Friday Rant: Building the Case for Bringing Additional Category Expertise In House (Part 1)

There's more uncertainty in the economic air than there has been for at least 18 months. Yet I believe it'll be more important than ever as we head into 2012 for companies to bring additional category expertise in-house regardless of the upfront and ongoing costs associated with additional, expert FTEs. I'm not alone in this thinking. Take the case of one industrial manufacturer in the Midwest we've observed recently. At this company, we've seen an interest in hiring additional category expertise internally in the metals area.

This hiring interest is emerging despite challenges in forecasting demand -- which many believe might slow as a result of the economy. And it could not come a moment too soon. Yet building the business case to hire experts rather than strategic sourcing generalists is not as simple as it might seem. Once you have a cadre of category sourcing professionals that can handle general indirect and some direct areas already, the case to drive incremental savings, cost avoidance and risk reduction in targeted areas where the necessary in-house experts might command a premium can be challenging, especially when there are third-party alternatives (e.g., hire a consultancy or an expert contractor on a periodic basis).

I'd argue that the third-party option is really not an option anymore. It used to be that a consultant or contractor parachuting in for a period of time could facilitate a savings-related program or sourcing effort. But today, a singular negotiation might help with identified savings, but it often won't be enough to lock-in implemented, bankable numbers let alone sustainable returns over time. Thanks to the volatility of commodity prices as well as the risk of increasingly extended direct materials supply chains, it's essential to have expertise available and focused on a singular program on a continuous basis.

Leading procurement teams are realizing that facilitating category results today often requires a new range of skill-sets when it comes to commodity management. These include category forecasting, commodity hedging, on-the-ground supplier development and joint cost take out, supply risk management and compliance management (for both financial and other contractual terms). Few, if any, consulting firms are qualified to deliver both expertise and capability across these sets of responsibilities, especially on a continuous or outsourced basis.

Looking inside the organization, as the number of key responsibilities associated with managing a single category increases aside from just ongoing vendor management and the occasional strategic sourcing effort, it becomes essential not only to make sure that resources aren't spread too thin across categories but that a single individual can emerge as the owner that takes overall management oversight within a particular commodity area. As our analysis continues in this rant next week, we'll share a specific checklist of tips to use in building a businesses case to bring in additional category expertise.

Jason Busch