This IBM report is good reference material for category management best practice for government.
Category Management was adopted as a purchasing strategy in the 1980s by the private sector, particularly retail and manufacturing. Essentially it was putting similar types of spend into ‘categories’ or ‘buckets’ according to how products were being consumed, with a manager to specialise in that category.
In the public sector, this approach was begun in around 2010 in the UK, but not until 2014 in the US. Those four years of extra maturity should afford some lessons from mistakes that others could avoid. Take-up in the UK followed the 2008 recession as a better means for government to spend more effectively. The UK approach has enabled the government to aggregate demand and approach suppliers as a single whole-government buyer, with better bargaining power, instead of multiple agencies duplicating purchases of the same goods and services at widely varying prices. The US spends $500 billion a year on goods and services, half of which is on common goods and services that could benefit from the buying power of one large customer, but in reality, more than 3,300 buying offices and over 40,000 contracting officers are bidding for similar products. However, development of the cat man approach is high on the federal government agenda.
How did the UK address category management?
The UK Government set up the Government Procurement Service (GPS) to serve as a central procurement organisation and the Government Digital Service was set up to assist in moving to digital delivery of government services. The two groups functioned separately but worked together to use category management to deliver targeted policy outcomes like breaking up large IT contracts held by global IT companies, modernising and moving to cloud computing, and turning public services digital.
Managing common spending in categories gave the GPS and its customer agencies insight into the markets and their suppliers. One of the initial steps in category management was to develop an inventory of total annual UK public sector procurement spending to give accurate, comprehensive accounting of spending by agency, category, and supplier, for the first time.
The distinction is that government departments could manage spend in categories organised to reflect markets rather than the internal organisation of government. It led to government reducing the time it spent on sourcing, creating tenders, collecting and evaluating bids, and increasing resources better spent on market research, managing contracts and suppliers. In 2011, GPS procurement lead time had averaged 236 days; by 2013, it had dropped to 72 days.
How did the US address category management?
The lead up to adopting category management was not dissimilar from the UK and in 2014 the Office of Management and Budget (OMB) launched a government-wide category management programme built on a previous strategic sourcing initiative to the range of common procurement spending under management. While enforcement mechanisms had been lacking in the strategic sourcing initiative, category management was able to address that.
A Category Management Leadership Council was created from representatives from the biggest spending agencies including CFOs as single points of contact to co-ordinate government-wide category management initiatives. More than $270 billion in common annual contract spending was allocated among 10 “super categories and sub-categories” with a senior executive designated as the category manager for each, with about 350 staff from 46 departments and agencies, to identify performance metrics and talk with top suppliers. Also the GSA created an online Acquisition Gateway, where agency acquisition officers could make side-by-side comparisons of government-wide contracts.
Current performance targets to be achieved by fiscal year 2020, are: cumulative cost avoidance of $18 billion; cumulative 60 percent of common spending managed under category management principles; cumulative 40 percent of addressable spending on best-in-class contracts; cumulative 13 percent reduction in the number of unique contracts.
The IBM Center for the Business of Government Report
This report (which can be downloaded here) from which the above is drawn, explains some key differences between UK and US adoption:
Unlike the U.K. effort, the U.S. program was not undertaken in the context of a large-scale transformation of a government-wide procurement strategy—and has not had a powerful, well resourced home or a driven and persistent leader with broad governmental authority to force action. Furthermore, unlike the U.K. effort, the U.S. program has not drawn extensively upon category management expertise from the private sector for its leadership. As a result, the program retains a U.S. government orientation, rather than the more market-facing character the U.K. effort assumed over time. There are other differences as well:
- In the United Kingdom, individual departments and agencies have greater ownership of the initiative and have developed their own category management programs and staff. In contrast, U.S. government category knowledge and management experience reside mostly within two central agencies—the Office of Management and Budget and the General Services Administration, and the staff of the category management teams.
- In the United States, category management relies heavily on contract consolidation. This has so far resulted in scant sharing of market and supplier intelligence and no effort to collect or analyse true spending data at the agency level. In addition, unlike the U.K. program, U.S. category management is not connected to other reforms, nor is there a central effort to manage procurement to deliver on other government-wide policy goals.
It goes on to give detailed insight into lessons from the UK for the US and lays out a high-level roadmap for other governments interested in improving their procurement approach leveraging these lessons.
It then gives six key recommendations from UK category management for the US; these are:
- To ensure the category management initiative is sustainable, it should be integrated into a broader government-wide procurement strategy.
- Executing a government-wide procurement strategy takes empowered, persistent leadership.
- Using a strategic supplier management approach can result in greater value from suppliers that contract with multiple agencies.
- Counting subcontracts enables better visibility, oversight, and deployment of spending with small businesses.
- Leveraging uniform usage data, and standardizing on fewer versions of common goods can drive savings.
- Category management requires managing spending, not just obligations.
For each it gives experience of the UK and US to date, and a deep look at what the US can take away from the UK experience.
Advice from the experts:
We also spoke with a leading UK-based category management expert – Future Purchasing – and asked them to shed some further light on how, in their experience of working with the government on its category management approach, it has worked for the Crown Commercial Service. We’ll be hearing from them soon.