A.T. Kearney Report Puts Emphasis on Category Excellence

You can now get hold of A.T. Kearney’s 2017 Assessment of Excellence in Procurement. The firm has been conducting these assessments every three years or so since 1992, and this is its ninth assessment. Kearney has been a leader for a long time in procurement consulting, being one of the first big firms to major on category management, and their expertise covers both pretty tactical cost-reduction assignments through to more strategic advisory work with large corporates and governments.

So their work has credibility in this field. In this report, they divide companies into four groups based on their ability to manage external spend: Leaders (7%); Aspirants (11%); The Pack (55%); and Strugglers (27%). The “Leaders” are twice as likely to invest in supplier innovation, risk management and digital technologies like blockchain or automation.  And leaders achieve nearly three times higher return on their supply management assets than other companies.

According to A.T. Kearney, achieving procurement success is relatively simple. It’s the sum of three elements: category excellence, team excellence and supplier excellence.

It is interesting that the report puts so much focus on category excellence – which “generates 73% of procurement value”. That seems to bear out the findings of the excellent Future Purchasing report (which we’ve covered several times), which also draws strong correlation between category performance and procurement (and indeed wider business) value.

The famous ATK “chessboard”, discussed in the report, defines the options for category management approaches. It encompasses 4 purchasing strategies, 16 levers and 64 “methods” that define various ways of handling spend and suppliers. However, if you want more detail on driving CatMan success, the Future Purchasing report does go into a lot more detail on the wider aspects of category management - for example, the whole area of stakeholder management, which is not really covered by the chessboard.

Back to this report though. The characteristics and approach of the “leaders” won’t come as any big surprise to most readers. They act as a business partner, take a proactive approach to ensure involvement in strategic activities, and standardise processes and use automation so they can focus and put their efforts into those more important activities. They have higher compliance to negotiated contracts; and more focus on capturing innovation from the supply market.

The report wraps up with recommendations for each of the four groups (Leaders, etc) from authors Sonali Agarwal, John Blascovich, Mike Hales, and Alex Thoresen. If you are a “struggler” then get the basics of strategic sourcing and compliance in place to address costs and start delivering value.  Average-performing procurement teams (“The Pack”) can work on establishing credibility as valuable contributors to the overall company. If your procurement organisation falls among the “Aspirants,” you probably know what you need to do in order to join the top 7% — you just need to do it.

“The overall goal [for all companies] is to accelerate progress toward delivering higher earnings per share (EPS),” Hales and Agarwal said. We can’t argue with that, and the report, as usual for Kearney, is a good and thoughtful piece of work and definitely worth a read.

However, as we’ve said before, the issue for procurement is increasingly not that we don’t know what good practice and success looks like. It is the challenge of making it happen. If there is anything holding us back, it is implementation skills rather than a lack of strategic understanding.

Voices (2)

  1. David Atkinson:

    Peter,

    Your last paragraph is a particularly wise one. Knowledge of good (if not ‘best’) practice is widespread now, after almost thirty years of quality research in the procurement/supply chain domain. But I wouldn’t characterise this as ‘strategic’ understanding, but rather as ‘technical’ understanding.

    In my judgement, ‘strategic’ understanding is still pretty poor, with too many leaders and practitioners adopting me-too practices copied from elsewhere, or even tools and practices selected from a menu of good ideas (usually the ones easiest to adopt). But adopting a few good ideas does not a coherent strategy make. Implementation is inevitably patchy, and it’s no surprise that us consultants occasionally trip over each other in working in series with the same client base, each time being charged with ‘transforming’ practices that have been tried and have failed in the recent past.

    No, I think the real gap between how we would like things to be, versus how they really are, is in the realm of ‘strategic competence’. Not enough thinking time is given to developing strategies that reflect the (usually limited) aspirations for Procurement in the host organisation, the genuine needs of stakeholders (not only those of Procurement), and the bandwidth, skills, and organisational set-up of the Procurement team.

    Only in addressing ‘strategic competence’ shortcomings, will organisations focus in on what really matters (not to the pros, but to their organisations), and then the difficulties of implementation will become more manageable.

    1. Dan:

      Which is why so many organisations use the ‘direct/indirect’ method to organise the procurement team, despite it being largely irrelevant to procurement

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