Category Management

CIPS South Wales Branch
Category Management
Presented by:
Dave Porter
Consultancy
Negotiation
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Skills Development
Recruitment
Interim Management
Asia Sourcing
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History of Category Management
•
Originated in marketing in the 1980’s.
•
Grouped products into categories based on how the consumer
used the product e.g.
– Rekitt Benkiser products/brands are distributed across 8
categories
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Reckitt Benkiser – Brands & Categories
Bang,
Finish
Mortein
Lysol
Veet
Dettol
Nurofen
Vanish
Clearasil
Woolite
Strepsils
Durex
Gaviscon
Calgon
Mucinex
Airwick
Scholl
Harpic
French’s
19 Power Brands
Each ranked 1 or 2 worldwide
75% of net revenue
Fabric care
22%
Health care
13%
Food
3%
Surface care
17%
Personal care
13%
Pharmaceutical
7%
Dishwashing
11%
Home care
14%
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8 Category Groups & Revenue Share
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History of Category Management
•
Originated in marketing in the 1980’s.
•
Grouped products into categories based on how the consumer
used the product e.g.
– Rekitt Benkiser products/brands are distributed across 8
categories
•
Helped retailers grow sales and profit by maximising synergies
and minimising unproductive competition between their own
brands and products. For example:
– Michelin also manufacture Kleber tyres which are marketed
as a high quality (Michelin connection) budget brand (price
connection) tyre thus securing market share in 2 segments.
Adapted and adopted progressively by procurement functions
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What is Procurement Category
Management?
•
Category management is a process which relies on cross functional teamwork
to generate procurement outcomes that fully satisfy agreed business needs.
– Categories group products and services together based on the ability of
the market to supply not on the basis of organisational boundaries.
•
BUT - this has been the goal of the procurement profession for many years –
what is so special about category management?
– Extent of engagement and teamwork with stakeholders for all expenditure
with suppliers.
• Not simply allocating categories/commodities to procurement team members
– Governance process which crosses organisation boundaries.
– Depth of category specific knowledge and expertise – market & technical.
– Emphasis on planning and use of analytical tools.
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The Planning Issue
Upstream
20%
Need
Specification
Enquiry
Agreement/Contract
Available
Resource
(time)
Re-active
Expediting
Downstream
Problem Solving
Receiving
Inspection
80%
Excessive Contract
Supervision
Storing
Invoice Matching
Handling Emergencies!
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The organisation was ‘leaking like a
sieve’!
$880m
Approved
Contract Value
$880m
Contract Value
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$210m (24%) extra
Scope Growth, Claims, Variations,
Use of contingency
Poor post-contract mgt etc
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The Planning Solution
Pro-active
Business Objectives
Strategic Plans
Supply Planning
Strategy
Upstream
Market Analysis
Contract
80%
Negotiation
Supplier Management
Tender Improvement
Agreement/Contract
Downstream
Available
Resource
(time)
Receive Goods
& Services
Manage
Performance
& Pay
20%
Category Management helps invert the triangle
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How does category management work?
•
Category tree extends to the level at which the organisation is likely to buy.
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Category Management Structure 2009/10
SOCIAL & PEOPLE
Social Care
(£83.4m)
Residential Homes
(£18.77m)
Domiciliary Care(£18.6m)
Supported Living
(£14.94m)
ENVIRONMENT
People and
Professional
Services (£33.5m)
Construction and
Special Projects
(£62.5m)
Building Maintenance
Services (£30.3m)
Professional Services
(£12.99m)
Other Children’s Services
(£2.77m)
Substance misuse
(£2.45m)
Transport & Facilities
Management (£59.8m)
Corporate & ICT
(£34.7m)
Passenger Transport
Services
(£19.9m)
ICT
(£11.67m)
Events (£8.55m)
Buildings and Civil
Construction
Projects (£61.4m)
Waste Management
(£5.4m)
Highway Maintenance and
Construction (£4.66m)
Consultancy (£7.49m)
Transport Service
And Materials
(£10.6m)
Plant, Tools, Equipment
and Services (£2.07m)
Parks and Ground
Maintenance (£3.54m)
Marine Services
(£1.16m)
Building Materials
(£3.02m)
Highways Materials
(£2.26m)
Supporting People
(£3.49m)
Other Adult’s Services
(£3.14m)
Environment (£54m)
Agency (£13.1m)
Nursing Homes
(£10.63m)
Fostering Services
(£8.6m)
CORPORATE
Traffic and Telematics
(£1.95m)
Cardiff Council
Category Structure
Facilities Maintenance
(£1.78m)
(extends to level 3 sub
categories)
Leisure and Other
Facilities (£779k)
Schools Supplies &
Equipment (£4.73m)
Advertising, Print, Design
& Post (£4.16m)
Office Consumables
& Services (£3.62m)
Utilities and Energy
(£11.6m)
Property Leases &
Accommodation Service
(£7.9m)
Catering (£6.47m)
Cleaning (£1.25m)
Books and Publications
(£1.04m)
Domestic Furniture &
Equipment (£915k)
Edinburgh City Council
Commodity/Category Structure
Learning and
Care
Corporate
Indirect
Environment ,
Transport & Trades
Construction &
Consultancy
Exempt
L1 Sub
Categories
L1 Sub
Categories
L1 Sub
Categories
L1 Sub
Categories
L1 Sub
Categories
L2 Sub
Categories
L2 Sub
Categories
L2 Sub
Categories
L2 Sub
Categories
L2 Sub
Categories
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Commodity Structure
Environment, Transport & Trades
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How does category management work?
•
Category tree extends to the level at which the organisation is likely to buy.
•
A Category Manager develops a Category Plan in conjunction with one or more
service lines for procurement of the products or services within the category.
– Categories may cross service lines e.g. legal services or desk top IT.
– Alternatively, a category may be an essential component in the delivery of a
single service e.g. childrens’ care services or vehicle transmission systems.
•
The Category Plan gathers all relevant data to identify, quantify and prioritise
improvement opportunities in conjunction with service lines/stakeholders.
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Sub Commodity (incl L1 where invoiced directly)
Care Services
Las Agencies & Other Bodies
Uncategorised
Publishing
Utilities
Charity
Building Contractors
Community Groups
Recycling
Construction
Consulting Engineers
Staff Training
Health Care
Training Services
Consultants
Financial Services
NHS/Health Board
Clothing
Facilities
Plant Hire
Lights
IT Hardware & Software
Taxis
Vehicle Sales
Furniture
Educational Services
Fuel
Telecommunications Provider
Concrete Products
Solicitors
Security
Office Equipment
Vehicle Rental
Electrical Contractors
Blacksmiths
Landscapers
Asphalt & Tar Products
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Spend
£24,430,228.35
£17,182,613.96
£13,779,485.01
£10,566,345.10
£10,294,622.01
£8,417,679.13
£6,741,115.04
£5,873,978.45
£5,043,594.86
£4,718,777.35
£3,657,616.07
£3,542,526.85
£3,240,109.74
£2,624,570.31
£2,513,996.63
£2,306,458.56
£1,983,075.50
£1,953,417.68
£1,918,545.80
£1,834,079.16
£1,601,897.63
£1,544,424.24
£1,491,135.17
£1,441,703.78
£1,403,641.01
£1,384,859.43
£1,368,003.99
£1,361,794.90
£1,303,213.57
£1,154,833.46
£1,080,304.72
£963,919.93
£942,590.05
£911,048.72
£897,275.90
£896,454.72
£805,952.45
Understanding
Spend is Crucial
Highest spend 37 (9%) sub commodities from a total of
405 sub commodities account for 80% of total spend
90% of spend on 19% (75 No) of sub commodities
80% of spend on 9% (37 No) of sub commodities
The Tail
10% of spend on 81% (330 No) of sub commodities
Most are low value and relatively straightforward to
procure but some are high value and complex. The
Category Management process must accommodate
both.
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The Process Must Also Take Account of Risk
Only influencable spend > £150k is positioned
(£21m)
STRATEGIC CRITICAL
STRATEGIC SECURITY
General Elect Subs
Process Plant
Filter Nozzles
Chemical Dosing
Specialist Civils
Subs e.g.Piling
Risk
Low value spend £2m
General Civil Subs
Mech Plant
HV Switchgear
Building Products
GRP Building
Kiosks
Misc Tanks
Ductile Iron Pipe
Fabricated Plant
Penstocks
Steel Pipe
General Piling
Standby Generators
Mech Installation
Pressure Vessels
Filter Media
Pipe Fittings
Plant Hire
Steelwork
TACTICAL ACQUISITION
TACTICAL PROFIT
0.3%
(£150k pa)
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© PMMS 2011
(£12m)
£6m pa
% of Total Expenditure
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Category Management Process
Key Components
Establish
team &
governance
structure
Gather data &
analyse internal &
market
Identify &
quantify
opportunities
Comprehensive category plans addressing all sub
categories
Category plan identifies all
opportunities within a
category along with the
anticipated means of
achievement. For simple
procurement, it may also
define the procurement
strategy.
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Develop
procurement
strategy
options
Implement
preferred
procurement
strategy
Specific strategy for procurement
of one or more sub categories
Low value simple procurement may simply involve
implementation of the conclusions of the category strategy
e.g. use a collaborative framework/contract, change the
specification and re-negotiate terms.
More detailed investigation is required for high value
complex procurement. This is often referred to as
Strategic Sourcing or Procurement Strategy.
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Strategic Sourcing Process & Tools
• Membership
• Clear Objectives
•
•
•
•
•
How the market works
Suppliers
Capabilities
Trends & Developments
Tools:
• Supply Positioning
• Supplier Preferencing
• Supply Chain Analysis
• Vulnerability Analysis
• Financial Analysis
• Strategy Analysis
Establish multi-functional team
Understand current supply arrangements
Market Analysis
• What the business really needs
Business Needs
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• Technical/Functional Spec
• Confirm Business Needs
Strategy Development
Preferred Procurement Strategy
• RFP / RFQ / Negotiation
• EU Procurement Process
• Select Procedure
• Selection & award criteria
• Contract Notice
• Supplier selection
• Tenders and assessment
• Negotiation plan where
appropriate
• Contract documentation
• Contract management plan
• Contract award
 What is being purchased,
why and how
 Existing Suppliers
 What works well
 Problems/issues
Implementation
Contract Management
Review
• Option Analysis
• Select preferred Option
• Implementation Planning
• Detailed Business Case
• Endorsement to implement
•
•
•
•
Delivery Management
Relationship Management
Contract Administration
Continuous Improvement
Lessons learnt
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Category Management and Strategic Sourcing
Category Management Process Flow
Identify
Develop
Communications Plan
Stage 1
Stage 2
Workshop 1
Kick Off
Gather Category
Information
Category
Grid
Governance
Spend Data
Cat Man and
Service
Strategy
Confirmation
of Scope
Stage 3
Stage 4
Off Line Analysis
Opportunity
Analysis
Workshop 2
Category
Development
Plan
Category
Insight Report
Category
Development
Plan
Business Needs
&
Market Analysis
Form cross
functional
team &
confirm scope
Category
Analysis
Market
Analysis
STP
Spend/Supplier Analysis
Demand/Supply Analysis
Current process
Opportunity
Analysis
Workshop 4
Stage 7
Face 2 Face
Strategic Options
PESTLE Analysis
Porters Five Forces
Trends & developments
Supply chain & vulnerability analysis
PPCA – cost drivers
Portfolio Analysis
Supplier analysis incl Preferencing
Market Management Matrix
Responsibility
Questionaires
Interviews
Stage 6
Workshop 3
Initiation
Milestone Plan
Intro to
Category
Insight Report
Stage 5
Business
Needs
Analysis
Risk &
Contingency
Planning
Analysis
Summary &
Conclusions
Strategic Option
Generation,
Evaluation &
Selection
Stakeholder
Analysis
Business Needs
Analysis
Strategic
Option
Definition
Sourcing
Strategy Sign
Off
High Level
Implementation
Plan
Governance
Initial
Stakeholder
identification
Initial
Stakeholder
Engagement
SRO Sign
Off 1
Sustainability
Assessment
Opportunity
Plans
SRO Sign
Off 2
SRO Sign
Off 3
Strategic Sourcing Strategy
SRO Sign
Off 4
In how many ways can we organise
procurement?
•
Centralised
•
De-centralised
•
CLAN or matrix management
•
Devolved
•
Commodity teams
•
Collaborative
There is no right answer – choice of
organisational model depends on
the nature, culture and needs of
your business.
– Informal networks
– Formal consortia
– Informal consortia
– Mandatory & non mandatory
•
Agency arrangements or
outsourced service
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Category management can be
accommodated within any of these
organisation models.
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What is the impact on organisation
structure?
•
Procurement teams reflect defined categories.
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Category Based Structure – Single
Organisation
GSC Director 129
PA
Head of Supply
Chain 88
Head of Supply
Chain 16
Support Pool
Head of Product
Category 16
Head of Product
Category 30
Product Teams
Construction Account Mgt 2
Baggage Systems
2
Infrastructure
1
Fit-out
3
Consultants
4
Baggage Operation
3
Shell & Core
3
Building Services
3
Total
21
Product Teams
P2P Process & Systems
Lifecycle Mgt Process
Total
4
Utilities
Sustainability Mgt
Airport
Logistics 25
Travel &
Transport 4
Head of Supply
Chain 21
Supply Chain Development
Supply Integration/CRM
Risk & Governance
Maintenance 4
Change Project
Leader 1
Communications
Leader 1
Facilities 4
Maintenance
Product Teams
IT & Telecomms
8
Mkting & Business Services 5
Cleaning
2
Total
15
7
1
8
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What is the impact on organisation
structure?
•
Procurement teams reflect defined categories
•
Category teams are multi functional
– Procurement is a member of the team – normally the category manager
– Other team members will include representatives of the services who will be
strongly affected by the outcome plus those with relevant specialist expertise.
•
Governance arrangement must ensure endorsement and ownership at an
appropriate level
– Service lines must remain accountable for their service
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Category Management and Strategic Sourcing
Category Management Process Flow
Identify
Develop
Communications Plan
Stage 1
Stage 2
Workshop 1
Kick Off
Gather Category
Information
Category
Grid
Governance
Spend Data
Cat Man and
Service
Strategy
Confirmation
of Scope
Stage 3
Stage 4
Off Line Analysis
Opportunity
Analysis
Workshop 2
Category
Development
Plan
Category
Insight Report
Category
Development
Plan
Business Needs
&
Market Analysis
Form cross
functional
team &
confirm scope
Category
Analysis
Market
Analysis
STP
Spend/Supplier Analysis
Demand/Supply Analysis
Current process
Opportunity
Analysis
Workshop 4
Stage 7
Face 2 Face
Strategic Options
PESTLE Analysis
Porters Five Forces
Trends & developments
Supply chain & vulnerability analysis
PPCA – cost drivers
Portfolio Analysis
Supplier analysis incl Preferencing
Market Management Matrix
Responsibility
Questionaires
Interviews
Stage 6
Workshop 3
Initiation
Milestone Plan
Intro to
Category
Insight Report
Stage 5
Business
Needs
Analysis
Risk &
Contingency
Planning
Analysis
Summary &
Conclusions
Strategic Option
Generation,
Evaluation &
Selection
Stakeholder
Analysis
Business Needs
Analysis
Strategic
Option
Definition
Sourcing
Strategy Sign
Off
High Level
Implementation
Plan
Governance
Initial
Stakeholder
identification
Initial
Stakeholder
Engagement
Sustainability
Assessment
Opportunity
Plans
SRO Sign
Off 1
SRO Sign
Off 2
SRO Sign
Off 3
SRO Sign
Off 4
Strategic Sourcing Strategy
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What is the impact on organisation
structure?
•
Procurement teams reflect defined categories
•
Category teams are multi functional
– Procurement is a member of the team – normally the category manager
– Other team members will include representatives of the services who will be
strongly affected by the outcome plus those with relevant specialist expertise.
•
Governance arrangement must ensure endorsement and ownership at an
appropriate level
– Service lines must remain accountable for their service
•
Collaborative arrangements
– Consortia may be organised around categories
– Can be challenging when decision making authority does not cross
organisational boundaries
– Particularly problematic for direct areas of spend i.e. when service line
success depends on the quality of the category plan & sourcing strategy
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Collaborative Consortium
User Intelligence Group signs off category allocation, sourcing scope and strategy
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Implementation and Benefits Delivery
Establish
team &
governance
structure
Gather data &
analyse internal &
market
Programme and project
management infrastructure
and expertise
Identify &
quantify
opportunities
Sourcing Programme
Relationship
Management
Delivery
Management
Ensuring that the contract is delivering
what has been agreed to the required
performance standards.
Implement
preferred
procurement
strategy
Management of frameworks &
contracts
Contract
Administration
Continuous
Improvement
Handling the formal governance of the
contract e.g. change control, cost
monitoring, payment, management
reporting etc).
Building open and constructive
relationships that enable problems to
be identified – and resolved – early.
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Develop
procurement
strategy
options
Aiming for improvement over the
life of the contract. May include
incentive mechanisms.
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Benefits of Category Management
•
Closer and more constructive relationship with service lines and stakeholders
– Enables productive procurement engagement without compromising service
line ownership of strategies and outcomes.
•
Focuses attention on the planning phase which offers the greatest scope for
improved performance and ground breaking solutions
•
Provides the toolset and process to support a strategic approach to
procurement and helps create a supportive environment
•
Enables realistic targeting of savings and other benefits which are agreed with
and owned by service lines.
•
Minimises off contract spend through service line engagement, ownership and
sign off
•
Enhances procurement capability within the procurement function and across
the organisation
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Are there any risks or disadvantages?
•
Narrow focus on categories may obscure interdependencies and associated
cross category opportunities
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Interdependence & Missed Opportunity
Construction
Services
Professional
Services
Engineer
Architect
QS
H&S CDM
Sn
S1
Maintenance
Services
M1
Mn
Category Tree
Sub categories
excluding
professional
services
Aggregation &
Standardisation Opportunities
Integration & Standardisation Opportunities
e.g design, build and maintain
Planning
S
u
p
p
l
y
C
h
a
i
n
s
Design
Construction
Maintenance
Engineer
Engineer
Engineer
M&E
Architect
Architect
Architect
H&S CDM
QS
QS
QS
Prof Services
Estates
M&E
M&E
Trades
Fin/Econ
H&S CDM
H&S CDM
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Contractor & Sub Contractors
Usage
Value
Chain
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What risks do we need to manage?
•
Narrow focus on categories may obscure interdependencies and associated
cross category opportunities.
•
Overly optimistic view of current skills gaps.
•
Heavy workload initially but this diminishes significantly once category plans are
approved and sourcing is underway.
•
‘Law of diminishing returns’ reduces savings opportunities over time and
political direction may change.
– Pursue savings and other benefits
•
A narrow category focus could be ‘career limiting’ in organisations which need
staff with broad experience and expertise.
•
Loss of local expertise where categories are assigned to collaborative
arrangements.
•
Too much emphasis on process and too little on outcomes.
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Pre-requisites for Success
•
A need for improvement
•
Visible top level support – categories cross organisation boundaries
•
Change management expertise not just procurement and project expertise
– Establish acceptance of the need for change
– Clearly set out and sell the category management approach
– Gain stakeholder understanding, support, engagement, participation and
ownership of outcomes
– Build procurement capacity and capability in parallel with the category
management process
– Achieve quick wins and build credibility
– Maintain the stamina and determination to bounce back from setbacks
– Progress to more complex procurement
– Share the gains and the pains
•
Remember that procurement supports service delivery
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For more information on
Category Management or Strategic
Sourcing
please contact
dave.porter@pmms-group.com
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