A couple of weeks ago, after running our series on Strategic Category Management (Part I,
Part III and
Part IV), we said Don’t Forget Strategic Category Management in Your Services Categories. This was because a lot of organizations believe that strategic category management is only for direct categories or physical goods, when nothing could be further from the truth (especially when indirect spend can approach 50% in some organizations).
In this post, we outlined the nine phases of strategic category management and how they relate to services categories. Although we did not make Post Mortem a separate phase, it is still a critical part of the process. In fact, it’s one of the most critical parts – because if you do not analyze how you did, you will not improve the next time around. So why isn’t it a separate phase? Two reasons. One, it’s a required input to the first, rationalization, phase because if you don’t do a post mortem and analyze how well the last strategy worked, you can’t be sure if it was the right strategy or not. (The fact that the results were not what you expect is not sufficient to declare a strategy incorrect. Maybe the team didn’t follow though on the strategy as required in each phase.) Two, and this is the real reason, you should be doing a post mortem after each phase. Face it. If you’re procuring discovery services for the next three years, and you wait until thirty-three months in to start the post mortem, how well can you reasonably expect to assess the job you did in the supplier identification and sourcing phases three years earlier, when half of the team has changed, memories has faded, and a lot of the details of the process has been lost? Here’s what you should be doing from a post-mortem perspective at the end of each phase.
At the end of the rationalization phase, you should be documenting not only what strategy you are pursuing, but why. What are the assumptions you are making that favour this strategy? What other strategies did you rule out and why? (If it turns out an assumption was wrong, then another strategy might have been viable and you will have saved work the next time around.)
At the end of the supplier identification phase, you should document how you conducted your search and how effective you were at identifying additional suppliers. How long did it take, how many new suppliers did you uncover, what percentage were suitable to push to the sourcing phase, etc?
At the end of the sourcing and contract award phases, document the process that was followed, how long it took, what seemed to work well and what didn’t, and anything you wish you would have done (differently).
During the supplier management phase, which is ongoing from contract award until the end of recovery, conduct regular supplier assessments and thoroughly document the results against well defined metrics, any benchmarks you have, and any expectations that were included in the contract. For each issue, document the root problem, what you did to address it, and what you think you could have proactively done to prevent it.
During the procurement phase, review actuals to expected at the end of every quarter. (This will be “easy button” simple if you have a decent e-Procurement system that allows you to define budgets at the line-item level.) For all line items that are off more than 20%, do a quick manual review to identify any that aren’t easily explained (a payment slipped, you moved some work back, you ordered extra inventory as a precaution, etc.). Dig into these. If they can’t be adequately explained in five minutes, someone didn’t do a good job of budgeting or project management. This needs to be identified and documented as part of supplier management.
Then, at the end of the phase, and before you execute a new sourcing event, you need to do a more detailed analysis. At the very least you should:
- Run the spend reports on your complete transactional data
- Compare the results to your original spend analysis data (which was likely incomplete if this is the first time you are doing strategic category management)
- Focus on the gaps – where the data does not match, is it because you brought new spend under management or is it because there was some off contract spending
- Focus on the differences that are +/- 20% (adjusted for inflation or demand, as required) – for each difference that was not already detected and adequately explained, do a deep dive
- For each gap and each difference >= 20%, document what could be done to prevent this in the future – better forecasting, new processes to keep purchases on contract, better supplier / demand management, etc. and what changes, if any, are required to the overall strategy
This is the phase where you “close the loop” and begin to loop back to the next, hopefully better, iteration of the strategic category management cycle. If the loop is not closed, spend under management will not effectively increase and the organization will only see savings the first time. If the loop is effectively closed, then, when inflation and demand is adjusted for, the company will see savings each time through the process as efficiency, in both the buying and supplying organizations, is increased (and unnecessary fat is taken out of the margin).
During the recovery management phase, you have to document what actions you take and how well they do.