Been asked to justify every single expense for your procurement project? Here’s how to implement a strategy that works to do this.
Picture this (and maybe you don’t need to because it has already happened): you’re successfully managing a procurement project – one which you consider to be critical to the organisation – then the unthinkable happens: The CPO approaches you and says “Times are tough and we’re cutting costs. As of today you have no budget. Prove to me why you need one.”
It sounds extremely harsh; not to mention unrealistic! But is it? Reevaluating everything from the group up is one of the big supply chain and procurement ideas we think will change everything in 2021. But how do you successfully adopt such an approach, and what benefits can it bring?
What are the benefits of working from the idea of a ‘zero budget?’
It’s a well-established fact that most of us in procurement are trying to save our companies’ money right now, but we’ve all equally acknowledged that simply asking our suppliers for a blanket discount is not only inappropriate, but just won’t deliver the savings we need. So what should we do instead?
One effective cost control method is to imagine you simply don’t have a budget for the procurement project you want to undertake. To start this process, you meticulously analyse every single line item in your project, and attempt to justify its existence. This strategy, which is effectively the opposite of relying on historical purchasing patterns, enables you to rethink and justify everything you’re doing – and hopefully figure out how to control costs more effectively in the interim.
This approach, which does require a considerable amount of time and effort, has in years gone by been dubbed ‘too harsh.’ But how about during years like the one we’ve just had? It may well be realistic, appropriate and, most of all, needed.
How do you restart the planning process for your project with no budget?
If the idea of justifying every single line item cost in your procurement project sounds like a lot of work, it’s because it is. But it certainly isn’t no pain for no gain, as the level of analysis required enables you to innovate and cut costs in ways you never would have imagined.
In order to implement a such a strategy, experts recommend the following:
Get into the mindset of ‘you have no budget. Prove to me you need one’: As harsh as this sounds, this is the exact mindset you will need in order to truly justify every single expense.
Get management’s buy-in: The analysis required to implement such an approach will likely take time (it may take weeks or even months), so buy-in from the CPO and above is necessary.
Know that training and dedication will be required: When committing to such an approach, there is no point trying it, and then reverting back when it’s too hard. It’s an all-or-nothing approach and you need to see it to the end for it to be effective.
In addition to the above, there is one essential question you need to ask yourself when implementing this strategy, and it might be a truly uncomfortable one. Discover what it is, and many other game-changing ideas, in our compelling whitepaper 100 Big Ideas for 2021.
Category management is still misunderstood as a specific function in procurement. While understanding the category is important, the focus should be on the word “management”: managing internal stakeholders, understanding their needs, and managing suppliers by understanding their needs to find win-wins, generate value and ensure continuous improvement.Jaggaer’s Georg Roesch explains.
Category management is not a difficult concept to grasp. Really. Just answer the following question: Which do you prefer: a) shoddy or mediocre goods and services at high prices, or b) excellent value? When it comes to execution, however, things get a lot more complicated. Category management is a technique used to understand markets, analyse spending, and make good purchasing decisions that save you money while securing quality goods and services.
If you are new to the subject, there are many tactics, but a common one is to start with bundling items to take a bigger deal to market in order to be in a better position to negotiate a better price. One of the most popular and accessible books on procurement poses the question that goes to the heart of category management, and very simply: Why are hot dogs cheaper in IKEA than in the supermarket?
That’s all well and good, but IKEA sells a standardised range of products through near-identical superstores all over the world. It makes total sense that it bundles everything it buys from hex keys to drapes to hot dogs and gets a fantastic deal. What’s not so easy to understand is how that works for a company whose products are highly sophisticated and/or non-standardised. Take, for example, the Swiss company Bühler. Each day, two billion people enjoy foods produced from raw materials such as grain, coffee and rice processed on Bühler equipment; and every day one billion people travel in vehicles manufactured with parts produced with Bühler machinery. But the important point here is that every single machine that Bühler produces for its customers is unique. In that sense it is the absolute antithesis of IKEA.
Yet in another sense, it faces a similar challenge. The global orientation of the company’s products, its presence in 140 countries worldwide with 20 business units, 30 manufacturing sites, 100 service stations and 25 application sites mean that sourcing is a global operation – and for Bühler, category management is crucially important to business success. And it is incredibly complex because, whether Bühler is producing air pressure systems, silos, compressors or steel constructions, the company always sources for specific projects, which means there is a huge range of differentiated categories.
Of course, companies like Bühler want to minimise spend, but for companies that believe “you cannot put a price on quality”, category management has many other dimensions.
A misunderstood term
Category Management remains a largely misunderstood term. The confusion arises in the fact that it was originally coined by marketers in the retail industry: Nielsen defines it as “a process that involves managing product categories as business units and customising them [on a store-by-store basis] to satisfy customer needs”. Others define it as managing a line of products as a business unit, as opposed to individual brand management.
Only later did the term get adopted by procurement, where it is defined as “a strategic approach to procurement where organisations segment their spend into areas that contain similar or related products, enabling opportunities for consolidation and efficiency” (CIPS). Many procurement professionals might argue that this is what procurement has always done: understanding markets and looking for ways to strike a good deal. However, what category management as a distinct activity and organisational structure brings to the table is greater depth and sophistication.
A category is basically any group of similar items that you want to buy under a single deal: goods and services that are available from the same or a similar supplier base. Examples are stationery, fuel, travel services, transportation and logistics, advertising and legal services. But we should focus more on the management part, which is about applying robust methodologies (and a good deal of business acumen) so that you not only maximise savings (for example by designing the right sourcing events that are appropriate for each category) but also achieve other goals such as shortening time-to-market, reducing risks, increasing environmental sustainability, broadening supplier diversity or even creating new revenue streams. All of this implies a much stronger connection between the procurement function and the organisation’s strategic objectives and even its mission, vision and values.
The key to effective category management here is understanding the internal customers’ needs, as well as what’s going on in the supplier market. Category management is by its very nature a role that is normally a center of excellence, but it must be responsive to local needs and win stakeholder buy-in. To be successful and to command respect, a category manager must know how to leverage internal knowledge and expertise and must be able to work cross-functionally. In practice, this could involve, for example, involving key stakeholders such as operations and quality control managers – and in the case of strategic suppliers, senior executives – on factory or site visits to build confidence that suppliers have what it takes (human and technological resources, financial strength and resilience, physical size of the business etc.) to satisfy everyone.
Time-to-market, for example, has become a decisive factor in the success or failure of a product, and in particular, the launch of a new product. Category managers can play a critical role in reducing lead times, as long as they are involved in the production process early on. For example, the lengthy request process for customised parts can be drastically cut down with excellent supplier communication supported by the right IT tools. To ensure that the price of a material or a part is not the only deciding factor in their selection, the category specialists need to look for further streamlining potential in purchasing and striking the right balance between stimulating competitive pressure on suppliers and consolidating spend.
In practice, you might for example negotiate a bonus to suppliers for beating the delivery deadline, or a penalty for missing it. With the emphasis on the former: the best category managers treat suppliers as partners, rather than people you need to beat up on price. In a complex category such as transportation, category managers should seek to balance savings with objectives such as reliability and operational integrity. The outcome should be a win-win for buyer and seller alike. Often the best way to do that is to keep the strongest incumbents on good rates while leveraging smaller operators who offer great performance.
If category management can achieve all of the above, it will succeed in raising the profile of procurement across the organisation, changing the perception from a functional, operationally focused activity to a business process. As well as making breakthrough savings, the organisation will notice improvements in service levels, quality, availability and value for money, and a reduction in disruptions to the supply chain.
The supplier’s perspective
Understanding things from the supplier’s perspective can be approached scientifically and systematically. Just as we are accustomed to plotting suppliers on a matrix to assess their status (as strategic, tail spend etc.) so a category manager should do the same from the supplier’s point of view, which means plotting Attractiveness of Account against Relative Value of Business. Suppliers see their customers as falling into one of four basic categories:
Nuisance: The customer has driven a very hard bargain on price and is highly demanding, which gets in the way of my other business. I have no incentive to compete for their business in future and am not motivated to give them good service.
Growth:The customer is not profitable right now, but the account is worth developing as I expect bigger opportunities. So, I will show willing and “use a sprat to catch a mackerel”, as the saying goes.
Profitable:The account can bring me potentially huge gains in the short term, but I don’t see it going anywhere. I will respond to requests but get the best price, even if that means losing the account. So, let’s make hay while the sun shines.
Core: I value this relationship. It’s profitable in the long term, so I will do what’s necessary to give excellent service in order to beat off any competition. That means I have an incentive to work collaboratively with the customer to reduce costs, innovate and add value.
Whereas strategic sourcing will tend to recruit new suppliers into the “growth” segment, the job of category management should be to move them into “core”. This requires category managers to develop the ability to walk in the supplier’s shoes. And once again, this will require cross-functional stakeholder engagement across the organisation so that both parties understand each the other’s needs in greater depth, appropriate training and joint activities are arranged, etc.
In this way the initial savings secured through sourcing will not be eroded over time; on the contrary, the benefits will be extended as the relationship matures. Both parties have an incentive to look for ways to reduce costs and increase value, e.g. through process improvements, which typically drive year-on-year benefits equivalent to around 5% cost saving with each renewal.
Above all, category management is a continuous process, and one that is multidimensional. Therefore, it is not always easy for mere human beings to grasp in all its aspects. Increasingly, category managers are relying on business analytics and artificial intelligence to undertake continuous analysis of market data and supplier performance against benchmarks to deliver a range of benefits across multiple inter-related projects. The future of category management will be a matter of harnessing what advanced analytics is good at to what humans are good at. If you’re interested in hearing more on category management and how to effectively digitize the process, tune into our webinar with The Hackett Group and AstraZeneca! We’d love to hear your thoughts in the comments!
With digitisation focused on Operational and Tactical aspects of function, and the next wave predicted to focus on technology that enables Strategic work, what are the implications for our future Category Manager’s skillset? Gregory Romney shares his expertise.
In a recent post, I made the observation that in large part the Procurement digitisation that has happened over the years has been focused on the Operational and Tactical aspects of the function (i.e. Buying, Sourcing). I also made the prediction that the next wave of Procurement digitisation will be more focused on technology that enables the Strategic work that organisations still struggle to prioritise. If I’m right, this will have significant implications on the skills that will be required to be successful in the role of a Category Manager and poses a fundamental question:
What is the future role of a Category Manager and what skills will be most important?
I’m not sure the answer to this question really differs all that much from what we would see on most aspirational job descriptions today, however, there won’t be any room for compromise. Future success in the Category Manager role will be dependent on the ability to closely mirror the skillsets of 3 roles: Strategist, Advisor, and Broker.
Similar to a game of chess, a strategist has a well defined plan in where he/she knows the the steps necessary to win the game, or in this case to bring the most value to the organisation both from a traditional bottom-line perspective, but top-line as well. As a Strategist, deep understanding of strategic frameworks will be required and their practical application for the category the CM supports. Additionally, sharpened data analytics capabilities will be increasingly important. However, the most important skill the Strategist will have is the ability to interpret the analysis, “connect the dots”, and then effectively communicate this internally to key Business Partners & Stakeholders. This leads me to role #2.
I recently read the book The Trusted Advisor by Robert M. Galford and it expounds upon 3 core skills that are key to becoming an Advisor: earning trust, giving advice effectively, and building relationships. I believe it sums up perfectly how to transition from playing the Strategist role to the Advisor role. The activity of “advising” may sound more familiar when you use it in the context of engagement with internal Business Partners. According to a study conducted by CAPS Research, only 24% of organisations consider their advisement or engagement Strategic, meaning it is highly collaborative and proactive, there are shared dashboards between Procurement and the Business Group they support, as well as aligned metrics. Despite such a low percentage of Strategic engagement, the study did find that 72% of engagement was Transitional, meaning engagement was increasing, and Business Partners were engaged with the category strategy. This certainly is a positive trend. The reason I believe achievement of Strategic engagement or advisement with our Business Partners is still so low is due to the fact that this work looks very different from the Tactical and/or Operational work that Procurement teams have been tasked with managing historically. However, if we are able to make the transition to “Advisor” successful, it will open the door to significant opportunities that Procurement is already well-suited to help deliver due to role #3.
Most Category Managers play this role decently today and in most cases have sufficient skills to broker deals between the company he/she represents and its suppliers. We have tools and well-defined processes to help us in this role, however, most of the deals that CM’s are brokering today are focused heavily on delivering value in form of cost reduction and less in the form of supplier innovation that can impact the top-line. In order to capture this form of value from the supplier base, a Broker needs to truly be willing to learn from the supply market and foster an environment within his/her own organisation so that they are prepared not only to receive, but act upon the supplier-led innovation. The skillset required in this type of deal brokering is different from what we have traditionally done when playing this role and so will the tools that we leverage to enable this activity (hint: eSourcing will not be the optimal tool from the toolkit for this kind of brokering). A perfect example of this is found in the recent announcement from Coca-Cola European Partners (CCEP) in regards to the introduction of CanCollar, a sustainable paperboard packaging solution, for multipack cans in Spain. Through collaboration with its packaging supplier WestRock, the company projects that the new solution will save more than 18 tonnes of plastic annually and has invested €2.6 million in its Barcelona plant in order to support the initiative. Hats off to the Procurement team that I’m sure was intimately involved in brokering this deal!
As I mentioned earlier, these roles at face value are not a drastic shift from what Category Managers are being asked to play today, but if we are honest with ourselves and the members our organisations, there are very few that excel in one let alone all three. This is the capability gap that Procurement faces and in a parallel there is a Technology gap to help enable it, both of which will require an overhaul across a myriad of current mindsets, practices, and investments.
This is why I predict the future wave of digitisation will be focused on empowering the Procurement function across these 3 roles and I’m confident that the function, as well as the supply market, will rise to the occasion and make the necessary changes to address these gaps. In doing so, I’m hopeful Procurement will become a profession of choice not mishap.
Agree? Disagree? Please share and let me know your thoughts in the comments section!
We should care more about strategic supplier management right now, despite this being the time of COVID, budget cliffs, and “everything is on the table” portfolio reviews.
While procurement’s roots sometimes feel operational, based on the tactical action of turning a requisition into a PO, the trunk of the procurement tree is strategic sourcing. In even moderately mature organisations, we see teams organised around execution of an n-step sourcing process designed to consolidate volume with fewer suppliers and generate cost savings.
For those teams that have advanced to category management, there’s an effort to better understand stakeholder needs and the external market, and to build out a longer-term project plan to drive value beyond savings. Think of those projects as the branches that continue to grow and generate new value. Check out this post for more on cost savings opportunities and this one on post-COVID strategy.
It’s often not until we get past a certain stage of organisational maturity that supplier management really becomes an area of focus. In a seedling organization with a thin trunk, the idea of spending time out on thin branches may feel wasted when there is fresh spend to be sourced.
However, now that most procurement organisations are mature enough to be thinking about value beyond savings – and I believe most are, whether they are recognised for it or not – we need to think about the opportunities hanging off those branches. Where do we want to spend our time? On the thickest, strongest branches that can support our future objectives, with many offshoots for new value, of course.
Stepping away from the tree analogy (sorry if that went too far), what many of us in the function have learned over time is that more value can come from nurturing our existing supplier relationships than from sourcing events with new suppliers. In fact, when growth stagnates and we rely on these partners to see us through hard times, strategic supplier management can become a competitive differentiator. Companies with access to the latest technology, the best support levels, and the freshest ideas, are the ones winning in the modern world.
My first research study on Supplier Relationship Management (SRM) was back in 2006, and these concepts were just coming into vogue. Then I did two more studies, each five years apart, with very little difference in industry maturity.
In that time, I had numerous large organizations come to me saying, “we need to build up an SRM program.” Sometimes the same company, five years after the last attempt had failed and management was back to square one. Here I am again, testing the market with another study, this time focused on the practices and outcomes from our most strategic suppliers.
Why should we care about strategic supplier management right now, in the time of COVID, budget cliffs, and “everything is on the table” portfolio reviews? It’s important for a few reasons:
In times like these, we rely on our partners even more
As much as we want to run out and negotiate cost reductions, we all know many companies would not have made it through the last six months without a strong supply base. Monitoring risk and financial stability is critical right now. Knowing enough about the financials of a key supplier is important when seeking out savings – some are hovering on the brink of collapse, while others are doing just fine. (Talk to me about outsourcers’ margins here).
Innovation will get us out of this
If you thought digital transformation was a buzz phrase, wait until you are the only company handling paper mail from customers in a work from home environment while your peers have digitised their customer interactions. For those behind the tech curve, the last six months were more painful and lit a fire under some management teams to start investing. Who will enable that technology? Unless you have vast internal resources and capabilities, you’ll be leveraging third party partners (i.e., suppliers) to realize that vision. Categories like IT services are exploding with demand, and managing the outcomes of the largest partners will be critical to stay competitive.
Portfolio reviews should be fact-based
What does that mean in this context? It means that if you are deciding which suppliers to keep and which to phase out, RFP away, or replace, you need to have a quantitative understanding of past performance. Too often, opinions, anecdotes, and emotions are brought to the table to keep or remove a partner. Strong performance management processes mean decisions can be rooted in actual performance, and perceptions can be validated or addressed proactively.
With these current day realities in mind, Everest Group recently launched a Pinnacle Model® study specifically targeted at management of strategic suppliers. Our Pinnacle Model methodology maps capabilities to outcomes and attempts to find the correlation between best practice implementation and results. By plotting organizations against each other, we can clearly see what is working and what is not.
In this study, we endeavor to understand how procurement organizations are handling the following challenges:
Lack of clear stratification of the supply base. With most organizations having thousands of suppliers per billion dollars of spend, it’s important to know where to focus your efforts. If the squeaky wheel is getting the grease, it’s easy for category managers to spend too much time chasing issues with less impactful suppliers.
Inconsistent or ill-defined internal roles. Many organisations have groups managing suppliers throughout the business as well as SRM efforts from procurement. If roles and responsibilities of various groups are not well defined, there can be overlapping work and missed opportunities. We delve into the objectives and activities of Vendor Management Organizations (VMOs) and other supplier management teams.
Too much manual effort due to lack of automation. Service management tools are well developed within IT but may not be broadly used across spend categories. There are now Supplier Performance Management (SPM) tools on the market using AI to tie contracts to service levels. Without proper tools in place – and adoption is still fairly low – tracking performance, monitoring risk, and planning actions across the supply base becomes highly manual. This is, in my experience, a primary reason many SRM initiatives failed. When we rely on spreadsheets and sweat, without a hard ROI, this is the first initiative to drop.
Poor outcome measurement. Even if the functional scorecard measures outcomes – and many don’t – are individual category and supplier managers rewarded for work done to manage suppliers? It’s typical to, at best, measure activities such as number of business reviews. Too often, teams are focused on savings to the detriment of value driven by innovation, performance improvements, and risk mitigation, and other stakeholder valued metrics.
Taking all these factors in consideration, are YOU giving your strategic suppliers enough attention? Take our Pinnacle Model study here to find out. I look forward to reviewing the results with you soon.
Is it acceptable – or not – to send your supplier a letter asking for a discount? You would be surprised…
Here at Procurious, we’re always trying to be progressive, challenge the status quo and push for our profession to be more innovative and value-adding. And in good news, we’re starting to see that many in our community feel the same. How do we know?
In a now-viral post on LinkedIn, our Founder, Tania Seary, posited the question: Is it fair, or not okay, to send your supplier a letter asking for cost cuts? 50,000 views and 60 comments later, we now know this is a hot topic for our community!
It’s something we’ve debated before, but not to this degree. So in times where businesses all over the world are struggling, and there’s more pressure on procurement than ever before to secure discounts and keep organisations moving (or afloat?), is it fair game to demand cost cuts from your suppliers? Here’s a snapshot of what everyone thought … see if you agree.
‘A stuck in the nineties’ approach
The vast majority of people who commented on our post did agree that this year has been a particularly challenging one for businesses and by association, for procurement. One Senior Procurement Director summed it up when he said:
‘Procurement leaders need to be looking for cost reductions to support the strained financial positions of their organisations.’
Yet should those cost reductions come from a demand letter sent to your supplier? Many people did not think it was okay to send your supplier a letter demanding cost cuts, regardless of the organisation’s circumstances. In the main, procurement professionals thought this approach was akin to a ‘power play’ and was a little arrogant, giving off the attitude that a big organisation is simply ‘a big brand, doing it because they can.’
Many procurement professionals recognised that while this tactic may have been appropriate at some other time, it no longer was. In fact, many people made reference to the nineties as a time where this may have been acceptable … but realised that those days were far gone. One person noted:
‘This practice [the practice of demanding reductions] was used at Volkswagen in the 90s under its famous CPO. Though it showed a lot of success at the time, I believe such a practice belongs to the 90s – a lot has changed since then.’
Why doesn’t this approach work?
Beyond the fact that the practice of sending a letter asking for a discount seemed ‘old-school,’ many professionals noted that for at least a few reasons, this tactic doesn’t actually work.
The first reason why people thought this wouldn’t work was because essentially, demanding a discount goes against all the good work that procurement usually does in developing meaningful and strategic supplier relationships. Procurement professionals always need to remember that suppliers exist within a delicate business ecosystem, and it’s best to manage this responsibly:
‘Customers depend on suppliers and vice versa. It’s a big ecosystem, and [we all need to remember that] if you squeeze out small suppliers and competition lessens, costs will inevitably increase.’
Beyond this, though, when making demands of suppliers, procurement professionals need to remember their negotiation training, insomuch as:
‘Blind one-size-fits-all letters are a forced outcome, not a negotiated win-win discussion.’
What’s the alternative?
It seems that within the procurement community, sending letters requesting discounts is absolutely a no-go. But in a time where discounts might, for some companies, be needed more than ever, what is the alternative?
Being the savvy community that it is, procurement professionals had plenty of better options when it came to negotiating a better price.
The most popular suggestion was to employ a process to assess cost saving opportunities in partnership with your supplier. This would lead, according to a few different people, to the supplier further negotiating, and then a potential automatic reduction in expenses for both.
The other option available is to negotiate better terms, a tactic used often, but which should be done through a strategic lens. One person recommended that we all should:
‘Engage with our suppliers and explain what we need in terms of realistic cost savings and the end goal.’
‘You’ve got many tools at your disposal, including SRM and category management, so much so that you need never revert to the dreadful “give me money off or else” letters.’
Do you agree? Or would you still send a letter requesting a discount if you needed it? Let us know in the comments below.
The implementation of a category strategy is seen as best practice in procurement. But contracts themselves hold the key to success.
For procurement organisations, “category management” is considered a best practice for sourcing. Simply put, category management is the process by which companies segment all the goods and services they need to procure into discrete categories that reflect the specific common characteristics of the products they’re buying.
For example, the procurement department at an automobile manufacturer will likely be responsible for sourcing everything from steering wheels to cleaning services. While in both cases the company needs to make prudent decisions about its spend, what goes into to choosing vendors for those goods and services are obviously very different.
Some goods are highly commoditised and therefore cost will be the determining factor. Other goods may have stringent performance requirements attached to them. These will be evaluated based on the quality of the vendors bidding for business. Some goods are business critical. Others, less so.
A category management strategy for steering wheels may look something like this:
The company’s steering wheel vendors should be equally dispersed between the North American, APAC and EMEA regions;
No one vendor should supply more than 40 per cent of all steering wheels;
The total spend on steering wheels can’t exceed a pre-determined amount.
This strategy means that the supply of steering wheels is more resilient to disruptions like natural disasters (since they are coming from various geographies) and not exposed to undue damage if a single vendor fails (since no one vendor dominates the supply). And, of course, it provides predictability in how much will be spent procuring the product.
Making Sure the Category Strategy Is Followed
But designing the category strategy is just the first step of the process. The greater challenge is carrying it out. The history of large enterprises trying to execute category strategy-driven procurement shows that while they are sometimes able to apply the category rules at the time of sourcing, it becomes a struggle to monitor adherence during the operations phase of a contract.
For example, contracts may have been awarded assuming a certain mix of supply sources (with differing costs and quality parameters) to deliver on certain quarterly cost goals, but issuance of purchase orders in a different proportion at the execution stage will invalidate those assumptions and cause the category strategy to fail.
To improve compliance with a category strategy, leading enterprises are taking a new approach. Putting contracts at the centre of the process.
Using contracts to drive category management compliance is enabled by the emergence of digital contracts and contract management software. By managing contracts on an enterprise contract management platform, companies can leverage contract data to execute effective contract strategies—and design superior strategies to begin with.
How It Works
Let’s go back to the steering wheel example and see how enterprise contract management can optimise the process.
First, the procurement organisation develops the category strategy for steering wheels. The development of a category strategy is a consultative process and depends on data to draw insights and validate assumptions. Much of this data exists in past contracts: supplier performance on existing contracts, spend on different sub-categories and geographies, and other data points. That information, when available on a contract management platform, gives rise to a superior strategy.
Next, the company put out requests for bids from vendors. Contract requests and bid lists aligned with the adopted strategy are launched from within the contract management system. This ensures that the vendor shortlisting and price discovery process conforms to the category strategy.
Once purchase orders begin to be issued, business rules in the contract management platform ensure the strategy is carried out. If a buyer tries to execute a contract that goes against strategy – for example, with a vendor whose geography has already reached its limit in the strategy – the contract will be blocked or routed for special approval.
Finally, the contract management software monitors in real time vendor performance against the contract. This is done both through data tracked within the platform itself and through integrations with other enterprise systems. This way category managers can not only make sure contracts comply with the strategy, but that performance complies with the contract.
Contracts Are the Foundation
Since contracts are the foundation of buyer-supplier relationships, an enterprise contract management platform can support all phases of a category strategy:
Insights to develop the strategy;
Tools to execute the strategy;
Rules to enforce the strategy; and
Integrations to monitor the strategy.
Icertis is focused on how digital contracts and cloud-based enterprise contract management software can improve business performance, including in procurement. To learn why Gartner has named Icertis a “Cool Vendor in Sourcing and Procurement” and why “the clear leader” in buy-side contract management, contact us today.
Want to get access to more great insight on contract management, A.I. in procurement and all things procurement software? Icertis are one of the main sponsors for the Big Ideas Summit Chicago 2019, and will be delivering one of the keynotes on the day. There’s still time to register as a digital delegate – find out more and sign up today here!
Far from the predictions of many, category management is alive and well, but it is changing. Elaine Porteous explores how…
to some predictions in the last decade about the demise and imminent death of
category management in procurement, it is alive and well, but evolving. In truth, it is becoming more complicated as third-party
spend in the 21st century does not easily fit into historical categories.
There is more overlap and intersection in
I.T. services as it merges with telecommunications, marketing services now include
internet and social media and packaging is concerned with sustainability.
Category management’s aim is to segment its
spending on third-party goods and services into groups depending on function
and end use. The difficulty in defining
category groups has increased due to the overlap between commodities and the
rapid innovation in technologies. Category
managers handle more than strategic sourcing. Their role includes creating a
category plan, handling supplier relationships and providing continual oversight
in the category.
Specialise in your niche and own the
is generally understood that difficult and complex indirect categories pay
more. Indirect spend refers to goods or
services that are not directly incorporated into a product or service delivered
to a customer, e.g. I.T., marketing, facilities
and professional services. Experienced
category managers can earn £75 000 per annum.
are some categories difficult? Partly because
stakeholders in these categories resist procurement efforts to influence their
spend and are protective of their incumbent suppliers. It can also be because procurement people may
be seen to be lacking in the knowledge needed to lead the supplier selection and
services can be a bit of a minefield. Marketing, management consulting, legal
and insurance are commodities that have unclear and convoluted pricing
structures which take time to understand
Managing indirect categories requires behavioural
skills as well as deep technical knowledge of the category. Aspiring category
managers need persuasive skills, empathy and the ability to listen as well as
to be decisive when the need arises. They also need to act as change
agents and diplomats.
Don’t try and change the supplier of food catering
services without engaging with the users or there may be a riot.
and contracting I.T services is different from any other category. Without extensive experience or formal training, this category is going to be an
uphill struggle. The advancements in artificial intelligence (AI), SaaS and
blockchain will require constant study and awareness of how to apply new types of applications. Where the I.T. function is mission
critical to the company operations, e.g. in banks and insurance companies,
procurement and sourcing professionals need to be totally immersed in the
category and its commodities which can include: software licences, hardware,
peripherals, servers, data and telephony, 3D printing, warranties and
maintenance. Category managers are increasingly being hired from internal and external I.T.
The organisational culture and landscape on the indirect side has many nuances that do not exist on the direct side. The procurement executive will therefore need to traverse the waters of indirect spend with unique strategies to ensure success.
category requires focus, stamina and a long line in patience. The relationship
between marketing and procurement works best when they meet to discuss and
agree on sourcing and contracting strategy and when procurement takes over the
pesky administrative details. Traditionally
advertising agencies have been the major recipients of marketing spend, some
providing a one-stop service, maybe with no contract or service level agreement
(SLA). This is changing; the use of printed
matter is diminishing, digital agencies are taking over so there is healthy
competition for the overall spend.
Even though the legal services area is complex and
services are expensive, it is possible to build credibility with the in-house
legal team by finding out
and understanding what their
needs and issues are
which areas have the potential for savings
where better value can be achieved from external legal firms.
The low-end, routine or commoditized legal services are the
easiest to address. By learning the language of solicitors and attorneys you
can express your sourcing ideas in words they can understand. Managing supplier relationships with law firms need to be focused on minimising bad behaviours and rewarding and
incentivising those who provide accurate, transparent pricing and deliver
excellent service and good advice.
HR has a wide remit in many large organizations
with the main focus being on people management. Most HR professionals would agree that they don’t have an in-depth understanding of their suppliers’ cost
drivers such as profit, overheads, risk and how these impact on return on
investment (ROI). They
are beginning to realise the benefits of
having their procurement counterparts with them around the negotiating
table. Procurement’s selling proposition
to HR is to demonstrate its ability to deliver value by being a source of
market intelligence and a guide to best practice.
Depending on the industry sector you work in, some
categories can take on greater or lesser importance. In
fast-moving-consumer-goods, packaging, logistics and transport are vital to the
success of all food, drink and healthcare companies. In insurance and banking,
reliable technology is the key.
Tips to help you succeed in difficult
Research the market by benchmarking the pricing of services
to establish the competitiveness of current suppliers
Develop a database for each type of service by evaluating
current suppliers, their pricing structures and capabilities
Re-negotiate and improve the contractual terms and
conditions, pricing models and rates on current agreements and/or go to market
with a well-thought outsourcing
Establish what deliverables and technical skills are needed
for each type of service so that you can determine which suppliers can provide
Identify incentives to improve relationships with your
incumbent suppliers and aim to consolidate your base
is a growing awareness of corporate social responsibility across most
categories. Sustainability is becoming more than a consideration in categories that have the potential to have a
detrimental impact on society and the environment. Job descriptions for
category managers are already including responsibility for sustainability
In a post-AI world, the cards are up in the air and everything is up for grabs. Can category management help the procurement profession to scrub-up and embrace these changes?
Our webinar, Clean Up Your Act! Category Management AI-Style is available on Procurious now. Listen here
How are large corporations managing and recruiting their workforce in the age of the gig economy?
Can cognitive tech help marketers connect the dots and better understand their customers?
Will we require architects in the future to design our buildings, or can we ask bots do that for us instead?
AI and cognitive technology will impact all corners of the business whether it’s construction, labour or marketing. For procurement’s category managers, technological advancement provides the chance to reinvigorate the profession and develop innovative ways of working.
But there is also a legitimate fear of the major disruption AI brings. Which services and industries will we lose entirely? How many roles will be made redundant?
The cards are up in the air and procurement prosperity is there for the taking. Can category managers help the profession to scrub up and seize this opportunity?
This month, we’ve enlisted the help of three category management experts to advise you on how to clean up your act and get the most out of AI!
With a focus on construction, labour and marketing, we discussed:
What common problems have category managers faced in old-world procurement, pre-AI?
How is AI impacting these categories; what sort of disruption can procurement professionals expect?
How can AI help procurement professionals in construction design, build and maintain their projects?
How can AI assist procurement professionals working in labour to attract, recruit and retain talent?
How can AI help procurement professionals working in marketing to strategise, create and manage optimal marketing campaigns?
Who is speaking on the webinar?
Tania Seary, Founder – Procurious
Luis Dario Gile, Global Category Leader (Design Construction and Real Estate) – IBM
Help! I can’t make it to the live-stream
No problem! If you can’t make the live-stream you can catch up whenever it suits you. We’ll be making it available on Procurious soon after the event (and will be sure to send you a link) so you can listen at your leisure!
Can I ask a question?
If you’d like to ask one of our speakers a question please submit it via the Discussion Board on Procurious and we’ll do our very best to ensure it gets answered for you.
Our webinar, Clean Up Your Act! Category Management AI-Style is available on Procurious now. Listen here
There are over 2,500 TED talks available online, each dubbed with the organisation’s tagline “ideas worth spreading” or “talks to stir your curiosity”.
But, what makes these bitesize videos so universally appealing? What common traits do the talks share that piques the curiosity of the general public and guarantees thousands upon thousands of views?
We’ve delved in to the intricacies of a winning TED talk and, it turns out, some of the key qualities of a killer TED talk can also be applied to category management.
Christopher Eyerman, Senior Director, Denali – A WNS Companyexplains, “Category management is not just a process, it’s not just a set of tools. It takes on-going focus and the development of key skill-sets, just like any function or discipline within an organisation, in order to be the best that you can be.”
So, what are the things category managers need to do well as per the TED talk rulebook?
Keep It Snappy And Strategic
TED talks never, ever exceed 18 minutes of content, no matter what the subject matter, level of complexity, importance or fame of the person delivering the talk. By insisting speakers cut content from a talk they might normally deliver, TED guarantees audiences a level of discipline, focus and a clear thought process behind the key point delivered. The process encourages presenters to take a strategic approach.
Christophe Ysebaert, Partner, Transitive Management, explains,“Procurement organisations need to switch from being 20 per cent strategic to 80 per cent strategic. A key skill set for your team of category managers is to have a strategic mindset.”
Much like producing a TED talk on a complex subject, “To build strategy, you have to work from a huge amount of data,” Christophe continues. “You’re going to gather data from the market, your internal stakeholders, spend data etc. At some point, you need to analyse that data and come up with something that makes sense in terms of strategy.”
Tell Your Story
It goes without saying that communication and story-telling are key elements of any TED talk. Presenting key messages, an argument or a lecture in an accessible and insightful way to a diverse audience widens the appeal of topics that might have previously been alienating.
Christophe explains, “When you do category management, you talk to internal customers, business people etc. and you have to be able to sell your case and your strategy.
“At my company, we’ve put together a package of information about how to tell a good story because that’s something you need to do all the time in this profession. ”
Category managers must be able to present their case to a wide range of stakeholders.
Find Your Passion
It’s rare to watch a TED talk and not get a sense of the speaker’s passion for their subject. They are the experts in their chosen topic, its greatest advocates and their extensive knowledge on the subject reflects this.
Chris explains why passion and curiosity are at the heart of category management, “Getting very deep with your category, getting deep with the data, deeply understanding the external market place, and having that sense of true curiosity [is important]. The best category managers never seem satisfied, they never think they know everything they need to know, they’re always pushing and trying to find additional information and additional ways to better understand their categories.”
Ask yourself, Chris says, “Could you as a category manager give the TED talk on your category?”
Know Your Audience
When dealing with internal or external stakeholders in category management, you need to know what makes them tick or how to engage them, what you want to achieve from talking to them and what are you selling them!
“This doesn’t mean – ‘I know Joe we play basketball together!’ ” says Chris. “It’s about really understanding them. From their business, their needs, co-aligning with them in terms of their objectives and yours, developing a strategy, and sharing your vision with them.”
Just like in a TED talk, category managers need to leverage their sales skills.
Chris concludes “Selling your vision, building a strong business case and being able to influence stakeholders and align stakeholders to a strategy” are crucial to make it as a great category manager.
Want to hear more on this topic from Christopher Eyerman and Christophe Ysebaert? Tune in to today’s webinar, Breaking the Groundhog Day Mentality: Enabling A True Category Management Mindset at 1pm GMT. Register your attendance for FREE here.
Every leadership role in every business comes with its own set of imperatives, a set of tasks that must be focussed on to guarantee success. But what imperative should a great category manager follow?
This article was written by Lynn Rideout – Director Procurement Services, Denali – A WNS Company.
Entrepreneur and venture capitalist Fred Wilson once described the three tasks that every CEO should focus on, whilst all other tasks should be delegated to their team.
These three things, the CEO imperatives, must include:
Setting the overall vision and strategy of the company and communicating it to all stakeholders
Recruiting, hiring and retaining the very best talent for the company
Ensuring there is always enough cash in the bank
If your CEO can’t excel at all three, the chances are you’ve got some fairly big problems within your organisation.
What if we were to take the concept of the three imperatives, and apply it to category management?
What should you do well to be successful?
What are your imperatives?
And, furthermore, how do you take the basic understanding of category management and enable it across your organisation?
At Denali, we believe the greatest category managers follow these three imperatives.
1. Know Your Stakeholders
First and foremost, successful category managers understand the importance of stakeholder alignment and building positive relationships. Follow these tips to enhance your stakeholder relationships through your category plan:
Be with your stakeholders – Spend time (both real and mental) with them every day
Intimately know their business objectives – use a consistent framework to correctly identify true requirements, the key enablers, and barriers to those objectives; where value is created?
Sell YOUR vision – “if not now, then when?”, be aligned and integrated with stakeholders
Bring new opportunities to the table vs. react to requests or issues
Plant seeds with stakeholders – start one project at a time; build reputation and trust
Remember, to effectively persuade and engage your stakeholders, you must tailor the content for each discussion. Tell your story and help build the business case. Building successful relationships is an evolution. Your stakeholder relationships will grow with time – and so will your credibility with stakeholders!
2. Understand Your Categories
Understanding the internal and external dynamics of your categories drives idea generation and stakeholder engagement. Follow these tips to better understand your categories:
Get dirty with the data – become intimate with your category details, but get to true insights – the “so what’s”
Be curious – ask why, seek innovation, and develop new strategies
Be intentional regardless of the depth and category maturity
Be “in the market” – study market drivers/trends, talk to suppliers, participate in market events, read broadly
Network with category peers in other industries/organisations
Understand your suppliers – capabilities, performance, why you use them, and leverage them
Establish a plan to refresh and maintain category knowledge as part of building your story. Knowledge will grow with time, but it should not delay execution.
3. Deliver Results
Now that you know your stakeholders and understand your categories – it’s time to execute. Use this newfound alignment and knowledge to drive deliberate consideration of a prioritised portfolio rather than executing on strategic sourcing project at a time. After all, category management is MUCH more than simply executing sourcing projects.
Take a portfolio approach – Know your targets and have a plan to get there, get many projects teed up, and leverage available resources
Eliminate extraneous work – Get comfortable with not doing it all
Press sourcing strategies for greater value (go to auction, demand management, standardisation, supplier innovation, etc.)
But don’t let the perfect be the enemy of the good – you must start somewhere
Leverage all available resources to reach your objectives
Sustain the value by managing supplier relationships and performance
The best way to deliver results is to have a sense of urgency with a bias toward execution.
To learn more about how to a successful category manager and enable a true category management plan, register for our upcoming webinar.