Category Archives: Sourcing Innovation

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.

Once You Get the Three T’s, What’s the Next Step To Asia Pacific Dominance?

In our last post on Why There Are No World Class Procurement Organizations in Asia Pacific, we noted that the primary reason that no business head or CPO in Asia-Pacific reported their Procurement capabilities as great is the classic Triple-T problem — a lack of talent, technology, and transition management. When we reviewed the seven things that Bain indicated procurement teams lack, we noted that all were fundamentally an instantiation of a talent, technology, or transition management problem.

However, getting the three T’s in place is just the first step. The next step is to apply them properly. Where do you start? One place to start is with the six enablers outlined in the article. While the doctor thinks it is debatable that these enablers will help a company establish 4th generation Procurement, like the article suggests, it will definitely up an organization’s game and put them on par with their counterparts in the western world.

So what are these enablers?

1. Better Organization

This requires the organization to acquire a clear procurement mandate, a streamlined organization that appropriately delineates global vs. regional vs. local responsibilities, and clear roles and decision rights across Procurement. In addition, the organization needs to elevate critical decisions to senior management (to ensure they not only have senior management buy-in but support), implement a feedback loop from internal customers to end consumers, and establish effective reporting channels.

2. Better Processes

This requires better category management, vendor management, and information management. Sustainable savings come from holistic category management, not point commodity sourcing. Suppliers only improve when properly managed. And information quality is key to Sourcing, Procurement, and all related aspects of Supply Management.

3. Better Tools & Systems

Leaders have integrated and transparent data for both direct and indirect spending. Good decisions require good data. Good data can only be obtained from good tools.

4. Better P&L Effectiveness

Leading companies have pull-based demand management with enforced compliance and formalized budgeting for all categories. They employ sourcing platforms that allow a company to see the direct effect of a sourcing decision on the bottom line.

5. Better Talent Management

Just because you have talent today, this does not mean you have talent tomorrow. If you don’t continue to educate and advance your talent, they will leave you for a competitor who will. Plus, as your organization grows, you will need to add more talent. Without a proper talent management strategy, your talent equation can only be solved for a single point in time — if you are a lucky one.

It’s a hard climb, but a feasible one. And if you review the SI archives, you will find many posts about how to improve in each of these areas. Happy Hunting!

A Futuristic Look at High Definition Sourcing (Repost)

This post originally ran on March 10, 2011. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final 😉

Today’s guest post is from Paul Martyn (VP of Marketing), who recently penned a guest post on Achieving Category Excellence with High Definition Sourcing, to look ahead three years when High Definition Sourcing and Next Generation Sourcing Techniques (which include Value Focussed Supply Management Techniques) are commonplace in the leading Supply Management organizations and put together a picture of what e-Sourcing might look like.

It’s 2014. I’m a senior sourcing professional at a large multi-national company and I’ve got major sourcing programs planned for categories that share the following characteristics:

  • Large amounts of spend
  • International, operational, marketing and/or finance stakeholders
  • Complicated cost models
  • The category leader is frustrated with traditional sourcing techniques
  • The category is avoided by the faint of heart
  • Dynamic corporate, supplier, and market conditions

Sound daunting? Maybe even impossible to succeed? Three years ago, I would have shared your skepticism and been completely frustrated by the sheer complexity of tackling these challenges. When I look back, there was a lot holding me and my team back, including:

  • A one-size-fits-all approach to sourcing:
    For successful sourcing of complex categories, what my team really needed was the ability to define the world of their particular category. A flexible framework would allow us to state the opportunity/problem, gather the necessary inputs to evaluate possible reactions, make a decision, and track the implementation and monitor the changing conditions around the decisions we’ve made to constantly take advantage of changing realities — all while staying consistent across the organization.
  • Silos, silos everywhere and not a bridge in sight:
    The conventional approaches I used created nonsensical boundaries across functions. I couldn’t get engineering, distribution, supply chain, and customer service aligned or more importantly — involved in the decisions. Worse, we weren’t really in problem-solving mode, these were merely sequenced ‘events’ executed with no ability to create and manage a ‘process’ that ended up as a ‘system’ to manage key categories. All we created were more damn task lists. My category leaders didn’t need more “to-do’s”, they needed laboratories for research and testing, board rooms for decision-making, and a ship’s bridge from which to monitor and control.
  • Drowning in useless data:
    We made great use of data at first, but wrestling with it was so manual and there was no way to easily refresh it. It very quickly became like a can of soda: when first opened, it’s great, but the longer it sits, the flatter — and less useful in providing relief — it gets.

So what’s changed? I’ve used ‘High Definition’ Sourcing with category specific ‘Business Centers’ for complex categories. With this sophisticated approach:

  • Category managers have a panoramic view that allows them to manage their categories, end-to-end with regards to
    1. defining new opportunities/problems
    2. gathering a full spectrum of metrics to use in evaluating potential solutions,
    3. establishing, monitoring, and tracking of key decisions to highlight deviations from expectations

    These three (3) parameters form our ‘system’ for managing complex categories, where the stakes are high and the opportunities for value, even higher.

  • With a category management Center of Excellence we have two critical resources for successful management of high-definition sourcing:
    1. A Data Management Guru (DMG) responsible for the data capture and informatics. The DMG establishes connections to gather baselines; refreshes usage and capacity details; links to spend sources for up-to-date consumption figures and arranges performance data aggregation and design.
    2. A Business Intelligence Management Professional (BIMP) responsible for configuring the new analytics necessary to analyze key categories within an initiative. Every problem is a little different, and the right analytics are crucial to making the right decision.

As a result, my sourcing tools can

  • Flexibly define the problem opportunity for a specific category
  • Utilize robust data sources to feed the evaluation and performance processes
  • Allow creative scenarios to complete the evaluation process
  • Support the determination of specific decisions and actions
  • Establish KPIs for tracking ongoing performance
  • Effectively report the impact of our initiatives in terms (EPS/Profit Contribution) the entire organization understands

All in the context of a given category.

And the return on investment for the staff augmentation and additional tools? An additional 5-8% savings in my most strategic categories, an overall improvement in my supplier performance post-contract, and an overall reduction in organizational risk by involving all of my stakeholders, their key data inputs, and constraints.

My only regret: I didn’t do it sooner.

Thanks, Paul!

High-Definition Sourcing: Category Excellence Moves to the Next Level (Repost)

This post originally ran on February 14, 2011. However, it is still as relevant today as it was then and, for those of you who did read it before, not too much of a distraction to you as we approach the World Cup Final 😉

Today’s guest post is from Paul Martyn, Vice President of Marketing for Bravo Solution.

the doctor — along with many others — has been advocating for “next-generation sourcing” for some time. I couldn’t agree more that modern supply management organizations must take sourcing practices to the next level if they are going to continue to distill value from the discipline and practice.

But like most New Year’s Resolutions, while the aspiration to improve may be great, the effort may be too much for even the most committed. I see this a lot, especially when it comes the challenges of sourcing strategic, complex categories. Not without reason of course, but more and more I also see that the benefits of mastering the art of sourcing these challenging categories far outweigh the difficulties of the actual process.

Strategic categories mean different things to different businesses. For one company, the category may be transportation; for another, packaging material. The common denominator: the business can’t succeed without it, and can’t afford to over-pay for it.

To make decisions based on the most strategic objectives of the business, sourcing teams need to integrate many dimensions of information from areas well outside their domains. For example, if non-price factors like diversity or sustainability are part of the company’s corporate social responsibility initiative, those factors can — and should — be part of sourcing strategies.

As a result, the volume and the sheer variability of the information render common e-sourcing tools or Excel spreadsheets useless for collecting and evaluating proposals. That’s where high-definition sourcing — which combines technology, expertise and process — delivers the goods at the lowest total landed cost, and aligned with the greater organizational strategy.

So how do you know if high-definition sourcing can turn even the most complex categories into real value for your organization? There are generally three scenarios where the opportunity to apply this discipline will help you capture meaningful and sustainable savings

  1. The category leader is frustrated with traditional sourcing techniques
  2. The category is avoided by the faint of heart
  3. Sourcing alone will not deliver the value

Sound familiar? Odds are good that at least one of these reflects what’s happening in your organization. Regardless of which situation you face, there are immediate opportunities to be gained with high-definition sourcing

  • Use technology to design and execute more sophisticated proposal collection and analysis, including the ability to use “what-if” scenarios.
  • Build supplier performance monitoring and triggers for re-evaluating supplier selection into your category management solution
  • Partner with suppliers to drive costs out of the system and strike the perfect balance between suppliers’ pricing and capabilities with buyer business constraints and preferences
  • Tap domain and process experts to bring market and industry best practices to bear on your own sourcing process

The results will be well worth it. Best-in-class companies make the connection between complex categories and the business’ charter. Lowering initial costs is a given. More importantly, these leaders make better decisions based on capabilities and price and secure meaningful — and sustainable — savings.

Thanks, Paul!

We First Rocked Around the Clock 60 Years Ago Today …

… but how long have you been rockin’ your supply chain?

As Christopher Sciacca insists, supply chains don’t have to be boring. You don’t have to sing the blues. You can twist and shout.


Put your glad rags on and join me, hun,
We’ll have some fun when the clock strikes one
We’re gonna save some money tonight.
We’re gonna save, save, save ’til broad daylight

Modern e-Sourcing Technology allows you to identify savings you never knew existed.
Spend Analysis and Decision Optimization identify year-over-year savings in excess of 10% when properly deployed.
New market intelligence solutions identify changing commodity prices in near real time.
Six Sigma and Lean solutions allow you to improve processes to reduce manpower costs.


When the clock strikes two, three and four,
if the float goes down we’ll save some more
We’re gonna rock around the clock tonight,
We’re gonna add value ’til broad daylight

Visibility solutions identify potential risk and allow for mitigation and prevention.
Sustainable options increase brand value and minimize long-term costs.
Recognized brands add value to your own.


When the chimes ring five, six and seven,
we’ll be right in seventh heaven.
We’re gonna rock around the clock tonight,
We’re gonna innovate ’til broad daylight

Collaboration tools allow for joint product design.
VMI allows for joint inventory management.
e-Document Management allows for procurement and sales support.


When it’s eight, nine, ten, eleven too,
I’ll be goin’ strong and so will you.
We’re gonna rock around the clock tonight,
We’re gonna start again at broad daylight

Savings, Value Generation, Innovation is a continuous process — and supply chains support it!


We’re gonna rock, gonna rock, around the clock tonight!