Building Flexibility Into Category Management

Posted 04/08/2017

One of the age-old debates between Procurement people and our cross-functional colleagues is the desire for standardisation versus the need for category specialism. Whilst I would always extol the virtues of a consistent, common approach and toolkit, we must also ensure that such an approach is sufficiently flexible, both to suit the needs of the category, and to be pragmatic in how the standards are applied. 

This remains a key challenge for many organisations, as evidenced by Future Purchasing’s recent Category Management Report. Across a sample of over 300 organisations around the world, more than one in three did not agree (or strongly agree) that their Category Management approach was sufficiently flexible to be applied to all spend areas. Even amongst the Procurement organisations classed as Leaders, it was striking that nearly a quarter still identified this as a concern.

So what do we do? Firstly, let’s consider a subtle but crucial difference – it’s one thing to create an approach that has to be altered for each category, but far better to create a common process and toolkit that is in itself applicable to all areas. Consider the thought process your organisation goes through when reviewing any category. I’ve seen lots of approaches in which the lines of questioning are specific to, or at least lean too much towards:

  • Products, more so than services
  • Strategic categories, more so than the tactical purchases that keep day-to-day operations running
  • Categories that have a simple commercial model, chiefly unit price, without accommodating other costing mechanisms such as indexed pricing, gain-share, etc.
  • Directs such as engineered parts, more so than indirects (or vice versa)
  • Categories in which the focus is on cash savings through cost reduction, rather than those that warrant a review of wider opportunities – or to put it another way, the approach prioritises one or two quadrants of the Kraljic portfolio analysis matrix

To illustrate how a standard but flexible approach can be achieved, here are some very specific questions my clients and I have recently asked when reviewing key categories:

  1. How can we produce the same amount of end product with less sheet steel?
  2. How can we make better use of our workforce, to reduce our reliance on expensive temporary labour?
  3. Why are we spending so much more on equipment hire than our competitors, and how can we reduce this?

These are all very focused on a single category, but all come down to a single base question: How can we better manage our demand for this product or service, to reduce/avoid the cost? 

We should build and maintain a full suite of these lines of questioning – the FP toolkit has over 100 questions at this level. Applying them to each category of spend will help ensure that all opportunities are addressed, prioritised and implemented. It may appear that elevating the questions to a generic base in this way risks losing the richness of the debate, but this will not be the case if we engage with cross-functional teams to help us understand the true business requirements and opportunities in full. 

This is not to say that every element of the full approach needs to be applied to every category. For those that are less critical in terms of spend, complexity or strategic importance to the organisation, we can use a subset of the approach and toolkit, a feature known as process modulation. Crucially, this does not contradict the points above as this is not the same as adapting the approach itself. We are merely choosing one of a number of pre-defined modulation types (the FP report advocates four) and applying its steps and tools in the usual way. In so doing, we achieve pragmatism by reducing the time, cost and complexity of the review process, whilst retaining the benefits of consistency. 

The FP Category Management Report can be found here.

In my next blog we’ll take this one step further to consider which of the processes and tools we should consider as mandatory when reviewing any category, and how frequently organisations actually do so. In the meantime, I’d love to hear any comments you have on this blog, in the comments section below. 

Paul Haycock

Tagged by topic: Category Management , Category Management Survey

  by Paul Haycock

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