Business, Management

The Golden Rules of Category Management in Procurement

procurementDuring the last 20 years, many organisations in both the private and public sectors worldwide have adopted the process of category management. While excellent progress has been made on many fronts, there are still significant advances yet to be made. Category management is defined as "an agreed, structured process to realise and maximise value across an organisation‟s total categories of third party expenditure".

Category Management or CatMan for short is the Heartland Process of Modern Professional Procurement. There are five key golden rules to get the best out of the process.

Category Management Laws and the Golden Rules

The aim of each of these laws is to provide a CPO road map and summary of critical design features.

Golden rule 1: "Value maximised through category management is directly correlated with procurement's internal alignment and influence."

This can be difficult at the start of the change journey. Beware a narrow strategy of "procurement push" and cost savings only. Negative perceptions are quickly formed.

It is far better to focus on the needs and business requirements of the top 50 executives. Find out what they are and be seen to align with them.

Follow structured stakeholder engagement and create a compelling business case for change. Make sure it has a strong ROI and deliverables that are valued in the eyes of stakeholders. Give real clarity to that value proposition.

Map out the value maximisation levers as well as the cost minimisation ones. Quantify this value and articulate it carefully, in business language that the organisation understands and identifies with.

Embark on (or revisit) personalised stakeholder briefings to raise awareness with the senior management community. Recruit sponsors for defined areas of spend. Actively involve them throughout the process of category planning and performance review.

Golden rule 2: "Progress in application and spend penetration does not happen by accident. Planning and proactivity pay off."

Only limited progress can be made through quick wins and small-scale change programmes. Sooner or later the CPO needs to secure full executive support for properly resourced, business-wide category management. A key test is securing the necessary support for a new or stronger operating model and its associated budget.

The newly appointed CPO should make this a prime outcome from the first 100 days in the business.

A CPO who has inherited a poorly performing procurement group needs to conduct a "from … to" type of analysis and then argue the case for change.

A CPO in the fortunate position of having a best-in-class team will probably need to concentrate more on the value maximisation / supplier management side of the category management process, rather than the sourcing and spend consolidation side.

Golden rule 3: "Nothing succeeds like success. Define and agree the process; apply it in a focused manner; and then use success as a calling card with key executives and stakeholders."

The evolution of GSK‟s SGM process is a typical example. Many will recognise their five phases: process initiation, situation analysis, strategy creation, strategy implementation and continuous improvement.

Defining, designing and launching a process, however, is relatively straightforward. If you don‟t possess one, or are not satisfied with it, then buy one in. Make sure that it has a compelling design and is user friendly, with process flexibility as a key feature. Don‟t try to apply one monolithic process to every category of expenditure. It should be modulated. Simple categories need CatMan light. Only use the full process where it adds real value.

The big challenge is implementation and adoption. Stakeholders have little inherent interest in process speak. They want to see timely, successful, high impact outcomes. Focus the whole team on a month by month and quarter by quarter project plan. The "drum beat" of successful deliverables is what really matters.

Golden rule 4: "A category management process needs teeth. Proper governance, programme and project management, solid market intelligence and transparent performance measurement and reporting are critical success factors."

Category management is in effect a project management discipline applied in procurement. Without that, less than 40% of the total potential value will be delivered, and many of the promised benefits will "leak" from the system.

Critical success factors in this area include:

  • Spend data completeness and accuracy;
  • An agreed, defined and transparent process;
  • Category planning with prioritised, timed projects;
  • A well mapped out pipeline of targeted benefits;
  • Credible progress tracking & performance measurement;
  • Agreed decision gates and category reviews;
  • Full-time category leaders in place;
  • Executive sponsors as owners of broad spend areas;
  • Quarterly and annual sponsor reviews;
  • Signed off category level and sub-category strategies;
  • Process assessment and certification.

Golden rule 5: "Tools and techniques are great - they can add lots of value, end to end across the full process of pre-sourcing, sourcing and supplier management - but they are only as good as the well-trained team using them."

Category Management needs a critical mass of pivotal category leaders with the right skills mix. Conduct a searching competence assessment to identify the critical gaps.

Many of these will be in the soft skills area. Take the analytical steps of the process and identify the "moments of truth" where category teams must influence and persuade key stakeholders. Focus training, coaching and mentoring on these areas. Concentrate on mind sets as well as skill sets. Build confidence as well as competence.

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