In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.
My point? To improve category management, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game:
- Move from category sourcing to category management. Setting up a cross-functional team and process to source a category is not category management (which is an end-to-end lifecycle process rather than a single sourcing event). For more on this, see the following research post on category management.
- Expand the depth of category management techniques that you use.This will likely fall out of implementing the first recommendation, but you can do this across all your spend categories. Managing categories globally doesn’t mean you can’t create value if you can’t find a single global supplier! We highly recommend taking an inventory of how well you deploy different category management practices across your spend categories and across your organization. BHP Billiton utilized a good process for this called “supply process review.”
- Expand the value objectives for your category.Hopefully, you can expand your performance metrics beyond year-on-year cost savings, and even if you can’t, you will likely find plenty of runway just within TCO reduction even though the stated focus will be on supply quality, working capital, risk reduction, etc. See the below figure for an illustration of such category value objectives and also category strategies (which ties to previous point regarding capabilities).
- Create your own new categorization! Can you organize your spend around a major equipment/asset type? Can you do it around a customer? How about for a certain type of business processes (e.g., major contract manufacturers even though you also manage tier 2 suppliers in a “buy-sell” type process like HP)? The only barrier here is your mind. Try to add to this list if you haven’t already done so.
- Broaden your definition of spend to include internal spend, and broaden your “total available market share of spend” by considering the make versus buy decision. For example, Walt Disney’s procurement group works with internal stakeholders to help them outsource nuisance processes as a value-added service. It increases spend under management and stakeholder satisfaction.
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