The article below is written by Tjerk Blik on September 10, 2012
Category Management and the Challenges for Public and Private Sectors.
The term “Category Management” comes from the retail industry. It is a retailing and supply management concept in which the range of products purchased by a business or sold by a retailer is broken down into discrete groups of similar or related goods. These groups are known as product categories (e.g. breads, washing detergents, vegetables, etc.) It is a systematic, disciplined approach to managing a set of products as a strategic business unit.
Nowadays Category Management is an approach that is also gaining ground outside the retailing world and is being used in public and private sectors. The rationale behind it is still the same; products or services that have similar characteristics and similar supply markets are grouped together and treated as a discrete group. Because it is also important that key stakeholder are involved from the start product requirements are clear from the start, which eventually will lead to a more value-driven Procurement organization.
I will not be discussing the many advantages of Category Management but will focus on the challenges companies face while transforming into this new way of working and how to overcome them. I will use the Category Management House that has been developed for the Category Management implementation. In this first post, I will focus on the bottom of the house, in a second, follow-up post I will focus on the top part of the house.
At the base of the house you can see that the first step that a buyer/”category manager” needs to take is to make a Category Profile. This Category Profile consists of three main steps:
- Internal analysis: consisting of scope definition, stakeholder analysis, spend analysis, process analysis and forecasting
- External analysis: consisting of supplier analysis, Kraljic matrices, benchmarks and trends & developments
- Total Cost Management: consisting of Value Chain analysis and TCO-analysis
When implementing Category Management, a lot is changing for Procurement. The organization is transforming from an operational department to a more strategic department that will be perceived as an advisor to the business. This leads to several (transformation) issues such as:
- Identifying stakeholders and making them active participants
- Addressing workforce capability gaps
- Building support from Management Teams
This raises the question: “How Procurement can overcome these challenges?”
Identifying stakeholders and making them active participants
The Category Management way of working will enable the Procurement organization to become an advisor to the business. Often we see that the stakeholders are either unknown or that Procurement is not in close contact with the stakeholders. Furthermore, it is important to make sure that the stakeholders understand the importance of the new way of working, which means that they have to put in some work as well. This transforms the stakeholders to active participants and will improve the results for the Procurement organization. Without the support of your stakeholders, the results of the new way of working will be disappointing.
Addressing workforce capability gaps
During the transformation from an operational department to a more strategic department, the Procurement organization often notices that there are gaps in the workforce capabilities. Either the organization lacks the skills to become the advisor of the business or the organization does not have the capability to become the advisor of the business. This can be solved by providing specific training and coaching on the skills and capabilities that are needed. Procurement can address this by providing coaching-on-the-job, where experts coach the buyers in the new way of working. In order for the capabilities to be enhanced, a budget needs to be made available to support the training costs for buyers.
Building support from Management Teams
Often the need for change comes from the Management Team. But, during the transformation there can be a lack of engagement and operational support from that same team. This leads to a transformation that does not fully realize the benefits out of the new way of working. In order gain the maximum benefit from the new way of working there needs to be full support from the Management Team, throughout the transformation. This means that the Management Team should be available to support with data analysis, value-chain/TCO-analysis, stakeholder meetings, supplier negotiations and be available for questions on a day-2-day basis. This will support the buyers in the new way of working and also supports the coaching-on-the-job approach.
In a second blog post, I will focus on the top part of the Category Management House and the challenges that Procurement organizations face.