Real world sourcing - Taking on a New Category

Taking on a New Category
Peter Smith
Wednesday February 29th 2012

Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential 1


Agenda

1. Introduction
2. Your aims and objectives
3. Getting to grips with the current situation
4. Bringing it together
5. Real World Sourcing Scholarship

©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 2

Part 1 – Introduction

The Real World Sourcing Series is a series of 6 sessions covering hot
topics for procurement professionals.

The Real World Sourcing Series is promoted and supported by
BravoSolution, and developed by Peter Smith (Spend Matters) and Guy
Allen (4C Associates).

Peter Smith started his procurement career with Mars Confectionery,
then was CPO for Dun & Bradstreet Europe, the Department of Social
Security and the NatWest Group. He is now a consultant, author, non-
executive director and editor of the Spend Matters website. He was
President of CIPS in 2002/3.



Category Management Phases
• Category prioritisation Conduct high level cross-category analysis to
prioritise categories into Waves according to importance, likely impact and
complexity

• Strategy Conduct detailed analysis of each category and review enabling
arrangements to develop deep category understanding

• Planning Create a plan for each category to achieve the targets, including
the tactics which will work best

• Implementation Achieve the targets by methodically and rigorously
applying the plan

• Review progress against plan, manage performance and identify and
implement continuous improvement


A typical Category Management process

Develop, implement and embed category management

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7
Understand
Develop
Define scope internal Understand Contract and
category Select Implement
and category requirements market and supplier
strategy and supplier(s) contracts
structure & suppliers management
plan
stakeholders

Iterative process


Part 2 - Your Aims and Objectives

This briefing is all about helping you and your colleagues succeed in
category management (and more widely in your procurement activities)

• But sometimes we need to look at reasons for failure to understand
how to succeed!
• What are the major causes of procurement professionals failing in
their roles?


Part 2 - Your Aims and Objectives

Procurement people fail when they lose the confidence of their boss
and / or key internal stakeholders.
• To ensure you maintain that confidence, it is critically important that
you understand what your boss wants from you, including timescales,
outputs, expected results
• You should also clarify the resources available to help you
• And it is critical to understand the expectations, fears and needs of
key stakeholders
• Failure rarely comes through “doing a bad deal” or failing to meet a
savings target – it will come if you lose the confidence of key people,
even if that is a subjective judgement


Aims & Objectives – New or Existing Categories

There is a considerable difference between taking on a totally new
category and inheriting one that’s been “category managed” for years.
• Case study one – the procurement function has been asked by the CFO
to “take a look” at legal services procurement across a large, multi-site,
organisation.
• There has been no procurement involvement up to now, the head of
legal services owns a large central budget but around 20 different unit
heads all spend smaller amounts of money when they need to in that
area. You have been asked to take on that role.


Aims & Objectives – New or Existing Categories

• Case study two – the category manager for desktop IT hardware has left
the organisation after running that category for several years, pretty
competently in the eyes of most people. You have been asked to take it
on (in addition to some current responsibilities)
• There is already a robust category strategy and plan in place, and the
role of procurement is quite well established with the stakeholders
• One situation is not necessarily easier than the other – but they are very
different


Aims & Objectives: new or existing category?
New Category Pre-Managed

Positives • Chance to make your mark • Some data and history to
• May be major savings inform decisions
opportunities • Stakeholders familiar with
• Market may welcome a new procurement role
/ more structured approach • Suppliers understand
procurement processes

Negatives • Data may be limited • “She’s not as good as the
• Probably many stakeholders last one”
/ budget holders • Hard to find new
• Suppliers may be very opportunities to shine and
entrenched deliver benefits

• Specifications and demand • Stakeholders and suppliers
may be unclear or unhelpful set in their ways or used to
a certain approach


Aims & Objectives – Your Priorities

What do you need to do in order to succeed?
We would suggest you have three key goals in the short term (first 3-6
months):
1. Build credibility with key internal stakeholders, key suppliers and
procurement colleagues, particularly your staff & boss
2. Demonstrate some “quick wins”, or at least some fresh ideas that you
are bringing to the table
3. Show that you have – or at least are developing - a longer-term plan
that looks likely to deliver good results


Aims & Objectives – Building Credibility

We’ve explained the importance of building credibility with
stakeholders. But how do you do that?
1. Listen to them, understand their objectives, targets and challenges and
relate what you can do to those
2. Speak their language – acknowledge their expertise and look to build
your own in specific category issues to a reasonable level as quickly as
possible
3. Think about what you bring to the table – is it market knowledge,
commercial skills, process understanding?
4. Deliver! Work to timescales, achieve objectives, keep promises


Your Aims and Objectives
We recommend you approach this with a project management mentality. It
doesn’t have to be this complicated but you do need to plan your course of
action.

Stakeholders

Quick wins

Long-term


Time-Out: Discussion

Read the Case-Study, “A Legal Matter”

• How do you feel about your new assignment? Positive or negative?
• If you can ask your boss one question, what would it be?


Part 3 – The Current Situation

There are a set of key questions that you need to ask (and answer)!
• What is the current and future requirement for this category?
• When and where do we need it (logistics and physical supply)?
• Who are the suppliers within the market(s) and within our current
supply base?
• How are we buying – procurement strategy and approach?
• And overarching all of these - Why do we do it like this?


Current Situation – Defining Categories
How is the Category currently structured; and is it appropriate?

Professional services Master category
Real estate
Management Audit Legal Temporary
consulting services services labour
advisory Category
services
Strategic
consulting US
attorneys
Marketing
consulting European
lawyers Sub-category
IT
consulting Barristers
(UK)
Finance
consulting


Current situation – key factors
Analyse the situation in terms of INTERNAL and EXTERNAL factors

Current spend Market
Demand CATEGORY Current suppliers
MANAGEMENT
Specifications Potential suppliers
Stakeholders Regulatory issues

INTERNAL EXTERNAL


Current Situation – the internal dimension
• What is the current spend in these categories (by business area or geography if
relevant? What is the spend pattern; are there factors such as seasonality,
regional differences?
• Is the spend (total, or patterns of spend) likely to change over the next 3 years?
• How are the goods or services used in the business? How important or strategic
are they?
• Who are the key users, specifiers or other key influencers of your categories?
• How do they perceive the goods and services provided, and the suppliers they
use?
• Where ‘corporate’ contracts are already in place, what is the internal
compliance to these contracts?
• What are the current specifications? Are those specifications likely to change
over the next few years? Or is there potential to look at changes as a source of
greater value?
• What are the cost drivers – both internal (demand, specification) and external
(market pressures, technology)

Current Situation - Spend
Consider Spend Analysis processes / technology if at least basic level
data is not available
• Identify current spend levels (“the Spend Cube”):
– Sub-category
– Time period
– Supplier
– Business Unit
– Budget-holder
– Geography
• Obtain a view if possible on future trends in terms of spend levels and
patterns


The Current Situation - Stakeholders

Stakeholders can make or break success, and their views of what they
want from suppliers may be very different to your ideas of the ideal
category approach
• Don’t be afraid to challenge, BUT don’t be arrogant. Your stakeholders
may well know more about their topic – and even the market – than
you do.
• Similarly, be prepared to listen to suppliers but don’t take everything
at face value.
• Do avoid the classic “using the stationery tender for management
consultants” trap.


• Who are they and what roles do they play? (Specifier, budget holder,
order placer)?
• How powerful are they and who actually holds the power?
• How do they feel about the current supply situation and current
suppliers?
• Is compliance to procurement policy, process and agreements good? If
not, why not?
• What are their key drivers and objectives?
• How do they feel about procurement and what (if anything) do they
want from you?
• What do they need and want from their suppliers??


Stakeholders can make or break success, and their views of what they
want from suppliers may be very different to your ideas of the ideal
category approach

Don’t be afraid THIS MAY BE THE
to challenge BUT don’t be arrogant. Your stakeholders
may well know more about their topic – and even the market – than
you do. MOST IMPORTANT
SLIDE TODAY!
Do avoid the classic “stationery tender for management consultants”
trap.


Questionnaire for Stakeholders
How important are the following objectives to you in choosing your
suppliers, and how well do you think current suppliers meet that need?
• Cost savings
•Importance 1 2 3 4 5 6 7 8 9 10 (very important)
Current suppliers 1 2 3 4 5 6 7 8 9 10 (very important)

• Service
• Reporting & controls
• Innovation
• Personal relationships
• Opportunity for revenue


Current Situation - Stakeholder analysis
Mapping the priorities for PROCUREMENT
three different stakeholder
Reciprocal Service
groups – where might the trading

tensions be?

Personal
Control
relationships

USER Innovation BOARD


Current Situation – demand / specification
• Demand and specification management are two very powerful tools,
often under-considered
• What and who drives demand?
• How flexible / variable could that be?
• What are the specifications?
• How harmonised are they across the organisation?
• How easy is it to change specification?
• Is the market dynamic, with market-driven improvements? (e.g.
technology change, process improvements?)
• Or do you have to take the lead in looking for possible rationalisation /
harmonisation opportunities?


Current Situation - Process issues
Essential to understand both the “purchase to pay” transactional
process, and the “sourcing” (selecting and contracting with suppliers)
process
• What is the model for transactions in this category?
• “Req. to Cheque”: end-to-end process understanding and
opportunities for process simplification
• Fit with overall programme – Procurement Card, marketplace options,
ERP, etc.
• Is the sourcing process fit for purpose?
• Are there opportunities for e-auctions, market informed sourcing...?


Current Situation - Market
Moving on to external factors - understanding the market is key in order to
determine the right actions
• Market analysis; size, growth, key players, dynamics, trends and
developments
• What are the key market features?
o Size (including geographic data)
o Number of suppliers, market shares, concentration
o Historical development and future market growth
o Static or dynamic (in terms of new entrants, changes in market
share or position)
o Size (including geographic data)
o Impact of innovation or technology
o Buyer / supplier power issues and market types (monopoly,
competitive etc.)

Current Situation - Kraljic Matrix (adapted)
High
Critical Strategic
Ensure availability: Collaboration - close supplier
• long-term contract management:
• price indexes • detailed contract
• contingency planning • collaborate
Supply risk

• market awareness

Acquisition Leverage

Minimum attention: Drive for value:
• price formula • market pricing
• call-off contract • aggressive approach
• look to rationalise • use leverage

Low Magnitude of spend High


Kraljic Matrix (adapted) – Mapping the Category
High
Critical Strategic
Ensure availability: Collaboration - close supplier
• long-term contract management:
• price indexes • detailed contract
• contingency planning • collaborate
Supply risk

• market awareness

Acquisition Leverage

Minimum attention: Drive for value:
• price formula • market pricing
• call-off contract • aggressive approach
• look to rationalise • use leverage

Low Magnitude of spend High


Current suppliers
Who are the current ‘top suppliers’?
• Current and historical performance as suppliers to the organisation
• Size, financial strength, geographical coverage
• Business strategy , financial margins and cost structures
• Historical development and growth prospects
• Strengths and weaknesses
• Product / service offerings and competitive advantage
• How well are they meeting your needs? Stakeholder satisfaction, value
for money, service and quality, innovation, good to work with?
• Are there value improvements that can be driven though incumbent
suppliers?
• Are there other attractive suppliers available in the market place?


Quick Wins Savings potential = 100%

Demand management

Specification management

Market re-structuring

Competitive pressure

Contract management


Options for quick – and longer term - wins
We’re not trying to describe every option that might form a valuable
part of a category strategy. But here are some broad headings and
ideas;
• Leverage – aggregate spend, reduce supplier numbers, use the buying power of the
purchasing organisation better.
• Competition / supply market activity – even if direct leverage is not used, market facing
activities can drive benefits (e.g. timing of purchase, new low cost suppliers).
• Demand management – an old cliché, but ‘the best way to save money is not to spend it’.
Revise policies, introduce spend “gates”.
• Specification management – are the most appropriate specifications being used? Can a
lower cost option be used, or different specs rationalised?
• Strategic partnering – develop a “gain-sharing” strategic relationship with key suppliers.
• Process change – ensure that the transactional processes around working with suppliers
are as efficient as possible, or use sourcing processes to drive benefits.
• Outsourcing opportunities – consider outsourcing or insourcing (for appropriate
categories).


Conclusions and key messages
•Understand what you are inheriting (existing categories)
• Look to balance visible quick wins with longer term strategies and
plans
• Credibility is everything for a new category manager
• Internal stakeholders are THE key audience who determine that
credibility
• Look to gain understanding quickly, don’t be afraid to challenge, but
don’t think you immediately know best
• Quick wins often come from specification or demand management
rather than commercial initiatives


Read the Case-Study, “A Legal Matter”

• How might Susan feel about this meeting – and how might
that influence your approach?

• What are three key questions you would like to ask her?

• The information to date is limited, but what sort of
activities might lead to “quick wins” in this category?


Real World Sourcing Scholarship

• £2500 towards any procurement based training
• Log on to the BravoSolution Education Network with the
details you’ll receive tomorrow
• Complete the certification programme
• Check your ranking!
• The winner will be announced at the Sourcing Experts
dinner on 19 December


THANK YOU!

Please feel free to contact me on
psmith@spendmatters.com


Real world sourcing - Taking on a New Category

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