Spend Matters welcomes another guest post from Becky Partida of APQC.
As part of the more strategic role of the procurement function within the enterprise, many organizations are adopting supplier category management programs. By emphasizing purchasing efforts in categories that are critical to the business, the procurement and sourcing group can better create and manage supplier relationships that provide the highest value to the organization.
APQC recently conducted a best practices study that examined how high-performing organizations establish and run supplier category management programs. The study revealed that successful organizations align their procurement and overall business strategies by creating cross-functional category management teams. In addition to procurement staff, these teams can include technical experts, quality representatives, and others, depending on the organization’s needs. These teams focus on business priorities and are aided by endorsement from senior leaders.
Two examples of this in APQC’s study came from FMC Technologies, a global provider of technology solutions for the energy industry, and ATMI, a provider of technologies for the semiconductor, life science, and flat panel display industries.
Each supplier category at FMC Technologies supports one of the organization’s global product lines. FMC has established category management teams that are led by category managers. The ideal category manager is an individual with a strong technical background combined with a strong commercial background. However, individuals with experience in operations, project management, commercial areas, or technical areas such as engineering are also sought.
FMC’s category management teams are accountable for the strategy and execution of the organization’s procurement objectives. In addition to sourcing staff, the teams also include supplier quality staff, subject matter experts, and engineers responsible for the product line. A subject matter expert is typically someone with specific knowledge (e.g., fabrication, machining, or welding) and could be a product line engineer.
The category manager reports to both a global product line sourcing manager (who is responsible for developing sourcing strategies, policies, and processes) and a global product line sourcing director (or functional leader). The three-way collaboration among the category manager, the global product line sourcing manager, and the global sourcing director provides support to the team and ensures that its strategies align with the organization’s strategy.
ATMI’s supply chain management group focuses on strategic activities such as developing sourcing strategy, qualifying suppliers, and contracting. A member of the supply chain management group leads the cross-functional supplier management team for each supplier category. Each of these teams works to develop a holistic strategy for the category. The strategy is shared with key internal stakeholders to ensure alignment with ATMI's priorities and objectives. The team also creates strategic road maps to outline initiatives that address both short- and long-term challenges within the category.
The team is also involved in the evaluation of current suppliers. It reviews scorecard performance, continuous improvement projects, and any corrective actions that ATMI has taken with suppliers. The team then determines whether the investment ATMI is making in a specific supplier is achieving positive results, and, if necessary, reassesses its approach with the supplier.
To provide a holistic view of the sourcing process, each team has a quality representative and a technical representative. The quality representative conducts supplier assessments and continuous improvement projects. This individual is also responsible for collecting and analyzing supplier performance data. The technical representative is typically a scientist who acts as a consultant to suppliers so that they can provide what ATMI needs.
The supplier management team uses a six-phase process for category management that pulls in different business functions at various points. For example, during the development of the category strategy, the team defines its objectives by focusing on new product development sourcing strategies, supplier performance goals, and key projects. When developing a consensus on the category strategy, the team communicates with ATMI’s operations group, supply chain management group, and business management team to ensure that the category’s needs and objectives align with the overall needs and objectives of the organization.
Both FMC Technologies and ATMI create a cross-functional team for each of their product categories. This gives each team organization-wide visibility and ensures that it receives support. Category teams provide greater value to their organizations than would be seen from the sourcing function alone because they create category strategies that align with broader enterprise strategies and ensure that suppliers are meeting the strategic needs of the enterprise.