Procurement strategy: Which product range level should you choose?

When it comes to class C purchases, internal customers often freely choose the products they need, just as they are used to doing for their own personal purchases. As a result, it’s in the interest of procurement departments to structure their procurement strategy by formalising product expectations in terms of functionality, quality and results. Adopting this approach would enable them to better classify their spending and therefore bring the procurement category under control. In this context, product range levels are essential.

The three main product range levels

There are generally three broad product range levels, which are determined by both quality and price:

• High-end

These are high-quality products with high prices. These are branded products that are usually exclusive, innovative or have features with added value. This product range level should be prioritised for high-involvement products, i.e. when internal customers have high expectations of their reliability and/or lifetime.

• Mid-range

Offering the best value for money, these products are on average 10% cheaper than high-end products. They meet quality and performance requirements, while offering a reasonable price. Internal customers can absolutely use the mid-range level for their everyday products.

• Low-end

These products meet immediate needs and are on average 20% cheaper than high-end products. They are not intended to last, but they must be quick and easy to get hold of. It’s a good idea to choose low-end products for supplementary purchases that internal customers need quickly.

Private labels: A compromise of choice

It’s also worth throwing private labels into the mix, as these can be considered as a real alternative to other product range levels. Some brands, such as those offered by Manutan, offer the same quality as high-end products and are on average 15% cheaper.

These products do not benefit from advertising, merchandising or even specific listing by the manufacturer, so the distributor makes savings on the purchase price and can therefore offer a competitive rate.

Furthermore, these products are often tested internally or by specialised providers to assess their cleanliness, strength, safety etc. This provides customers with a good level of warranty. For example, all Manutan-branded products have a 10-year warranty (or a 3-year warranty for consumables)!

Optimise your procurement strategy with the right product mix

For various reasons, internal customers often tend to opt for high-end products, even though other, more cost-effective product range levels are sometimes more suitable. This phenomenon, known as excessive quality, highlights the need to better qualify business needs in order to choose the right product range level and thus avoid unnecessary expenses.

To illustrate this, let’s take a look at the example of adjustable wrenches from our infographic:

• A management assistant who must urgently adjust the furniture in the new meeting room to host the board of directors at the end of the week can opt for the low-end range at €6 or, if the tool is going to be used frequently, they could even purchase the private label (€10) or the mid-range (€13) product level.
• However, a maintenance technician would need the high-end adjustable wrench priced at €70. Since it is their main work tool, they need to choose premium quality.

Excessive quality is spread across all departments within organisations, so it can quickly become a huge expense.

Procurement departments must therefore optimise product consumption by analysing the needs of internal customers and making them aware of this issue. Moreover, by directing their procurement strategy in this way, savings can be made, which will be directly reflected in procurement department budgets.