These days most medium and large sized organisations have implemented the principles of Category Management, with varying degrees of success. Category Management is a process whereby external spend is categorised to align with supply markets. These categories are then managed similar to the way separate business areas would be managed. With appropriate category strategies, the idea is that the category management process will deliver more value to the business.
However, category strategies must not be seen in isolation. Too often strategy development lacks innovation, creativity and impact, with an over emphasis on traditional sourcing. Instead take a step back! Consider how the business, which Procurement supports, works. What are the competitive advantages? How can they be strengthened? How can they be destroyed? How can Procurement leverage supply markets to create more durable competitive advantages?
But Procurement teams are very busy, often operating in reactive mode. So, finding the time to take that all-important strategic view, do the necessary analysis and engage with stakeholders in a meaningful way can be challenging. Nevertheless, if Procurement wants a seat in the Board Room, the function needs to add more strategic value. It needs to be more than just a tender processing machine.
The good news is that developing impactful category strategies does not have to be complex, tedious and time consuming. There is a leaner way. Sure, go to any large management consultant company for advice and you will be bamboozled with hundreds of Power Point slides containing all and any imaginable analytical tool, check lists, frameworks and models. Once your staff has completed the extensive training they are paralysed, overwhelmed and frustrated. How can anyone possibly do all that and still do their day job?
A builder constructing a house does not use every single tool ever invented. Similarly, Procurement professionals need to apply critical thinking and develop their own lean, appropriate and targeted approach to developing category strategies. Here’s how.
Trust what you know
Whether you have worked in Procurement for a short period or have decades of experience, you (and your colleagues) will know something about the supply market, your immediate stakeholders and the wider business you serve. Start there. Have a look at your spend data and use a few established analytical models to get you started thinking about key dynamics, challenges and opportunities.
Total Cost of Ownership analysis, for example, is a good way of visualising wider cost picture for key activities in your area. This often stimulates the generation of ideas for improvements or even radical redesign. Porter’s 5 Forces prompts you to think about market dynamics, including power balances. There are, of course, many other relevant models. It is key to remember that none of them will “give you the answer”, however they will prompt some important questions. They are essentially “thinking tools”. If a thinking tool doesn’t do it for you, pick another one. There are no formulas.
Leverage the knowledge of other people
Once you have done some initial analysis you can develop a high level strategy view and socialise that with your key stakeholders. There are clear advantages of going to them with something concrete which you have put some thought into. One advantage is that they will be able to provide you with more insights and help fill any remaining knowledge gaps. Any feedback, criticism, even push-back, they may have will save you loads of time! The window has opened into their business reality and you are a lot wiser, even though you spent relatively little time organising your own thoughts and knowledge in preparation. A good Return on Investment!
To build a deeper understanding of the market you can use a similar approach with a few top suppliers in your category. By “similar approach” I mean, talk to them! What about those annual Supplier Relationship Meetings you said you would conduct? Consider having them now and take that as an opportunity to understand their business realities a bit better and pick their brains about the wider market.
Now, with that added insight you can go back and update the analysis you did previously to develop more precise category strategies. If you still have knowledge gaps you can target them specifically. There are a number of resources you can use, but the ones I have found the quickest and most effective are:
- Annual Reports. Most categories/supply markets have publicly traded suppliers. It’s amazing how many information gems are hidden in their annual reports. Not just about the companies themselves, but about the wider market. You can, for example, learn about barriers to entry, intensity of competition, structure of the market, etc.
- LinkedIn Groups. There are a number of Procurement specific groups out there. Collectively they have millions of members. So why not simply ask someone who has been there and done that? However, don’t just ask basic stuff. Show that you have done your homework so you can have a conversation at a higher level. If you approach it that way, most will be happy to help.
Have fun developing strategies. After all, it’s a creative process…
Armand Brevig is the Managing Director of Procurement Cube. We have created an effective and lean Procurement product that unlocks hidden business value for SMEs. It’s a Procurement Powerhouse inside your organisation that delivers Value for Money, Total Cost Control and Enhanced Competitiveness. The approach builds fit for purpose capabilities that deliver sustainable strategic value. The focus is on what really matters in your unique situation.
