Do you think about the 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 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, works ties into operational goals. We have several strategic methods to manage these capabilities and ensure we are getting what we expected. Discussing contract deliverables or pipeline value stream rollups all seem 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’re going with vendors, you know. You’re selecting vendors you trust. However, there are many different sourcing approaches when sourcing, whether you’re single sourcing 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 and getting the performance. These uniform contract terms ensure we’re achieving the performance levels we’ve agreed to in the contract.
Category management elevates your sourcing game so that 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 likely today are performed by resources on your team. These responsibilities are not elevated and more strategic and logically belong to the enterprise sourcing and procurement groups. Empower those groups to be great. After all, they are the experts. These new responsibilities help them contract more effectively and drive strategic benefits in contracts that affect multi-team.
Category management needs to negotiate. They might not have the experience today, but they’ll get it. They have to. It doesn’t matter if you’re managing a service business, addressing SAS-type solutions, have sourcing negotiate. You’ll experience that not only will you realize better performance; category management will be in a better position to drive SLA compliance and keep better taps 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 spending 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 strategic-focused. Use category management as a first step towards making procurement and sourcing more strategic for your organization!
If you found this video helpful, that’s great! Check out my books, Think Lead Disrupt and Leading with Value. They just came out 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!