As the influence of procurement continues to grow and impact the bottom line across businesses, procurement has had to evolve in terms of its approach and develop the value proposition that it offers to its stakeholders.
In recent times one of the key changes has seen procurement re-position itself from being masters of traditional sourcing to adopting a more holistic category management approach which encompasses both strategic sourcing and supplier management whilst embracing stakeholder relationships.
If category management is understood and successfully implemented a business can unlock significant value within both its organisation and its supply chain as it aligns stakeholders’ requirements and embeds them within both the medium and long-term strategies for managing spend. This should lead to improved business outcomes in terms of reduced cost, reduced risk, improved service/value and improved revenues.
What are the key ingredients of success for a high performing category management culture?
Category management really is more of a value led innovative way of thinking than the traditional approach of procurement teams, but it requires much more than different procurement processes, alternative procurement systems and changes made to procurement templates. To be truly successful it requires a completely different prospective of strategic thinking, a wider business change culture and unwavering sponsorship from the top of the business down to embed it successfully. On these points alone in the implementation may pivot between success and failure.
Key ingredients to the deployment of an impactful category management solution when transcending from a more traditional procurement cost down way of working are:
1) Top Level Sponsorship and Vision – Absolutely vital prior to taking a quantum leap to a strategic category management way of working is to ensure that Board level sponsorship is firmly in place and that there is a shared vision of the value proposition which procurement can add backed by a recognition for the need for this change. A clear benefits case must have been presented and understood.
2) Strategic Objectives – Once the vision is established key strategic objectives should be agreed for procurement which will become the cornerstone of the success of this business change. By ensuring buyin to the strategic objectives of key business stakeholders and the procurement team it will start to embed a new way of more lateral thinking. As part of this development of a more detailed underpinning strategy a plan should be agreed amongst the procurement team and with the Board which articulates the deliverables of procurement over the short, medium, and long term.
3) Stakeholder Relationships – Procurement cannot undertake category management in isolation. Key to the principles are to develop strong working relationships with stakeholders and to enable category management to reach its optimum the conversations between procurement and stakeholder need to flow very naturally and be less forced and prompted. This will of course develop over time and will ensure that the relationships are strengthened and are based upon collaboration and trust.
4) Cross Functional Teams – It is clear from our experience that for a organisation to achieve the best business outcomes from sourcing and supplier management initiatives that procurement and the stakeholders need to work together to add value. To achieve this clear roles and responsibilities should be agreed and formalised to ensure all parties add value at the appropriate time without duplicating resource.
5) Supplier Engagement – Similarly to working as cross functional teams it is of immense value to collaborate with suppliers both pre and post sourcing initiatives. By embracing the supply base this will potentially bring an alternative view to an internal perspective based on greater breadth and depth of category experience derived by delivering similar project for other clients.
What are the key steps of the category management approach when leading a sourcing review?
1) Initiate the Review – At the ‘kick-off’ of a review a cross-functional team should be brought together to consider and agree on the scope of the project, the stakeholders that need to be involved (and/or consulted), the skills that are required within the project team and whether these are available in-house, what the roles and responsibilities of each stakeholder are what the logical steps of the projects are with key timebound delivery milestones.
2) Research the Opportunity – At this point of internal knowledge should be pooled in terms of product/service innovations, new potential ways of working, identifying potential suppliers in the market and case studies that the project team are aware which may challenge the current way of working. It is also critical at this stage to engage with potential supplier partners and encourage the spirit of an open discussion as part of the qualification process for their inclusion in the review.
3) Develop the Category Strategy – This is a vital stage of this review and once this part has been completed the sourcing process will be in full flow. At this point, a sourcing strategy will be agreed by the team and as part of this decision several potential alternative sourcing strategies will be considered and potentially ruled out. Also at the stage the route to market will be agreed by the project team, the suppliers to be involved in the review will be selected and the team should be aware of this stage if the research has been completed to a high level of the anticipated benefits of the review and of course any associated risks.
4. Implement the Category Strategy – Essentially this stage of the review is the sourcing process which may of course include a tender. Once suppliers are engaged in the process and proposals are submitted these will be analysed by the project prior to being evaluated. Once the evaluation is complete negotiations will take place as appropriate ahead of the supplier(s) being selected, a contract being awarded and a successful implement of the category strategy.
Does category management end at this point?
In a word, no! Following a successful implementation, the category management approach will extend into supplier management which includes the final part of the cycle as follows:
5. Managing the Supplier Relationship – Once the supplier(s) have been appointed it is essential that what was identified to be delivered in the early stages of the category review are delivered as a minimum. Key questions to be addressed at this stage include:
- Are the benefits tracking as projected?
- Are the risks being managed effectively?
- Are there any service or relationship issues?
- What initiates can be undertaken in the spirit of continuous improvement?
- What win/win stretch targets can be applied to over deliver on what the category review set out to achieve?
We hope you’ve enjoyed this short article on category management, and this is a technique which Oculus Procurement successfully implemented on several engagements for our clients.
Oculus is a specialist procurement advisory company, working with some of the UK’s most recognisable brands and organisations across a breadth of industry sectors. If you would like to speak to us about how we can help your organisation, then we would love to hear from you.
ABOUT THE Author:
Mark is a mature and highly-experienced procurement leader who has an impressive track record of leading and managing procurement transformation programmes; leading strategic sourcing initiatives; and developing and improving the performance of existing procurement teams in a coaching capacity, applying category management principles.
Mark is one of the founders of Oculus and has led many procurement programmes across key industry sectors over a career which spans over 25 years. He has a reputation for leading teams in conducting opportunity assessments; assessing the maturity and capability of existing procurement teams; and delivering significant and measurable cost savings at speed.
In addition, Mark also has a track record of embedding key procurement skills within organisations: to ensure these companies see a sizeable improvement in how they conduct their strategic sourcing and supplier management activity.