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Category Management

How to Attack Marketing Spend (Part 1) [Plus +]

Torchlite

Like MRO, packaging and logistics, the marketing category straddles the boundary between direct and indirect spend. And we all know (or so marketing folks claim) that it has a substantial impact on sales — allegedly, at least. The direct commercial impact is notoriously difficult to assess, although the new breed of analytics-driven spend analysis tools targeted specifically at marketing spend (e.g., cross-channel, competitive insights, etc.) and campaign performance can help. But put these in the agency parking lot for a minute. We’ll get into them later in this analysis and series.

For now, let’s focus on the marketing category as one among many — what makes it unique, what makes it similar and what are important trends.

Legal Sourcing and Billing: Category Sourcing, Maturity Models and Services Procurement Linkages (Part 1) [Plus +]

UpCounsel

Around 2005, while working for Procuri, one of the authors of this article was involved in a large legal services e-sourcing project (with reverse auction at the end) for a Fortune 10 firm that spanned law firms across the U.S. At that time, we included a substantial amount of spend segmentation into the event. From my experience and research, we were one of the first to engage in a procurement legal sourcing effort of this magnitude.

Designing a Spend Category Taxonomy Properly is Harder Than You Think (Part 1: Do This, Not That) [Plus +]

category management

We had a question from a client of ours about whether there were any guidelines or an overall methodology to coming up with a spend category taxonomy. It’s a simple question, but there isn’t a simple answer. So, we thought we’d offer some insights to help guide your efforts. But before we say what to do, there’s a quick recommendation on what not to do. In this first of a two-part Spend Matters Plus series, Chief Research Officer Pierre Mitchell explores how to think about creating a spend category taxonomy, pitfalls of incorrect approaches, and how to embrace an approach that cuts across categories and spend types.

Rethinking and Reclaiming “Tail Spend”: 6 Key Variables to Consider [Plus +]

AnyData Solutions

The idea of “tail spend” doesn’t seem very complicated at first.

Run a Pareto analysis on your spend categories and suppliers to make a cutoff at, say, the 80% that represent only 20% of your spend. Your numbers will, of course, vary, but the idea is to find a way to better manage such “nuisance” low-dollar spend that doesn’t detract from your efficiency, or worse yet, from spending time managing the truly strategic spend categories more deeply.

You might think of this as the spend in the lower-left quadrant of the famous Kraljic 2x2 matrix, which describes a strategy of “purchasing management” to manage non-critical, abundant supply that can be sourced locally in a de-centralized manner for maximum efficiency. And, maybe, if you manage this nuisance spend properly, you can even extract some value from it (e.g., a “quick source” process to gain some speedy spend savings).

Sounds straightforward, right?

Well, it’s not, and I have purposefully led you astray to prove a point.

The problem is that I never really defined tail spend in the first place – and if you can’t define it or see/measure it, you can’t manage it. And herein lies the rub (and the opportunity):

Tail spend could better be described as “nuisance spend” or “tactical spend,” and is comprised of many sub-segments — not just one or two.

Let’s return to our examples above. Segmenting on a spend-per-supplier basis, like in our Pareto diagram, is by no means perfect. What about low-spend, sole-source suppliers tied to large revenue or profit? OK, well, you might then refer to the Krajlic matrix as the solution. It’s better, because it helps profile the categories into complexity vs. impact (or risk vs. reward if you view it as such), but again, these are only two variables, and do not factor in any others.

Which ones? Let’s list six of them and ask whether you’d consider the resulting spend segments as ‘tail spend,’ or at least ‘nuisance spend.'

Top 10 Ways to Radically Expand Category Management Value Creation [Plus +]

category management

In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.

My point? To improve category management, which we sometimes affectionately refer to as CatMan, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game.

North America Truckload Market Update – Q3 2016 [Plus +]

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.

Using DMAIC 2.0 to Blow Up the N-step Procurement Process [Plus +]

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.

Next-Generation Supply Chains Will be MRO-Powered: The Value of MRO as a Service (Part 4) [Plus +]

MRO as a service

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.

MRO as a Service (Part 1): Embedding Procurement as the Value Engine

MRO

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?

Advanced Approaches: Getting a Grip on Category Management (Part 3) [Plus +]

category management

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.

Some Basic Approaches: Getting a Grip on Category Management (Part 2) [Plus +]

category management

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.

Getting a Grip on Category Management (Part 1): A History Lesson [Plus +]

complex sourcing

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.