Strengthening category management and sourcing strategies
Effective category management demands in-depth knowledge and understanding of complex markets and supplier priorities. It encourages a more holistic view of cost and savings that goes beyond the traditional approach of deriving savings through unit or contract price reductions, such as via competition or spend/contract/supplier consolidation, optimization, or displacement.
A partnership-based sourcing mindset is crucial to unlocking additional gains based on removing cost through restructuring or redesigning processes, products, or supply chain structures, accessing supplier innovation, or delivering against noncommercial goals such as corporate environmental, social, and governance (ESG) commitments.
It relies on the creation of a shared vision for procurement across the business in the form of category playbooks jointly created with all stakeholders that set out the plan, the priorities, and the approach. In this way, category managers and their stakeholders determine the sourcing roadmap, how to evaluate suppliers/products/services/market risks, and how to monitor and analyze supply chain trends to flag potential disruptions and develop contingency plans.
This approach to category management is an effective way to optimize third-party costs and develop robust third-party relationships fit for the current operating environment. Jointly developing and executing category playbooks (based on all levers) is significantly more effective than reactively renewing contracts, responding to purchase requests, and identifying cost-saving opportunities at the end of the sourcing process. It also boosts compliance, standardizes processes and procedures, and enhances visibility of the sourcing process.
Category management does however require deep subject matter expertise and strong stakeholder management. It's important to focus your best talent on these activities. In terms of the wider operating model, a holistic category view will also inform the volumes and types of activities that may be handled by more junior resources, such as execution only against pre-agreed terms, low-value spot buys, or one-time tactical purchases. It can also guide alternative delivery models that are more effective for a segment of the spend, including delivery centers, hubs, outsourcing, or offshore/nearshore.
From a process efficiency standpoint, category playbooks can identify where the purchasing approach differs and/or aligns to the overall corporate purchasing policy. Not all spend, relationships, or negotiations have equal value, and objectives may differ. A full six-step strategic sourcing process won't be required for every engagement. It may only be applied to strategic, operationally significant, and higher-value engagements, with streamlined processes for low-value, low-risk transactions such as self-service catalogs and marketplaces.
In the same vein, ongoing supplier management activities that take place post-signature for the life cycle of the contract – including performance management, relationship management, innovation, continuous improvement, and service development – are likely to be limited to suppliers that meet certain criteria, for example, tier one, strategic, or operationally significant.
These principles can create an effective, leaner organization that aligns roles and skills to tasks, and applies right-sized processes to lower value items, using cost-effective resources (or automation) to execute.