Real world sourcing - Taking on a New Category

©ALL RIGHTS RESERVED - Confidential 1

Taking on a New Category

Peter SmithWednesday February 29th 2012

Spend Matters UK/Europe



Agenda

1. Introduction

2. Your aims and objectives

3. Getting to grips with the current situation

4. Bringing it together

5. Real World Sourcing Scholarship




Part 1 – Introduction

The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates).

Peter Smith started his procurement career with Mars Confectionery, then was CPO for Dun & Bradstreet Europe, the Department of Social Security and the NatWest Group. He is now a consultant, author, non-executive director and editor of the Spend Matters website. He was President of CIPS in 2002/3.

Spend Matters UK/Europe Spend Matters UK/Europe Spend Matters UK/Europe



Category Management Phases

• Category prioritisation Conduct high level cross-category analysis to prioritise categories into Waves according to importance, likely impact and complexity

• Strategy Conduct detailed analysis of each category and review enabling arrangements to develop deep category understanding

• Planning Create a plan for each category to achieve the targets, including the tactics which will work best

• Implementation Achieve the targets by methodically and rigorously applying the plan

• Review progress against plan, manage performance and identify and implement continuous improvement




A typical Category Management process

Develop, implement and embed category management

Understand internal

requirements &

stakeholders

Stage 1

Define scope and category

structure

Stage 2

Understand market and

suppliers

Stage 3

Develop category

strategy and plan

Stage 4

Select supplier(s)

Stage 5

Implement contracts

Stage 6

Contract and supplier

management

Stage 7

Iterative process




Part 2 - Your Aims and Objectives

This briefing is all about helping you and your colleagues succeed in category management (and more widely in your procurement activities)

• But sometimes we need to look at reasons for failure to understand how to succeed!

• What are the major causes of procurement professionals failing in their roles?



Part 2 - Your Aims and Objectives

Procurement people fail when they lose the confidence of their boss and / or key internal stakeholders.

• To ensure you maintain that confidence, it is critically important that you understand what your boss wants from you, including timescales, outputs, expected results

• You should also clarify the resources available to help you

• And it is critical to understand the expectations, fears and needs of key stakeholders

• Failure rarely comes through “doing a bad deal” or failing to meet a savings target – it will come if you lose the confidence of key people, even if that is a subjective judgement



Aims & Objectives – New or Existing Categories

There is a considerable difference between taking on a totally new category and inheriting one that’s been “category managed” for years.

• Case study one – the procurement function has been asked by the CFO to “take a look” at legal services procurement across a large, multi-site, organisation.

• There has been no procurement involvement up to now, the head of legal services owns a large central budget but around 20 different unit heads all spend smaller amounts of money when they need to in that area. You have been asked to take on that role.




Aims & Objectives – New or Existing Categories

• Case study two – the category manager for desktop IT hardware has left the organisation after running that category for several years, pretty competently in the eyes of most people. You have been asked to take it on (in addition to some current responsibilities)

• There is already a robust category strategy and plan in place, and the role of procurement is quite well established with the stakeholders

• One situation is not necessarily easier than the other – but they are very different



Taking on a New CategoryAims & Objectives: new or existing category?

New Category Pre-Managed

Positives • Chance to make your mark

• May be major savings opportunities

• Market may welcome a new / more structured approach

• Some data and history to inform decisions

• Stakeholders familiar with procurement role

• Suppliers understand procurement processes

Negatives • Data may be limited

• Probably many stakeholders / budget holders

• Suppliers may be very entrenched

• Specifications and demand may be unclear or unhelpful

• “She’s not as good as the last one”

• Hard to find new opportunities to shine and deliver benefits

• Stakeholders and suppliers set in their ways or used to a certain approach




Aims & Objectives – Your Priorities

What do you need to do in order to succeed?

We would suggest you have three key goals in the short term (first 3-6 months):

1. Build credibility with key internal stakeholders, key suppliers and procurement colleagues, particularly your staff & boss

2. Demonstrate some “quick wins”, or at least some fresh ideas that you are bringing to the table

3. Show that you have – or at least are developing - a longer-term plan that looks likely to deliver good results




Aims & Objectives – Building Credibility

We’ve explained the importance of building credibility with stakeholders. But how do you do that?

1. Listen to them, understand their objectives, targets and challenges and relate what you can do to those

2. Speak their language – acknowledge their expertise and look to build your own in specific category issues to a reasonable level as quickly as possible

3. Think about what you bring to the table – is it market knowledge, commercial skills, process understanding?

4. Deliver! Work to timescales, achieve objectives, keep promises




Your Aims and Objectives

We recommend you approach this with a project management mentality. It doesn’t have to be this complicated but you do need to plan your course of action.

Stakeholders

Quick wins

Long-term




Time-Out: Discussion

Read the Case-Study, “A Legal Matter”

• How do you feel about your new assignment? Positive or negative?

• If you can ask your boss one question, what would it be?




Part 3 – The Current Situation

There are a set of key questions that you need to ask (and answer)!

• What is the current and future requirement for this category?

• When and where do we need it (logistics and physical supply)?

• Who are the suppliers within the market(s) and within our current supply base?

• How are we buying – procurement strategy and approach?

• And overarching all of these - Why do we do it like this?




Current Situation – Defining Categories

How is the Category currently structured; and is it appropriate?

Professional services

Real estate advisory services

Temporary labour

Audit services

Management consulting

Legal services

Strategic consulting US

attorneys

European lawyers

Barristers (UK)

Finance consulting

Marketing consulting

IT consulting

Master category

Category

Sub-category




Current situation – key factors

Analyse the situation in terms of INTERNAL and EXTERNAL factors

Current spend

Demand

Specifications

Stakeholders

Market

Current suppliers

Potential suppliers

Regulatory issues

CATEGORY MANAGEMENT

INTERNAL EXTERNAL



Taking on a New CategoryCurrent Situation – the internal dimension

• What is the current spend in these categories (by business area or geography if relevant? What is the spend pattern; are there factors such as seasonality, regional differences?

• Is the spend (total, or patterns of spend) likely to change over the next 3 years?

• How are the goods or services used in the business? How important or strategic are they?

• Who are the key users, specifiers or other key influencers of your categories?

• How do they perceive the goods and services provided, and the suppliers they use?

• Where ‘corporate’ contracts are already in place, what is the internal compliance to these contracts?

• What are the current specifications? Are those specifications likely to change over the next few years? Or is there potential to look at changes as a source of greater value?

• What are the cost drivers – both internal (demand, specification) and external (market pressures, technology)




Current Situation - Spend

Consider Spend Analysis processes / technology if at least basic level data is not available

• Identify current spend levels (“the Spend Cube”):

– Sub-category

– Time period

– Supplier

– Business Unit

– Budget-holder

– Geography

• Obtain a view if possible on future trends in terms of spend levels and patterns




The Current Situation - Stakeholders

Stakeholders can make or break success, and their views of what they want from suppliers may be very different to your ideas of the ideal category approach

• Don’t be afraid to challenge, BUT don’t be arrogant. Your stakeholders may well know more about their topic – and even the market – than you do.

• Similarly, be prepared to listen to suppliers but don’t take everything at face value.

• Do avoid the classic “using the stationery tender for management consultants” trap.





• Who are they and what roles do they play? (Specifier, budget holder, order placer)?

• How powerful are they and who actually holds the power?

• How do they feel about the current supply situation and current suppliers?

• Is compliance to procurement policy, process and agreements good? If not, why not?

• What are their key drivers and objectives?

• How do they feel about procurement and what (if anything) do they want from you?

• What do they need and want from their suppliers??





Stakeholders can make or break success, and their views of what they want from suppliers may be very different to your ideas of the ideal category approach

Don’t be afraid to challenge BUT don’t be arrogant. Your stakeholders may well know more about their topic – and even the market – than you do.

Do avoid the classic “stationery tender for management consultants” trap.


THIS MAY BE THE MOST IMPORTANT

SLIDE TODAY!



Questionnaire for Stakeholders

How important are the following objectives to you in choosing your suppliers, and how well do you think current suppliers meet that need?

• Cost savings

•Importance 1 2 3 4 5 6 7 8 9 10 (very important)

Current suppliers 1 2 3 4 5 6 7 8 9 10 (very important)

• Service

• Reporting & controls

• Innovation

• Personal relationships

• Opportunity for revenue



Taking on a New CategoryCurrent Situation - Stakeholder analysis

Mapping the priorities for

three different stakeholder

groups – where might the

tensions be?

Personal relationships

Service

Innovation

Control

Reciprocal trading

PROCUREMENT

USER BOARD




Current Situation – demand / specification

• Demand and specification management are two very powerful tools, often under-considered

• What and who drives demand?

• How flexible / variable could that be?

• What are the specifications?

• How harmonised are they across the organisation?

• How easy is it to change specification?

• Is the market dynamic, with market-driven improvements? (e.g. technology change, process improvements?)

• Or do you have to take the lead in looking for possible rationalisation / harmonisation opportunities?




Current Situation - Process issues

Essential to understand both the “purchase to pay” transactional process, and the “sourcing” (selecting and contracting with suppliers) process

• What is the model for transactions in this category?

• “Req. to Cheque”: end-to-end process understanding and opportunities for process simplification

• Fit with overall programme – Procurement Card, marketplace options, ERP, etc.

• Is the sourcing process fit for purpose?

• Are there opportunities for e-auctions, market informed sourcing...?




Current Situation - Market

Moving on to external factors - understanding the market is key in order to determine the right actions

• Market analysis; size, growth, key players, dynamics, trends and developments

• What are the key market features?

o Size (including geographic data)

o Number of suppliers, market shares, concentration

o Historical development and future market growth

o Static or dynamic (in terms of new entrants, changes in market share or position)

o Size (including geographic data)

o Impact of innovation or technology

o Buyer / supplier power issues and market types (monopoly, competitive etc.)




Current Situation - Kraljic Matrix (adapted)

Low High

High

Magnitude of spend

Sup

ply

ris

k

Critical Strategic

Acquisition Leverage

Collaboration - close supplier management:

• detailed contract• collaborate• market awareness

Drive for value:

• market pricing• aggressive approach• use leverage

Minimum attention:

• price formula• call-off contract• look to rationalise

Ensure availability:

• long-term contract• price indexes• contingency planning




Kraljic Matrix (adapted) – Mapping the Category

Low High

High

Magnitude of spend

Sup

ply

ris

k

Critical Strategic

Acquisition Leverage

Collaboration - close supplier management:

• detailed contract• collaborate• market awareness

Drive for value:

• market pricing• aggressive approach• use leverage

Minimum attention:

• price formula• call-off contract• look to rationalise

Ensure availability:

• long-term contract• price indexes• contingency planning




Current suppliers

Who are the current ‘top suppliers’?

• Current and historical performance as suppliers to the organisation

• Size, financial strength, geographical coverage

• Business strategy , financial margins and cost structures

• Historical development and growth prospects

• Strengths and weaknesses

• Product / service offerings and competitive advantage

• How well are they meeting your needs? Stakeholder satisfaction, value for money, service and quality, innovation, good to work with?

• Are there value improvements that can be driven though incumbent suppliers?

• Are there other attractive suppliers available in the market place?




Quick Wins

Demand management

Specification management

Market re-structuring

Competitive pressure

Contract management

Savings potential = 100%




Quick Wins

Demand management

Specification management

Market re-structuring

Competitive pressure

Contract management

Savings potential = 100%



Taking on a New CategoryOptions for quick – and longer term - wins

We’re not trying to describe every option that might form a valuable part of a category strategy. But here are some broad headings and ideas;

• Leverage – aggregate spend, reduce supplier numbers, use the buying power of the purchasing organisation better.

• Competition / supply market activity – even if direct leverage is not used, market facing activities can drive benefits (e.g. timing of purchase, new low cost suppliers).

• Demand management – an old cliché, but ‘the best way to save money is not to spend it’. Revise policies, introduce spend “gates”.

• Specification management – are the most appropriate specifications being used? Can a lower cost option be used, or different specs rationalised?

• Strategic partnering – develop a “gain-sharing” strategic relationship with key suppliers.

• Process change – ensure that the transactional processes around working with suppliers are as efficient as possible, or use sourcing processes to drive benefits.

• Outsourcing opportunities – consider outsourcing or insourcing (for appropriate categories).




Conclusions and key messages

•Understand what you are inheriting (existing categories)

• Look to balance visible quick wins with longer term strategies and plans

• Credibility is everything for a new category manager

• Internal stakeholders are THE key audience who determine that credibility

• Look to gain understanding quickly, don’t be afraid to challenge, but don’t think you immediately know best

• Quick wins often come from specification or demand management rather than commercial initiatives




Read the Case-Study, “A Legal Matter”

• How might Susan feel about this meeting – and how might that influence your approach?

• What are three key questions you would like to ask her?

• The information to date is limited, but what sort of activities might lead to “quick wins” in this category?




Real World Sourcing Scholarship

• £2500 towards any procurement based training

• Log on to the BravoSolution Education Network with the details you’ll receive tomorrow

• Complete the certification programme

• Check your ranking!

• The winner will be announced at the Sourcing Experts dinner on 19 December



THANK YOU!

Please feel free to contact me on

[email protected]


mailto:[email protected]

Date post:	15-Jul-2015
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