published.
We don’t recommend using only the Smart catalog curation (SCC) approach in all cases but if there is no purchase history or no resources to invest upfront, then this is your best bet.
As we mentioned earlier, Internal vendor catalogs are catalogs that are managed by the procurement team.
You should use this type of catalog for static content – for example, a set of items where the information doesn’t change often and pricing is tightly controlled by the purchasing department.
So how do you go about setting up internal catalogs
Here is a step-by-step approach to creating an internal catalog.
1. First and foremost, look at your purchasing history for the last 12-24 months.
2. The last 12 months should capture the Spend which is recurring in nature.
3. From there, summarize the data by supplier and sort that by total spend. The idea is to identify top suppliers based on spend.
4. If you do have the last 24 months’ spend, you can look at year by year spend pattern to understand if the spend is recurring year over year. If not, then the supplier should be reviewed further to see if a catalog is required.
5. Once you have the top suppliers – segregate them into Products and Services. So any physical product would be in the product category and any type of service be in the service category.
6. Service catalogs are difficult to create and maintain, so we suggest you take that in phase two of your content curation. First, focus on the material items and create catalogs for those suppliers.
Once you have identified the material catalogs you want to create, there are two approaches to get to the line item information required for building the catalogs
Asking your suppliers
Asking your suppliers for the items you have purchased might be the easiest way to get started on the catalog curation process. Since they have the purchase history, you can easily pull the last 12-18 months of history to start curating the content.
Couple of things to keep in mind
You should also discuss the change management process with your suppliers. So even though you are managing the catalog, your suppliers should provide regular updates.
Those updates could include product changes, lead time changes, or regular review of the pricing with your suppliers.
We always recommend that you reach out to your suppliers first. Since curating catalogs is time-consuming, you can save a lot of time if you can get the content from your suppliers.
However, there might be cases when the suppliers are not able to provide this data or they offer a service and there is no fixed price. In that case, you need to curate your own content.
The starting point for catalogs is purchasing history. Once you have a purchasing history, you can analyze it for top suppliers and start creating catalogs for those suppliers.
Few tips and things to consider
The biggest issue we see in self-curated catalogs is that the price of the items is outdated. This issue is most common with the items which are purchased infrequently.
Let’s say you purchased a widget 6 months back, the price was $5.00 and you used that price to create the catalog.
The purchase order was sent to the supplier and the supplier came back that the pricing is not valid anymore. This scenario can be easily avoided by validating the price at the time of setting up the catalog.
Along with the price, if possible, maintain a price validity so that you know when you need to reach back to the supplier to revisit the price.
Ensure that units of measure (UOM’s) are correct, otherwise, it could create issues with how the products are shipped and that would later cause invoice reconciliation issues.
For example, the supplier sells the product by the dozen and you are ordering as Each. To take an example, let’s say you want to order pens where you have a UOM of each and the supplier sells in dozens.
If that is the case, you think you are ordering 1 item and you would in for a little surprise when a dozen pens would show up.
Whether you are creating the catalog on your own or asking your suppliers for the data, it is imperative that you set up a cadence for regular catalog review so that you have always the latest content in your supplier catalogs.
External catalogs are managed by the vendors, though there are options where suppliers can manage the catalog for you, using your system, it is not a very likely scenario.
For this discussion, by external catalogs, we mean catalogs hosted and managed by the suppliers for you. These are generally referred to as punch-out catalogs.
A punch-out catalog is a catalog hosted by the supplier for you and which is connected to your purchasing system. It offers the convenience of online shopping and purchases authorization which is critical for enforcing purchasing compliance.
For examples Staples.com
Key characteristics of a punchout catalog
1. Punchout suppliers are managed by suppliers.
2. They often are set up for categories where
3. From the look and feel perspective, the end-user would get the same experience as the supplier’s website. However, the pricing is specific for your account. The punch-out catalog will reflect your pricing.
4. One of the common challenges with punch-outs is the ability to restrict the end-users from purchasing only a set of items.
For example, you purchase kitchen supplies from a local vendor who gives you a great rate and faster delivery. Now assume you purchase your office supplies from Staples and they also have kitchen supplies on their website.
In that case, you want to restrict purchases on Staples punch-out to the limited set of office supplies categories.
Most of the punchouts allow you to block certain categories on their website so that it can only be purchased by a certain set of users or not purchased at all by anyone.
Similarly, Amazon.com allows your setup purchasing policies in your business account and blocked categories need to go through an additional approval process.
5. The pricing is managed by the vendor, so one of the disadvantages is that price could change anytime and you probably won’t know if the pricing has changed.
In some cases, your account manager might inform you about the price change. This is especially true in case you have a dedicated account manager.
If you don’t want to rely on your supplier for information on price changes, then you should set up an internal process to review the price changes on a regular basis.
Catalog management done right can certainly improve the purchasing experience for your employees and help increase procurement engagement with stakeholders.
Here are some best practices for catalog management
You should define a strategy for creating and managing catalogs so that your end users can get the best purchasing experience. The goal is to get close to the promised land of consumers like the shopping experience.
If you are planning to roll out a purchasing system, then we advise that you first take time to create a catalog roll-out plan.
What should be included in your plan?
By ownership, we mean internal and external ownership of the catalogs.
For example, your supplier should support you with
You should have an internal owner for the catalogs. With most of our customers, there is an internal purchasing team member who is responsible for the catalog setup and ongoing maintenance.
Depending upon the number of catalogs and frequency of changes, this could take be up to 30-40% FTE effort.
Most companies create catalogs for tangible products, however, very few companies create catalogs for services.
Not all your Spend is going to be product purchases, so why not create service catalogs too.
Granted, service catalogs are not as straightforward as products but done right, it can certainly help to improve the purchasing experience for your casual users (users who use the system infrequently).
Here are some tips on creating the service catalogs
For example – if you have a contract for software development and you are paying the company based on the number of hours worked, then the catalog line item would have a per hour rate. Let’s say $100/hr for a Java developer.
So now when the user is creating the purchase order, they can use this per unit rate and enter the number of hours based on the scope of the work.
“A picture is worth a thousand words” and that is certainly true for catalogs.
Having an image ensures that the end-users are picking the right product.
If the catalog does not have images, your users would land up spending time reading the product specifications to ensure that they are ordering the correct product.
Let us explain with an example. Assume that you purchase zip ties to tie network cables in your data center. And they are three different colors based on the application
So the colors are black, red and green.
So from a user experience is it better for them to look at the picture and knows exactly what it is or would you rather have them read through the description to figure out what they are buying?
Imagine Amazon.com without any images, would you like that shopping experience?
We don’t think so and the same is true for catalogs in your purchasing system.
So how do you get the product images?
We mentioned earlier also that there should be a set cadence to review your catalog content. Here is why that is required.
Avoid purchase order delays
Having inaccurate data can lead to delays in the shipment of the orders and could cause supply chain-related delays.
For example, if you have a wrong supplier part number, the supplier might not be able to deliver the order on time or even worse, the order doesn’t get processed and you don’t discover till the due date of the order.
To make sure cases like this don’t happen, you should continuously review your catalog for accuracy.
It doesn’t have to be a frequent review but it is worthwhile spending the effort to review the catalog once every 5 months to ensure that the data remains accurate.
Avoid invoice matching issues
In theory, a catalog should help you significantly reduce errors related to Procure to pay process.
Since the orders are created from catalogs, they should have accurate data about items.
When an invoice is created against that purchase order, it should automatically match and reduce the effort for the A/P team.
This vision can easily become an A/P nightmare if the data in the catalog is wrong in the first place.
A very common example of this is a unit of measure mismatch. For example, the unit of measure on the invoice could be each and the vendor is billing in dozens. Not only it leads to over shipment, but you also have to spend a lot of time clearing up that exception.
Vendor catalogs can significantly improve the purchasing experience for the end-users. Companies implementing a purchasing system should create a vendor catalog strategy before they start implementing the system.
Having a well-defined catalog strategy ensures that your end users can enjoy a consumer shopping experience for your corporate purchases.
What you should do now
Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.