Category Management – still a value-creation tool for procurement, Part 2

Yesterday we began our conversation with Mark Webb of Future Purchasing about whether category management has had its day or is still as critical to delivering value as it has always been. Mark mentioned the ROI and benefits it can bring, and qualified that by saying that of course, you can measure benefits in many ways:

Attractiveness as a function – “this is really important today, especially for the millennial worker who wants more than just tactical sourcing as a career. Having the time to develop strong category strategies allows you to look at a range of value levers you can apply to a category, in a systematic way that can be proven. It’s a creative process that uses fresh data sets and strategic tools to generate as many areas of opportunity as possible. At the start of the process you might have 2 or 3 ideas which can grow to 20 or 30 by the end, because you are working in a cross-functional way and “joining the dots” as a team with the full perspective on the category.”

Working cross-functionally – “co-creating strategies with business stakeholders is really at the heart of good category management. Through it you are creating a case for change at the category level that the business is already bought into – almost like being the CEO of your own category. This is a very different value proposition from traditional sourcing. Working cross-functionally also ensures the procurement team are much more in tune with the broader value the business requires them to deliver than those lagging in their category management approach who are focused solely on cost reduction.”

Mindset – “the type of mindset that category management creates, is the realisation and understanding that there is so much more that procurement can achieve outside of reducing costs, which is something that is easily transferrable into other careers.”

Consistency across categories – “if you haven’t implemented a category management approach, or it’s been a while since you have, you won’t have consistency across category strategies. In our experience, the level in each strategy is often staggeringly different, especially where there is no proper governance in place or the moderation that allows you to create standards. Developing a standard of what you think good looks like is really important and one of the benefits of doing category management properly.”

Influence – “the more you are seen as acting strategically, in the direction that the business wants, anchored in their business requirements, capturing the opportunities that the cross-functional teams have created and then articulating them in a way that wasn’t clear before – then you are building your influence. You are seen as the person that can take lots of inputs and translate them into very compelling outcomes for a category, not just over the short term, but for two to three years. Procurement people are the only ones who have that opportunity across all spend, harnessing all the internal knowledge and focusing it.”

Executive confidence – “if you can demonstrate that 70% to 80% of your spend is covered by clear strategies as agreed with the business, and you have a pipeline of opportunities in each category area, that creates executive level confidence in procurement. Procurement gets access to all spend and activity – as we have seen in merger scenarios, for example."

So how can a third party help achieve this?

Mark is quite clear: “Helping teams identify opportunities is fundamental to category management. It is achieved by ‘teaching them to fish’ not by supplying them with the ‘daily ration,’ i.e. providing “off-the-shelf” category answers. It is also critical to instil a sense of ownership of opportunities with business stakeholders. Working collaboratively with them and applying our ‘value lever’ approach is how they can do that. It provides a structure to categorise and evaluate their ideas. It also forces the question, what could we change, for example, in terms of specifications, demand patterns or supplier integration? And we give them another layer of detail and a view of what good could look like, through experience of what value levers have proven to work in that category.

Combining behavioural skills training with the technical aspect of opportunity identification encourages category managers to tune into stakeholder priorities and understand the potential issues and barriers that need to be overcome to secure their support."

But it’s also important to remember that category management is as much about strategy implementation as it is strategy creation. And once you identify your opportunities, FP has found three implementation streams:

  • You can apply them in a sourcing activity
  • You can apply them in a supplier management phase
  • You can apply them in a business change workstream

“This is another area where we see the role of category managers evolving – managing a portfolio of value delivery implementations,” he said.

Which brings us to the changing role of the category manager …

Back to the original point that category management is sometimes seen as old hat, there are two main areas that are changing the role and making this approach more powerful and more appealing to the next generation of category managers:

  • Access to analytics – the new skill of manipulating data, discovering opportunities from the outputs from analytical tools to identify even more opportunities, like anomalies in pricing, volumes, suppliers used, etc.
  • Leading cross-functional teams – this is a skill that is becoming more essential for the category manager. Those who don’t like doing this are better suited to traditional sourcing, but those who can, are creating more value for the business and playing a more influential role.

… and the future for category management?

“From our research,” Mark explains, “we have seen that more people than ever before are realising that their approach to category management could be much more effective. Leadership teams are taking the time to think through their operating model for category management and category managers are being trained to apply tools and think about value opportunities as the priority deliverables - that’s the real gold dust. Our report evidences that the scale of opportunity is significant and that leading organisations are moving faster to make category management deliver its potential."

"Category management is a powerful tool that allows you to collaborate with stakeholders, and to share and create strategies that identify and articulate value opportunities – and this will never go out of fashion.”

The Future Purchasing category management report can be accessed here.

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