Posted 28th Feb
Despite what many procurement professionals may say, Category Management is far from embedded as a way of working within our profession. The most recent global category management survey from Future Purchasing highlights that 72% of the 323 firms that participated, admitted that their category management process had either ‘not started’, was ‘basic’ or was ‘improving’. The remaining 28% make up those firms that are Leaders in category management implementation with the majority stating they had embedded their process. Only 6% of the 323 firms describe their process as ‘optimised’.
The results show that a follower could improve their savings delivery rate by 400%. And yet still, in conversations I have with senior procurement leaders, people will assure me they don’t need to do anything, that they’ve been doing category management for years and it’s all good. Yet at a glance I can see all the characteristics of an organisation that is doing tactical sourcing at best. If your procurement team does not:
- lead cross functional teams, with business sponsorship
- have a single standardised toolkit, used pragmatically (and that doesn’t mean ignored most of the time)
- systematically look at all value levers via a standard approach on price, cost, revenue, risk
- have the time to build up a rigorous facts and data profile to build creative strategies
- have a team capable of building inspiring and creative strategies
- have the time or inclination to move beyond tendering, negotiation and contracting activity
- does not invest in stakeholder training as well as procurement team training
The Future Purchasing report highlights 19 top success factors, a kind of top checklist to help you become a leader in category management. Top of the list is the alignment of your category management process with all other business processes. Only 41% of organisations said this was in good shape.
Most organisations spend circa 50-80% of their total revenue with external 3rd parties so there is no question about the importance of the buying process. Having a procurement process that relates well to other business processes is vital. The issue, I think, is the underlying assumption that many people I speak to in the profession have, that category management as a process somehow belongs to just the procurement team. It doesn’t. Buying things is something most people across the business need to do. If you’re in business, then you’re in procurement. The procurement profession facilitates it with thought leadership. Ask yourself, when was the last time other people in your business were trained in the category management process? If they’re not, how could they possibly perform their role optimally in a cross functional category management team?
But back to the process itself. The problem is if a Procurement Leader has not recognised that procurement is a business activity, then the birth of a bespoke process for that department with all manner of lovely tools and techniques can be born in isolation. The process must be reviewed alongside the other key business processes for decision making. Map them together, highlight the common points, make it easy for the whole business to follow. Remember the last time that Engineer or IT person brought you in late to that project? Was it really that they had deliberately left you out? Or were they following a standard CapEx business process (say) and that one just happens to be an old document that advises to bring procurement in before the negotiation?
There are some great recommendations in the report, giving some step by step guidance on how to ensure your category management process is aligned with the business. The good news is it’s not that difficult to do, with a bit of effort and focus.
My parting shot is this. The facts and data from the global survey states that aligning category management with related business processes is the no. 1 top driver of performance and should be targeted as a priority practice by the 59% of organisations that have yet to do so. I remain unconvinced this is the no. 1 driver. I think the no. 1 driver of performance is the procurement profession waking up to the strength of category management and the complexity and investment needed to make it happen. It’s a mindset issue.
I think that the procurement profession has shrouded itself in a cloud of delusion that somehow despite the facts that come out year after year in the Future Purchasing report, that category management is not necessary. If you describe your department as a function, you are compounding the perception of a mechanistic process based activity; if you justify your departments existence by turning the cost reduction handle, and a focus on money only, you are compounding that procurement is not part of the business but some kind of by-product of other people’s corporate activity.
So the No. 1 driver for category management success in my view? Read the facts and data in the report, believe in it, and make a case to invest in it so procurement becomes part of the business buying things, transforming them and selling them. After all that’s what business fundamentally is about. Until then, your category management implementation will continue to fail to reach its potential.