Ten Tips For Pursuing Complex Categories as a Core Cost Reduction Strategy

Earlier this week, I proffered up the prediction that 2011 will be the year when procurement organizations refocus their efforts on complex categories as a core strategy. These categories may include contingent labor, professional services (e.g., accounting, legal, management consulting, BPO), telecom, travel, packaging/packaging engineering, small parcel, etc..

I believe there are three key enabling factors that will drive this trend. These include:

  • The greater level of respect successful procurement organizations have engendered among broader executives and company leadership
  • Established precedents among industry leaders -- companies can now turn to case studies, often in their market, to point to situations where like companies have successfully tackled the tendering and lifecycle management of complex categories and generated significant savings and other improvements in the process
  • Available tools/solutions have proven themselves capable of addressing a range of complex spend categories; unfortunately, the largest vendors in the space (including Ariba, SAP and Oracle) are unlikely to have the functional and domain-specific capabilities necessary to achieve the types of results and savings that are possible in many of these areas

Given the lay of the complex category land, how can procurement organizations prepare themselves to go after the complex category challenge? In no particular order, here are a number of tips we've observed from talking to successful organizations and solution providers in the market:

  1. Pursue individual solutions and approaches for each complex category -- one size does not fit all (nor does one skill set on your team -- introduce talent from all areas of the business with the requisite category knowledge)
  2. Start by thinking about the category lifecycle, not just sourcing savings opportunities
  3. Put category data (and intelligence, ideally) at the center of all complex category management efforts; data matters ueber alles for complex categories and don't assume that a run-of-the-mill spend analysis tool will give you the visibility you need (especially in such areas as marketing, telecom, packaging engineering) when the need to incorporate non-financial attributes as part of complex data sets and cubes becomes essential
  4. Don't assume the success you've had in other areas will necessarily win executive stakeholders over to your cause when it comes to their own spend (e.g., legal, audit, marketing); focus on creating highly compelling businesses cases to attract executive spend holders and don't assume that the respect they show towards procurement for other recent accomplishments matters at all when it comes to handling their babies ...
  5. Find a C-level guinea pig, ideally a CFO, CMO, CIO, etc. and sign them up to market the results of the efforts and the savings/other improvements they realize
  6. Engage key sub-stakeholders and ideally, get at least one of "them" on your team and payroll; it is perfectly acceptable to give them a non-procurement title if you think it will help with supplier management, but make sure at least one key individual from the business itself is embedded within procurement to manage the category in question -- and that she reports up the procurement food chain
  7. Consider technology or BPO options at the same time (or before) professional services -- don't automatically go down the one-time services path as a start
  8. Segment the supply base and engage important suppliers early on in the categories you pursue. A category captain approach, where a single supplier helps contribute to the overall strategy, can be a strong possibility
  9. Think about "waves" just as you would in other areas -- quick wins are often possible. For example, as someone told me recently, simply asking for a rate card in the small parcel area can yield significant savings. But always, and I mean always, make data your ally when it comes to both early (e.g., invoice audit, internal compliance) and later wave efforts
  10. Celebrate sourcing wins (e.g., supplier concessions) internally and use them as a rallying cry, but quietly focus more efforts on overall data analysis, category visibility and compliance (both internal and vendor); better sourcing alone often yields only 20% of the potential benefits in complex category areas

- Jason Busch

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