Tag Archives: procurement planning

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?

5 Questions to Ask When Building an Integrated Business Plan

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How to achieve success for your company and yourself

When I review the current state of procurement and supply chain at companies, I always look for three-year plan at a category and business level. I am curious to learn the vision for the future and how strategies are being executed to achieve the vision. It is extremely unfortunate that many procurement and supply chain team members can’t articulate the plan. I also want to learn just how the organization will be structured to meet future business needs, what is the current capability and competence, where the talent will be acquired that is needed in the future and how the supply base and supply chain will be restructured. In many cases, there is no formal plan, vision nor linkage to the business plan and no alignment across the business.

When asked why strategic plans aren’t available, these are always the justifications:

  • Now more than ever before, there is pressure for quick financial results leaving limited time to plan.
  • It is impossible to predict demand and customer preferences and supply chains are complex.
  • Input costs are volatile and difficult to control and costs and volume are no longer linear, so financial implications of a business plan are difficult to forecast.

A hot topic in business today is integrated business planning (IBP), which is all about harmonizing strategy and execution in financial and operational plans. The key thing about IBP is that the departments are no longer planning as discrete silos. The supply chain remains the heart of the process. Think of IBP as moving Sales and Operations Planning (S&OP) from the backroom to the boardroom.

To help create a mindset to begin the IBP process, review what happens without a strategic plan. Lack of planning drives organizations into tactical approaches, creating a reactive culture rather than proactive strategy to anticipate and manage the volatility in today’s market. This tactical firefighting opens the door for competitors to gain advantage in the marketplace.

When I am evaluating procurement and supply chain capability in organizations, I am always expecting to see a plan indicating the direction they are headed. Will they be rationalizing the supply base? Will the company be moving into strategic alignment with suppliers or remain in competitive leverage? Will they be rationalizing and optimizing inventories and distribution? To answer these questions, it takes vision, leadership and internal collaboration to build an effective strategic IBP.

To drive IBP from supply chain management, five questions to ask are:

  1. What is the vision of the future in terms of short term, medium term and longer term horizon?
  2. Where will the supply chain expand/contract, where should we integrate and align with suppliers?
  3. How can we optimize warehouses, distribution, logistics, procurement and operations?
  4. How can we break down internal organization silos and drive the plan to maximize performance?
  5. How can you increase the agility, flexibility and value in the supply chain?

Is your career and business limited by lack of a strategic IBP?