Definition
The six main focus areas of procurement strategy by product category rather than by component: product-type analysis, environmental analysis, supply base analysis, cost management techniques, procurement strategy, DBS implementation; and the configuration of strategy strength by component risk level.
In detail
Commodity Management is a process for developing procurement strategies by commodity rather than individual parts, encompassing six areas: commodity analysis, environmental analysis, supply base analysis, cost management techniques, procurement strategies, and DBS implementation. It configures strategy intensity based on part risk levels, addressing how to consolidate purchase volume and optimize the supply base. Division of labor with supply-base management (SBM): Commodity Management decides what to buy, while SBM decides how to manage relationships. Outputs include commodity strategy summaries and supplier matrices.
Example in practice
A company analyzed the electronic components category and found that procurement was scattered across multiple suppliers, resulting in high costs and supply risks. They used ABC analysis to identify key parts, consolidated purchase volumes, negotiated with preferred suppliers, and signed long-term contracts. They also assessed environmental risks and established alternative supply sources for high-risk parts. Finally, they output a category strategy to guide procurement execution.