Tag Archives: category strategy

Building an effective team category sourcing strategy

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It often surprises me that many purchasing organizations lack an effective process for building a team-based strategic commodity sourcing plan. Typically plans built with key stakeholders are more successfully executed, deliver high results and encounter less resistance in the organization when change is required. By working with a team, you can assure the greatest sum of knowledge, get a better understanding of the project complexity, increase creativity and assure acceptance and ownership of the project by all members of the team. While many purchasing professionals have trouble engaging stakeholders, I have found when you can engage stakeholders, you will improve and increase the opportunities for your organization.

Who should be on the team? Before I start a program, I typically engage a steering group. The steering group’s role is to approve the project, make recommendations and remove any resistance or roadblocks that stand in the way the team. If the steering committee is comprised of senior leaders of the multiple disciplines required for the project, it has a better chance of success. If the sourcing leader can engage the steering committee as champions, the project is primed for success. All sourcing professionals should understand the stakeholder in terms of how much interest they have in the project and how much influence they have in the organization; a stakeholder with high interest and high influence would be a good one to engage as a steering committee member. This process will also work for the selection of team members. Other criteria to consider for team members are their ability, availability, knowledge, experience and overall willingness to contribute energy and time. The team’s responsibility will be to develop both short term (tactical) and longer-term (strategic) category strategies and sourcing plans. The team is also responsible for effective communications, information control and internal briefing of the project progress. If the team is committed to success, you will likely have a great project and outcome.

How should the team kick-off?  I suggest that the team build a charter. The charter identifies the mission, focus, objectives and scope of the project. It is an essential tool for keeping the team on track and focused. If things start going off the rails, the charter will bring the team back in focus. It is also necessary early in the sourcing strategy process to build a plan with timelines and milestones to measure the team’s productivity.

What are some important tasks?

  1. The first step in developing a strategic plan is to understand the historical situation and trends for the category. Ask the question “why has the organization sourced this category this way in the past?” If your organization can standardize the way “what we’ve done in the past” is reported, the more time the team has to explore future options and to focus on the strategy for the category.
  2. The team must evaluate the current situation, new opportunities and forecast the future trends to consider when sourcing this spend category. It is essential that the team take a deep dive into business needs and requirements, including things like receiving constraints at each facility, personalized service, inventory requirements, pallet markings and anything else that is currently being done by the incumbent supplier. Once the team has identified all of the business needs, it must look at the category and make the determination if the category should be managed tactically or strategically. Key tactical or strategic decision influencers are the number of suppliers in the industry with the capability and capacity to supply, the value-add contribution of the supplier and uniqueness of the specifications.
  3. Part of the planning process is to take a look at the sourcing history, price analysis and do a detailed analysis of the cost. Every buyer should have the capability to break out materials, labor, overhead and develop some idea of the supplier’s profit margin. Without this data, it is impossible to quantify the opportunity available in the project and determine the return on investment. This is a key checkpoint and milestone of the project: the ROI will determine if the project should go forward.
  4. After validating the ROI for the project, the team should evaluate the risk, global or local sourcing, technical opportunities, supply chain implications and supply market trends. The team now has the data to decide the way forward and determine the best strategy–should it be RFI/RFQ/RFP, auction, buyer’s offer, contract extension, logical negation with the incumbent, make or buy, or acquisition or joint venture? I have worked with teams that have developed and implemented all of these options.

The sky is the limit if a team can present a good strategy with a high ROI and build a convincing fact-based case. It requires discipline, process, strong leadership and the right people.

Do you have what it takes?

A peek behind the curtain: the effective Category Strategy

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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:

  1. Business Operational Benefits: Cost improvement, lead-time improvements, complexity reduction, inventory improvements, etc.
  2. 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:

  1. Identification of all of the current and future business requirements from cost to innovation and breakthrough
  2. Assessment of the global market in terms of Porter’s five forces
  3. Breakdown of the cost drivers through a cost modeling process
  4. Understanding of the price history and its relationship to the market
  5. Research of technology
  6. Review of global suppliers and their capability
  7. Assessment of supply risk
  8. Map of the supply chain
  9. Cost and ROI for implementation of the strategy
  10. 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?