Posted 6th Feb
Value Levers should be a core part of category management and SRM processes, but it is often missing, presumed mis-understood.
It is critical to include Value Levers as it is the tool or approach which ensures that we seek all the possible value in a particular category or supplier relationship. If we don’t use them, we are very likely to develop a category strategy (or a sourcing strategy, or relationship strategy) that misses significant value adding opportunities.
At its most simple, the Value Levers are a whole series of possible interventions in a category which could deliver additional value to our organisation. It is very unlikely that all of them would be used in a single category. However, it is very likely that, at the start, few of them are being used.
There are a number of ways to utilise the value levers, but I believe that a Category Manager should have an understanding of the concept and of the detail at their fingertips. At the outset of a category or supplier relationship review, we need to be able to plan the approach that we are going to take when building a detailed understanding of what is happening in a category or relationship. To do that, we need to be open to the potential of a wide range of value levers being used , and to understand what will either support the use of a particular lever, or to clarify why they are not being used.
If we have this awareness at the start of the process, then we are more likely to design our data gathering in a way that tests whether all appropriate levers are being used.
As an example, one value lever asks whether a product or service is being bought from the right country. The emphasis here is on understanding the marketplace from which we are buying, and to understand the different opportunities available from different locations. If we get to the options generation stage of either SRM or Category Management and then decide that we don’t have enough information to evaluate an approach, we’re too late in the process to make adjustments, or we will need to accept a delay while we investigate further.
Another example is to move beyond price and the focus on getting a better “deal,”and focus on total cost, look more broadly at all costs related to procuring and managing a product or service. Ultimately, this is a better measure than best price given most purchases have many other costs beyond price built in.
This means that we need to be working with the value levers on a regular basis as a mean’s of testing and steering our course through to a high quality, broad delivery strategy ( rather than one, at the opposite end, just focused on price).
It is not just category managers who should be closely focused on the use of Value Levers. Purchasing Leadership Teams need to be all over this as well, in their role as coaches and owners of governance approaches. It is critical that PLT members have a clear understanding of value levers so they can test and challenge their teams to ensure that all possible value is being driven out.
Our stakeholders already know this is a weakness in procurement teams. We are often challenged to make sure that we are not just focusing on price, to have a broader view of what the organisation requires and to deliver the broader value available. Of course, stakeholders also use value destruction arguments to protect current positions, so the pendulum does swing in both directions.
Our clear recommendation is for value levers to form a very clear part of any category, sourcing or relationship strategy, to ensure that we achieve the most from it.
Contact Mark Hubbard at www.futurepurchasing.com to find out more.
by Mark Hubbard