Experimenting with strategic sourcing to achieve more with less

Do you think about strategy for different parts of your business? How about procurement? Does procurement have a strategy defined? Today we’re going to get into category management and discuss why dialing in this capability can be strategically impactful.

Hi, I’m Peter Nichol, Data Science CIO.

Whether you’re thinking about strategy, considering inputs, or evaluating tactics, category management offers new potential. What’s interesting about category management is that it applies a strategic focus to all the things we do with vendors. One obstacle we run up against time and time again is that we don’t have a strategic approach to managing and optimizing our procurement. In short, we have no strategic sourcing approach.

The projects we manage have roadmaps. The sprints we deliver have EPICS. The business, as usual, work in close partnership with operational goals. We have several strategic methods to manage these capabilities and ensure we’re getting what we expected. Discussing contract deliverables or pipeline value-stream rollups seems pretty straightforward regarding end-state expectations. Yet, somehow, when we pivot to the concept of source, we don’t have those same methods to measure or capture procurement-based capabilities.

The benefits of sole sourcing are vast. You go with vendors you know. You select vendors you trust. However, there are many different approaches when sourcing, whether you’re single or sole sourcing or multi-sourcing. Specifically, as we turn to category management, we’re talking about leveraging capabilities across an organization. For example, instead of five departments contracting with a vendor five separate times, category management elevates this vendor. Category management champions the idea that this vendor requires greater awareness organizationally. The simplicity of category management is that we don’t contract five times. We only contract once with that vendor. The same terms apply to all business units. We include these controls to validate that we’re receiving consistent services. These uniform contract terms ensure that we’re achieving the performance levels we’ve agreed to in the contract.

Category management elevates your sourcing game so your procurement teams can operate at a strategic level. This cuts off the tactical baggage of messy, last-minute contracts and makes our engagements and contracting more deliberate.

The greatest challenge when rolling out a category-management approach centers around delegation. As a leader, you must delegate responsibilities that today are likely performed by resources on your team. These responsibilities aren’t elevated and strategic, and they logically belong to the enterprise sourcing and procurement groups. Empower those groups to be great. After all, they’re the experts. These new responsibilities help them contract more effectively and drive strategic benefits in contracts that affect multi-teams.

Category management needs to negotiate. They might not have the experience today, but they’ll get it. They must. It doesn’t matter if you’re managing a service business or addressing SAS-type solutions. Have sourcing negotiate these. Not only will you realize better performance, but category management will be in a better position to drive SLA compliance and keep better tabs on evolving KPIs. These metrics might be new. With this revised category-management model, aggregating these metrics will be more straightforward and might include some of the following:

  • % of spend as a percent of net spend for the department
  • % net spend growth year-over-year
  • Dollars spent as a percentage of revenue
  • Total cost savings
  • Supplier fulfillment/SLA
  • Procurement-led value improvements $ (per KPIs from above), including year-on-year cost savings
  • Procurement OpEx or Cost-of-Procurement (procurement “investment”)
  • Procurement “ROI” calculated from the previous two
  • Net promoter score
  • Process metrics; e.g., cycle time, defect/rework rates, process-level productivity, etc.
  • Best-practice resource utilization and allocation
  • Value leakage (maverick spend, duplicate payments, supplier penalties, etc.)
  • Procurement staff performance and capabilities linked to skills and competencies)

Is the vendor adhering to the contract? Are deliverables being provided on time? Setting up category management establishes the foundation for using metrics to manage vendors as strategic partners proactively.

Are you interested in saving sourcing money? Are you trying to do more with less? Do you wish your vendors would bring their A-game? As you’re thinking about the next half of the year, consider how optimizing your procurement and sourcing groups can make your department more strategy-focused. Use category management as a first step toward making procurement and sourcing more strategic for your organization!

If you found this article helpful, that’s great! Check out my books, Think Lead Disrupt and Leading with Value. They were published in early in 2021, and both are available on http://www.datsciencecio.com/shop.

Hi, I’m Peter Nichol, Data Science CIO. Have a great day!

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Peter is a technology executive with 19 years of experience, dedicated to driving innovation, digital transformation, leadership, and data in business. He helps organizations connect strategy to execution to maximize company performance. He has been recognized for Digital Innovation by CIO 100, MIT Sloan, Computerworld, and the Project Management Institute. As Managing Director at OROCA Innovations, Peter leads the CXO advisory services practice, driving digital strategies. Peter was honored as an MIT Sloan CIO Leadership Award Finalist in 2015 and is a regular contributor to CIO.com on innovation. Peter has led businesses through complex changes, including the adoption of data-first approaches for portfolio management, lean six sigma for operational excellence, departmental transformations, process improvements, maximizing team performance, designing new IT operating models, digitizing platforms, leading large-scale mission-critical technology deployments, product management, agile methodologies, and building high-performance teams. As Chief Information Officer, Peter was responsible for Connecticut’s Health Insurance Exchange’s (HIX) industry-leading digital platform transforming consumerism and retail oriented services for the health insurance industry. Peter championed the Connecticut marketplace digital implementation with a transformational cloud-based SaaS platform and mobile application recognized as a 2014 PMI Project of the Year Award finalist, CIO 100, and awards for best digital services, API, and platform. He also received a lifetime achievement award for leadership and digital transformation, honored as a 2016 Computerworld Premier 100 IT Leader. Peter is the author of Learning Intelligence: Expand Thinking. Absorb Alternative. Unlock Possibilities (2017), which Marshall Goldsmith, author of the New York Times No. 1 bestseller Triggers, calls "a must-read for any leader wanting to compete in the innovation-powered landscape of today." Peter also authored The Power of Blockchain for Healthcare: How Blockchain Will Ignite The Future of Healthcare (2017), the first book to explore the vast opportunities for blockchain to transform the patient experience. Peter has a B.S. in C.I.S from Bentley University and an MBA from Quinnipiac University, where he graduated Summa Cum Laude. He earned his PMP® in 2001 and is a certified Six Sigma Master Black Belt, Masters in Business Relationship Management (MBRM) and Certified Scrum Master. As a Commercial Rated Aviation Pilot and Master Scuba Diver, Peter understands first hand, how to anticipate change and lead boldly.