Posted 7th Aug
In our last blog, we explored whether it was worth the effort to improve procurement performance in your organisation. And made 3 key conclusions that it was only worth doing if you:
a) wished to secure supply in uncertain political and economic conditions (both a UK and global concern), or
b) need to innovate to set yourself apart (using the experts in the supply chain to help you do that), or
c) you need to keep control of your costs to retain high margins
We know there are few organisations who have this nailed. Even the 28% of organisations who classified themselves as Procurement Leaders (Future Purchasing Global Survey “Bridging the Performance and Value Gap” 2016-7) believed they could increase the value they could contribute to the business by some 83%, whereas the Followers (the 72% who fell into this camp) could increase the value to their organisations by up to a staggering 400%.
What is it that truly sets a company apart in how it does Procurement? There are of course many things – an ability to engage key people in the business in important decisions, an ability to focus and manage change to take people by the hand (culturally, individually), an ability to work efficiently and ability to use (and access to) appropriate supporting technology – the digital world is moving fast and procurement can really reap the rewards of such technologies such as automation, robotics, data and analytics, artificial intelligence. Big data will enable a transparency of pricing and availability to help drive down costs, whilst predictive analytics provides a level of insight that will be transformative to the Buyer. However, all of this: the technology, the way people are organised, the way buyers negotiate with suppliers are means of executing an agreed plan. Without a plan, there can be no certainty that there is focus, or that if there is focus it is the correct focus.
In short ALL of these important considerations are crucial enablers that presumes the key lever to procurement success is in place i.e. that there is some kind of category or supplier strategy for the area of spend. The answer is that it is Category Management (which includes Supplier Management) that is the greatest asset your company can have in Procurement. The ability to combine knowledge of your internal demand with insight from the supply base to create compelling, focussed strategies for implementation. Those organisations that can do this, at least in part, deliver 173% more benefits that those that don’t. (See Future Purchasing Global Procurement Survey 2016-17: Bridging the Performance and Value Gap) . And the reason for that is simple: it is the only process which rigorously assesses ALL types of value to drive bottom and top line growth to deliver sustainable advantage from the organisation. And that after all, is why we care about improvement procurement capability and performance.Figure 1: Future Purchasing Value Lever Model
This is where some people within the procurement profession profess to disagree, believing that somehow category management is somewhat passé and they’ve moved on. Those, who have never experienced true category management (i.e. who have worked for those 72% of companies that don’t yet do it) believe it to be a way simply of organising who buys what, and is some kind of means of enabling a little structure to then execute a sourcing process e.g. issuing an RFP, getting some pricing and responses, evaluating, negotiating and contracting. But, it’s a great deal more than that, and requires a serious amount of technical skill by the procurement leader, combined with a creativity for strategic thinking and a strong ability to facilitate and influence other business leaders. This is something that more and more procurement leaders are realising, and if you have attended any recent networking event you’ll recognise that the emphasis has strongly changed to Business Partnering and relationships. In fact, the Chief Procurement Officer of the future is recognised to be more of a networker and collaborator. For the procurement professional, the roles are going to diversify more and more with a Category Manager being just one of them. More of that in another blog on implementing a procurement transformation and getting that all important operating model and organisation design set up for the digital future.
To be clear however the fact that category management is the dominant procurement process and methodology for major businesses and public sector bodies in most geographies to aspire to, is not new and has been known about for the last 20 years and indeed Peter Smith highlights in the Future Purchasing report that “the very first academic papers on procurement from the early 20th century talk about buyers specialising in certain spend areas to develop deep market understanding, which is of course still one of the basic principles of ‘CatMan’. “
Peter Smith, Chief Research Officer and Managing Director of Spend Matters goes on further to explain more about Category Management and what procurement professionals really mean when they say they have ‘moved on’ from category management. Since I wholeheartedly agree and I cannot articulate it better, I am going to quote him entirely: “But now the process [of category management] has been codified, examined and documented in much more detail. The core principle is that procurement activity is based on a focused and proactive approach to each major spend area, product or service, with a clear linkage to wider organisational strategy and with the aim of maximising value from the spend.
We have heard recently, however, that some organisations are saying they have ‘moved on’ from category management. Their concept and goal is to be closer to the business and internal stakeholders such as budget owners. On deeper exploration and discussion, it is clear that they have not abandoned category management, rather, they are likely to be reflecting and correcting a previous failure of implementation. No-one we have met is seriously suggesting that the basic principles of CatMan as described above (such as specialisation, deep category knowledge, a proactive approach to spend and alignment with business objectives) are not valid.”
And this is where Peter lands on the nub of it: no-one who understands truly debates that implementing category management is THE key lever to transforming procurement, but what people are now recognising is that it’s a whole lot trickier to implement than they gave it credit for. It’s not something that Buyers can attend a classroom event on, and suddenly start to create wonderful category strategies. There are building blocks that needs to be followed, to set up the new way of working, and that starts from the top of the organisation to set the vision and pace of change, including reviewing all the supporting enablers such as other business processes, policies and of course supporting technology. All these things will make category management execution more powerful, credible and sustainable.
If you would like to know about the 5 Building Blocks that will ensure you can transform
your procurement function to deliver improved and sustainable results, get in touch
, Transformation Director. Or look out for our next blog in the series on how Category
Management and Procurement are entwined forever.