Daily Archives: July 23, 2014

Could You Be Doing It Right? Part I: Category Management

In last Friday’s post, we asked if you were doing it wrong. In particular, we mentioned category management, supply chain risk monitoring, and big data, and asked if you were doing these three thing wrong. We noted that even though a number of companies have jumped on these runaway bandwagons, most have yet to grasp the reigns and take control of the wagon and get it on the right track.

Why is that?

Fundamentally, it’s the same reason that there are no world class Procurement Organizations in Asia Pacific — the classic Triple-T problem.

  • Talent
    the organizations don’t have the right talent to properly manage the initiative
  • Technology
    the organizations don’t have the right platforms to capture the right data and support the right processes
  • Transition Management
    the organizations don’t have the right processes in place to handle the necessary organizational shift to properly manage the initiative

Once the talent, technology, and transition management is in place, the organization has what it needs to fully embrace the initiative and take it to the next level. And do it right.

Where should your Supply Management Organization start? By identifying the core capabilities that are required in each “T” category and finding the right talent, technology, and transition management plan to support the initiative, the organization will be well on its way.

In the rest of this post, we’re going to talk about the requirements for an organization to get on the right category management track.

Talent for Category Management

Good category managers need at least the following hard and soft skills:

  • Analysis
    to determine the volume and spend in the category
  • Modelling
    to determine the major cost components, and cost drivers, of the major products or services in the category
  • Commodity Market Expertise
    in the major raw materials and commodities used in the production of the major products in the category
  • Stakeholder Management
    as savings and performance improvement will usually come from consolidating related items with a smaller set of suppliers, which is going to ruffle some feathers when some departments lose their coveted suppliers and supply relationships.
  • Negotiation
    since not only will the individual need to consolidate a set of commodity purchases with a single supplier, but the individual will also need to cut a good deal and maybe even convince the supplier to take some business it normally wouldn’t want
  • Change Management
    since good category management typically requires changing the way the organization conducts business today

Technology for Category Management

Appropriate technology platforms for category management will have at least the following features:

  • Spend Analytics
    with extensive aggregation, cubing, and filtering capability
    as the category manager needs to not only extract volume and spend, but identify related products and services based on components, raw-materials, and sub/related services
  • Should Cost Modelling
    which allows the category manager to understand not only what the product should cost but the primary cost components and the appropriate inputs to an optimization model
  • (Real-Time) Market Data
    which allows the category manager to track historical market trends and predict future prices to time the market if prices are volatile
  • Supplier Performance Management
    which allows the category manager to track and manage supplier performance
  • RFX
    to manage the data collection and track supplier bids and responses before and during negotiations

Transition to Category Management

In order to transition to proper category management, the organization needs to hire someone with good change management skills and give that person the tools he or she needs to get it done. That person also needs to be a natural born leader and someone who can work with teams to get it done.

This isn’t a complete (laundry) list of what is required for proper category management, but it’s a good starting point. Get the right talent, technology, and transition management in place, and your organization will be well on its way to category management success.