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Category management success – a view from senior procurement leaders

96% of category management leaders and 80% of followers have category management as a top three priority.

We hosted a round table discussion that explored how CPOs focus on this priority. Sectors represented at the roundtable were central Government, FMCG, industry, media, oil and gas, pharma, retail, The discussion provided insights into the opportunities, challenges and approaches taken by leaders who are driving procurement performance at some of today’s pioneering organisations.

This Insight Guide summarises three of the key topics discussed.

* What are the keys to success?

* Success Indicators – how do you know you are getting it right?

* What benefits can senior executives expect to see from investment in category management?

What are the keys to success?

Category management must be a process that is flexible and relevant

Everyone agreed that strong processes and frameworks are fundamental for a high performing function. Category Management should never be applied as a ‘one size fits all’, but must flex by sector, category and business need. The Procurement team carries gravitas when a robust framework is supported by the soft skills of influencing and selling into the business.

Make category management the ‘one way of doing things’

CPOs recognise that all procurement activity is category management in one form or another and needs to be perceived as such. There is not ‘category management’ OR ‘business as usual’ – it is all category management, whether it is a five year category strategy or a one-off negotiation.  Category management gives teams a common language, narrative and single way of managing strategic procurement activity.

Focus on what C-Suite executives really want

Today’s CFO and CEO want cost reduction, risk reduction and revenue enhancement. Every CPO must understand and work to these objectives and additional key competitive imperatives that are specific to each organisation, such as speed of sourcing and supplier innovation.

Build a team that understands and values the process

The undisputed view across all attendees was that it is key to have a team that supports category management and can sell its benefits to stakeholders. We heard various approaches taken to ensure that the right people with the right skills were on board – from implementing innovative programmes, to up-skill existing staff with stakeholder engagement skills, to recruiting people with a sales background to access their communication skills. In addition, increasing interest in supply chains and responsible sourcing is drawing very capable graduates to a career in procurement.

See category management as a systematic and creative identifier of opportunities, not bureaucracy

At its best, category management is a creative enabler that can open the minds of buyers and stakeholders to the full range of options for creating value from supplier spend. There are many ways to create value and drive savings beyond the obvious opportunities from volume consolidation and competitive leverage. Approaches discussed included cost modelling, specification optimisation and supplier integration – but there was a recognition that value levers are rarely applied systematically or comprehensively by category managers.

Communicate in business language

There was consensus that procurement must communicate and sell to the business. When procurement initiates two way communication, using business, not procurement, language, then the business will understand the benefits that procurement can deliver.

Success indicators – how do you know you’re getting it right?

A seat at the table and early involvement

If category leaders are embedded in functional leadership teams, and the business always requests procurement’s input, CPOs see that as evidence that progress has been made. This is often the culmination of years of effort, and hiring and training the right people that have great influencing skills.

Robust performance metrics that demonstrate good performance

Procurement must have a consistent set of KPIs, based on hard data. Great performance can be recognised in many ways including:

* Real cash savings that the business can use

* Speed of implementing sourcing strategies

* Positive stakeholder feedback

* Thoroughness of work done

* ROI from activities of the procurement team.

Procurement involvement becomes ‘business as usual’

An interesting and widely agreed perspective was that Procurement is involved in all sourcing and supplier management activity, delivering great results, but as an accepted part of the ‘way of doing things’ by stakeholders. This usually comes about through recognised and significant value delivery, but also by integrating closely with the business and tuning closely into their needs and language.

Be relevant to the whole business – above and beyond just savings

Procurement must recognise the business priorities and targets that the CEO and CFO are concerned about, and make a direct contribution to these. While immature procurement teams focus only on cost savings, mature procurement teams applying category management have broader targets directly related to the business scorecard – such as assurance of supply and innovation access.

Benefits that senior executives expect to see from category management investment

Clarified and trustworthy spend and savings data

Demonstrate, with accuracy, to the business the amount of money that is both being spent and also being made available from procurement savings.

Deliver savings

Improve business performance through reduced costs, or re-invest in revenue generation activities.

Contribute to revenue generation

Identify and work with suppliers that can provide innovations that increase business revenues.

Risk management

Include areas such as regulation, risk and reputation, ensuring business continuity and how to avoid disasters.

Further Reading

Blog post: Where are we now? Benchmarking our category management approach

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