Two days ago, when we asked if there was a difference between strategic category sourcing and strategic category management, we noted that there technically was a difference but that, for all intents and purposes, strategic category sourcing and strategic category management should be treated as one and the same. The reason? Study after study has shown that, on average, 30% to 40% of negotiated savings never materialize and this is because the “strategic” element is usually forgotten once the sourcing exercise is over. For savings to materialize, the strategic plan has to be followed from the time the award is granted, through the time the last unit is sourced, and to the time the last unit is reclaimed and/or the last warranty expires (depending on the strategic plan).
Sourcing only identifies savings opportunities. These opportunities are only realized through the execution of the strategic plan which occurs in the Procurement, Logistics, and Warranty/Returns management function. The entire lifecycle of the category has to be managed in order to achieve the potential savings from managing a well designed category. This is the first step to getting it right.
Thus, the first thing one needs to understand is the entire lifecycle of a category-based supply chain. At a minimum, the strategic category management lifecycle consists of at least the following nine phases / tasks:
- Supplier Identification
- Sourcing of the (Servitized) Category
- Contract Award(s)
- Supplier Management
- Logistics / Inventory Management / Distribution
- Inverse Logistics / Repair and Recycling
- Credit / Material Recovery
Each of these phases must be addressed, and skipping any one phase can jeopardize the entire strategic plan and the savings you hope to capture and/or the value you hope to create. In our next post, we will describe each of these phases in more detail.