This is the first monthly installment of Accenture's Spend Trends category insights that we're making available to our Spend Matters Plus readers. Although this category insight is more direct spend oriented, we chose this category update because of its relevance relative to the immediate opportunity in the truckload market. It provides an analysis of multiple data sources, including Accenture's own sourcing operations for its clients, and highlights recent changes in market capacity, utilization, pricing, and strategies. It's a good time for shippers to be bidding freight right now, but there are some important key caveats related to spot buying, market timing, and shifts in the market relative to large carriers versus smaller regional/specialty carriers. From a procurement process standpoint, the article emphasizes the importance of a deliberate and active management approach to such a dynamic category. From a procurement technology standpoint, the use of combinatorial optimization-based bidding tools for truckload bidding is absolutely key for such active management of large market baskets of truckload lanes. By doing so, shippers can tap the best capabilities of smaller carriers and larger core carriers in order to optimize costs and service levels for increasingly volatile demand profiles.
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An n-step chevron process is a siloed procurement-centered sourcing methodology geared towards supplier rationalization. It’s a fine start for procurement hitting cost savings goals, but it’s not a great way to align to the broader organization as procurement evolves. So, we’re proposing DMAIC as an emerging, superior approach, but it’s far beyond the DMAIC that you usually think of. The n-step sourcing process has had a good run, but let’s not try to make it do unholy things. Read on to see how other companies have used DMAIC.
Maintenance, repair and operation (MRO) is not just about managing parts to keep things working. It's about managing assets that have an impact on organizational performance. When you get down to it, the entire procurement function is about managing assets for organizational performance. Just replace the word “asset” with the word “resource” and consider a definition for supply management used by the Institute for Supply Management: the identification, acquisition, access, positioning and management of resources and related capabilities the organization needs in the attainment of its strategic objectives. Machines, spares, facilities, trucks, IT equipment and other items are clearly assets, but direct materials and purchased finished goods are also assets. Indirect materials, such as pencils, papers and laptops for the data crunchers, are assets. So are key employees and the IP they create. The bottom line is that as physical assets increasingly get wrapped with sensors and software, they can become much more valuable.
Maintenance, repair and operations (MRO) is a very important and overlooked business function that is an integral part of the supply chain. It not only keeps critical internal assets running efficiently but is also a gold mine of opportunities to reduce costs of MRO services and inventories of purchased supplies (spare parts and consumables). MRO is heavily reliant on an ecosystem of third parties (large equipment suppliers, local suppliers, distributors, facility services suppliers, etc.) to keep it optimized, and this is why procurement and supply chain groups should manage it as a critical spend category that is part of the core supply chain, not just a plant-specific tactical spending area. The problem, though, is that most procurement organizations simply do not treat MRO strategically. They tend to source “low hanging fruit” spend categories like basic industrial supplies (e.g., safety products, lubricants, solvents, etc.), electrical components, facilities supplies and so on, and then use a hodgepodge of e-procurement and e-catalog tools that they bolt onto their local ERP and maintenance systems. So, what is an organization to do?
In the first part of this series, we introduced category management, which is much more than just grouping products into categories and category sourcing. Proper category management, we concluded, is a strategic approach to managing supply that transforms the procurement organization from a cost saver to a value generator using advanced strategies and workflow processes that connect external customers to internal customers and collect all of their requirements, connect internal customers to sourcing and work with them to develop the best strategy for the category, as well as connect sourcing to downstream procurement to make sure the contract, and the execution plan, is followed and the identified value retained. And that's just the beginning. That's why, in our last article, we defined some of the many facets of modern category management, which some may call category management 2.0, in an effort to illustrate that proper category management is not a one-size-fits-all process or strategy but an evolving strategic mindset that takes into account the organizational needs, market conditions and results of the category analysis and adapts to provide the organization with the best overall value each time the category is sourced. We also talked about the multidimensional nature of modern categories, the need for customization on a category basis and category intelligence. But even though these are pretty advanced approaches, they are still simple compared with where a modern sourcing organization needs to go. In this article, we explore a few of these (advanced) approaches.
In the first part of this series, we introduced category management, which is much more than just grouping products into categories and category sourcing. Proper category management, as we concluded at the end of the article, is a strategic approach to organizing activities around supply that transforms the procurement organization from a cost saver to a value generator using advanced strategies and workflow processes that connect external customers to internal customers and collects all of their requirements, connect internal customers to sourcing and works with them to develop the best strategy for the category, and connect sourcing to downstream procurement to make sure the contract, and the execution plan, is followed and the identified value retained. And that's just the beginning. In this article, we define some of the many facets of modern category management, which some may call “category management 2.0,” as we illustrate that proper category management is not a one-size-fits-all process or strategy but an evolving strategic mindset that takes into account the organizational needs, market conditions and results of the category analysis and adapts to provide the organization with the best overall value each time the category is sourced.
Category management is broader than strategic sourcing. For example, while strategic sourcing has been a useful methodology for procurement to proactively rationalize the supply base in recurring spend categories, the traditional strategic sourcing methodology has had a strong bias toward purchase price reduction to meet savings goals, because despite all of the talk about the importance of sustainability and supplier development, procurement is still predominantly measured on purchased cost savings rather than a truly balanced scorecard of supply that optimizes the total value of the purchase. As a result, chaining category management to traditional strategic sourcing shrinks its scope to within the sourcing silo and limits its ability as a methodology for broader organizational value creation. The goal of this series is to explain what category management is, how to best go about it, how it intersects with strategic sourcing and how it can be used to take an organization's sourcing efforts to the next level.
Last Chance to Register for Tomorrow’s Webinar and Learn Advanced Case Studies in Smarter Catalog Management
This is your last chance to register for tomorrow's webinar, Teaching an Old Dog New Tricks: Advanced Case Studies in Smarter Catalog Management. Join us at 10 a.m. CDT as the Spend Matters and jCatalog teams walk you through how progressive procurement organizations are enticing stakeholders with more nuanced approaches to support complex category-specific supply chain requirements. The old-school catalogs that often get a bad reputation are history. Advanced smart catalogs are replacing them and promoting a guided buying process essential to the procurement and supply chain world. Register today!
Out with the old and in with the new ... catalogs. Join us next Wednesday, Nov. 4 at 10 a.m. CDT for the webinar, Teaching an Old Dog New Tricks: Advanced Case Studies in Smarter Catalog Management. The Spend Matters team and jCatalog will talk trends and highlights with case studies in using smarter catalogs for a guided buying process to make procure to pay (P2P) manageable for stakeholders and the procurement function.
Category sourcing has been one hot, trending topic around these parts as of late. Our downloadable e-book and preview webinar on category management have been wildly popular and we are concluding our coverage with this comprehensive, must-attend webinar: Supercharging Category Management: Free Yourself from Siloed Sourcing to Unlock Breakthrough Value. Join us tomorrow, Oct. 22, at 9 a.m. CDT, for what will surely be a lively discussion as Pierre Mitchell, chief research officer at Spend Matters, is joined by Mickey North Rizza, vice president of strategic services at BravoSolution, to discuss going from simple category sourcing to category management 2.0 in just nine steps. Register today!
Webinar Thursday continues in October as we present Supercharging Category Management: Free Yourself from Siloed Sourcing to Unlock Breakthrough Value on Oct. 22, at 9 a.m. CDT. This is the concluding event on supercharging category management, following a wildly successful e-book and preview webinar held last month. From this webinar, you will learn case studies, technology support examples, specific industries and verticals, as well as participate in a closing Q&A. Register today!
How to Build a Category Workbook [Plus +]
Attention category managers: This Flashback Friday post is just for you. We reached into our Ask the Expert archives to bring you a detailed presentation from Xavier Olivera, editor of Spend Matters Mexico/Latin America, about how to build a spend category workbook. Xavier walks listeners through how to create this “knowledge guide” to a spend category that can serve as a supporting document to your procurement organization and fellow category managers. Check out the full webinar, Ask the Expert: Do You Know How to Build a Category Workbook, in this post!