In October 2014, the federal government quietly launched the Acquisition Gateway as part of the movement to adopt private sector practice. Last week, the administration decided, in the spirit of collaboration and transparency, to give taxpayers and suppliers a peak under the curtain of the gateway. Since the launch, the gateway has 5000 users with hopes that 10,000 federal employees will use the portal by year end. At first glance, the portal seems well-built, easy to use and gives great visibility for the user. While we don’t know how many of our tax dollars were spent on this project, it seems to be a good use of them. While this peek behind the curtain shows the results, it doesn’t show the process, thinking and behaviors to drive an effective category strategy.
I’ve been fortunate to have worked with many companies and category teams to build effective strategies. Category strategies can be broken down into two broad areas:
- Business Operational Benefits: Cost improvement, lead-time improvements, complexity reduction, inventory improvements, etc.
- Value-Driven Improvements: Innovation, new technology, breakthrough cost improvements, etc.
Business operational benefits are relatively short term and need less detailed planning than value-driven programs, which are longer term, more detailed, thoroughly researched and require significant socialization within the business. This may sound like a core competency of any sourcing professional, but often the strategy development is flawed because the process is mishandled since the research typically focuses on just a part of the category or is tainted in some other way. Often there is a lot of subjectivity, resulting in the selection of limited options rather than consideration of a wide range of options. This bias can be influenced by both stakeholders and sourcing professionals, who keep a preferred supplier in mind throughout the process. I spot this when I hear something like “this is a great supplier; they haven’t raised their price in three years.”
To build an effective category strategy, it’s necessary to create a sourcing strategy plan. The first process step is to decide whether the category is in an environment with an open market, competition and some commoditization. If that’s the case, the team should develop a competitive environment that meets the business operational benefits. In this case, the sourcing strategy can be to let the competitive market drive suppliers to meet the business requirements and a full-blown strategic category plan may not be necessary. If the category has limited competition, is restricted by patents or specifications that limit the number of suppliers in the marketplace or there’s internal stakeholder bias, a strategic category plan is required.
To develop an effective category strategy, keep these components in mind:
- Identification of all of the current and future business requirements from cost to innovation and breakthrough
- Assessment of the global market in terms of Porter’s five forces
- Breakdown of the cost drivers through a cost modeling process
- Understanding of the price history and its relationship to the market
- Research of technology
- Review of global suppliers and their capability
- Assessment of supply risk
- Map of the supply chain
- Cost and ROI for implementation of the strategy
- Scenario planning to assure agility and resiliency
Once these activities are complete, only then can the team create options jointly with stakeholders and senior management that will lead to the desired result.
All too often category managers look for the easy route to build a sourcing strategy. They’re comfortable with the status quo and may lack the confidence or capability to drive a planned strategic plan solution.
If we peek behind your category strategy process, what will we find?