Category Management LO1

Account Management
An account is an established supply relationship between a supplier and customer. Key accounts are those where you are treated differently due to amount of activity (UU and MCC). Strategic accounts are ones with without which the organisation can operate long term due to volume or criticality of supply.
Acquisition
O’Brien: Profit impact low and market difficulty low
Acquisition items
Also known as routine and non-critical. Highly competitive market so should pay most competitive price while retaining quality. Arms length and transactional.
Acting as a change agent
Category Management requires a step-change in culture so requires a change champion. They must be able to offer vision and leadership, manage strategy, managing processes, project manage, team building, interpersonal skills, open to challenge themselves through personal flexibility, commitment and stamina.
AT KEARNEY PS SINIR
Profile – Select source strategy – Suppliers and supply base – Implementation path – Negotiate – integrate suppliers – record lessons
ATK Step 1 – Profile the category
Understand own demand and market’s supply. Time consuming so should be well in advance of contract negotiation. Should include spend analysis, needs analysis, supply market analysis – Porter’s five forces and SWOT.
ATK Step 2 – Select the sourcing strategy
Could you Kraljic to find appropriate sourcing strategy. Or could you sourcing gemstone. For example could find advantage through exercising power to drive down costs (volume concentration, best price evaluation, global sourcing) or could find advantage through differentiation (product spec improvements, joint process improvement, relationship restructuring).
ATK Step 3 – Engage with suppliers and widen supply base
as much as possible – retain as many as possible at this early stage.
ATK Step 4 – Implementation path
From its sourcing strategy in step 2, in now develops an execution strategy. This involves a request for proposal and initial negotiations.
ATK Step 5 – Negotiate with and select supplier
final round will need careful prep (put team together, develop strategy based on analysis and supplier bargaining stance, what do you intend to spend, understand batna and most least favoured position, any trade offs you are prepared to make? Contingency plan, record everything.
ATK Step 6 – Integrate the supplier
embed new relationship, identify transition issues, consider any implications on organisation and changes required, create new procedures, create plan, communicate this to stakeholders.
ATK Step 7 – Record lessons learned
plan ahead of next sourcing strategy, devise performance metrics to develop relationship.
Bartolini scorecard PC SIM
Scores different categories across a set of sourcing considerations. Provides a framework from which factors can be quantified and compared. The result is a sourcing score from which to allocate resources (CATEGORY, INTENAL AND ORGANISATIONAL FACTORS, MARKEY, PROCUREMENT, SUPPLIER)
Bartolini’s category specific factors
Unique attributes than will determine suitability – strategic impact, complexity, lead time.
Bartolini’s internal and organisational factors
These filter out spends that are difficult to fit into a category. Look at contract status, sourcing history, stakeholder engagement, number of stakeholders, access to spend info.
Bartolini’s market factors
Based on Porter’s five forces and looks as supply market competition: level of competition, entry barriers, substitute availability, buyer’s bargaining power.
Bartolini’s procurement factors
Concentrates on procurement process and how this impacts on outcomes – looks at risk, impact on production, spend volume, savings potential.
Bartolini’s supplier factors
Capabilities and attributes of suppliers: Based on levels of – Specialised, profit margins, value- added service, technical excellent, financial stability.
Bayern’s rankings
on skill required by category managers changed from 2010 to 2005. Biggest movers were the strategic decision ones – Change management 50 > 10, strategic thinking 24 > 1, supplier market 19 > 3
Behavioural skills (These are central as dealing with suppliers and may speed things up) TICCCA
Team, Influencing, Communication, Collaborative, cross functional, act change agent
Bottleneck sourcing group
Massin CSSB matrix: Sourcing Groups Business impact low and Sourcing groups supply market complexity high
Category Management
Organisations inputs divided into categories or meaningfully similar items which then form the bases for a collection of end-to-end processes. Sensitive to spend, diversity and nature of supply market, must be diverse to get the most out of categorisation.
Category Management models CIPS K-PPP-D-MM
Kick Off – Prepare Strat and identify – Prepare strat and prioritise – prepare strat and present – delivery strategy – maintain – mechanism contin development
Category Management only worthwhile if
the spend can be split into meaningful differentiation.
Category Management vs Account Management
Category is specific categories of spend, account is responsible for specific suppliers. Category will want to Reduce number of suppliers, account will want to grow and make it more valued. Both should work together.
Category Management vs Strategic Sourcing
Category Management is a philosophy that organises activities. Strategic sourcing is a focuses supply chain activity within a strategic frame, category management examines full length of contract and lifecycle and the delivery chains and how they impact on each category. Aims to capture the value the organisation can capture as a whole rather than just at sourcing.
Category Management vs Strategic Sourcing vs Procurement
Procurement one off event – strategic sourcing entire organisation, procurement is about policies whereas sourcing is holistic, sourcing extends core of procurement, category management is wide ranging involving internal management and supplier management to evolve category, look at key requirement of category, category management will use strategic sourcing within it.
CIPS Category Management Mode Phase 2 Step 2A Prepare strategy and identify opportunities
Supply market research, SWOT, Porter’s five forces, supplier preferencing, current supplier relationships.
CIPS Category Management Mode Phase 2 Step 3 Prepare strategy and present strategy
Quantify benefits and risks, detailed implementation plan, hold formal review before proceeding.
CIPS Category Management Mode Phase 2 Step2B Prepare strategy and prioritise opportunities
qualify suppliers, impact assessment (sustainability csr etc), assess current capability of procurement, socialise ideas with stakeholders.
CIPS Category Management Mode Phase 3 Step 4 – Deliver Strategy
Selected preferred suppliers, , initiate relationship management, deliver training, supplier development.
CIPS Category Management Mode Phase 3 Step 5 – Maintain
Ensure that all internal and supplier relationships and performance is monitored, review performance, communicate with stakeholders and suppliers, payments, audit.
CIPS Category Management Mode Phase 4 Step 6 – Mechanisms to develop continuous improvement
Identify improvement opportunities? Benchmarking, network with suppliers, share learning,
CIPS Category Management Model Phase 1 Step 1 KICK OFF
Define scope and objectives > Engage stakeholders to gain support > Identify problems > Form cross-functional team > define roles and responsibilities
Cips strategic procurement and supply model 1
Vision (The end state that the organisation wishes to achieve) Mission (What the organisation exists to do now and in the future) Values (guiding principlies in terms of what it will do and not do) Strategies (long rang plans for furthering the mission and approaching the vision)
Cips strategic procurement and supply model 2
“Management strategy (What is needed from purchasing, monitor performance etc) Operations strategy (efficient strategy, inventory management) Distribution strategy – (SLA) All these three must dovetail with each other and support other functions.
Cips strategic procurement and supply model 3
Strategic sourcing analysis A) Stakeholder mapping B) spend analysis C) supply base analysis S) supply value added streaming
Cips strategic procurement and supply model 4
Proactive demand management through cross-functional teams.
Cips strategic procurement and supply model 5
Acquisition pre contract – Identification of need – procurement plan – marketplace approaching – evaluate and select suppliers – receive and evaluate offers – create contractual relationships.
Cips strategic procurement and supply model 6
Acquisition post contract – contract and relationship management – receipt of product and service – management of asset
Cips strategic procurement and supply model 7
Going forwards – need reassessed – continue with incumbent supplier – terms and conditions renegotiated or start whole process again?
Cips strategic procurement and supply model VMSPAAG
Vision – Management – Strat sourcing – Proactive demand – aqusiition pre – aquisition post – going forwards
Collaborative relationships
Information exchange, operational linkages, co-operative expectations, relationship adaptations, win-win.
Commodity sourcing group
Massin CSSB matrix: Sourcing Groups Business impact high and Sourcing groups supply market complexity low
Communication
Promote wanted outcomes to make them look attractive (marketed), support and challenge, EQ (Goleman Self awareness, self regulation, motivation, empathy, social skills).
Conventional sourcing purchasing cycle DS-MSS-CRC-DK
1) Define requirements 2) Specification 3) Make or buy? 4) Source specification 5) Source selection 6) Contracting 7) Receipt and Payment 8) Contract Management 9) Decommissioning and disposal 10) Knowledge and experience.
Conventional sourcing?
“non-strategic” or “traditional” “reactive”.
Cost analysis
standard costing, variance analysis down to non standard use or non standard costs, whole life costing
Cox suggests that strategic procurement should be implemented in three broad steps:
Value Chain positioning (VCP) – a process by which the organisation positions itself in the market to reflect a margin-cost analysis of all the supply and value relationships within their market. Market positioning analysis – where the organisation comes to understand the value creation and cost aspects of its own supply chains and how this benchmarks against competitors. Extended relational competence approach – the organisation creates supplier and customer relationships that are underpinned with a solid idea of how value is created, what contracts should look like, how to install efficient boundaries, and how best to exploit core competencies.
Critical
O’Brien: Profit impact low and market difficulty high
Critical items
Kraljic calls these bottleneck. Not expensive but difficult to obtain so can cause problems re delivery. Continuation of supply key, price premium ensures production keeps going. Otherwise total cost of failure. Disproprtionate amount of time relative to value – markets complex and suppliers to find. Should simplify procurement or try and eliminate the product. May want to search for buying consortium and bulk buy with people in same position.
Cross-functional working
Ability to work in cross-functional task groups, must have ability to influence these by providing knowledge, liaise with own staff, putting forward supply chain management points of view, rational persuasion, networking to develop contacts and knowledge base and also promote ones own function.
Differences between account management and category management
categories vs suppliers, inputs vs outputs, reduce vs grow (but should still work together)
Direct and Indirect
“Costs attributed to specified purposes: Direct (Directly linked to specific unit) Indirect (spread over a number of units and cannot be directly attributable)
Examples of direct costs:
Tyres, sugar, bulk materials.
Examples of indirect costs:
Utilities, IT, HR Services.
Emma Brookes strategic sourcing model
Is similar to AT Kearney but don’t need to know
Financial skills
Long term planning, value chain calculations, aggregate spend?, what are they buying? Any trends? How flexible or how locked? Any maverick spends or budget variances?
Four identifiers of purchaser?
A need is presented – purchaser fulfils need. Only involved until need fulfilled. B) Little contact with user functions planning – only play a service role C) Very little influence – may have some influence in selecting supplier (assuming not bound by other agreements) D) Limited freedom – focus on individual transactions.
Influencing
Not negotiating because continuous process, might not be intentional, not explicit agreement, doesn’t involve compromise, don’t manipulate but treat openly and honestly, treat as human beings rather than resources, build rapport through listening, mirroring, common interest, using names, use of words, build trust by taking their viewpoints into account and their needs, persuasion through rationall argument
Internal consultancy
consultant and client part of same organisation and requires careful relationship management, no direct authority so must influence without being seen to interfere.
Labour costs
“can be split into: On time spent, piecework (receive fixed amount for every task completed or commission involved in receiving a fixed percentage of every sale), salary (notional number of hours and complete tasks).
Labour costs can be direct or indirect. Indirect costs are difficult to assign.
idle time, holiday, bonuses etc
Labour costs can also be fixed or variable.
Fixed in terms of salary but variable in terms of some tasks will take more effort so should be assigned a cost accordingly.
Law
Basic law understanding required – local law, national law, regional eu law, international law, legal documents and change contracts including clauses.
Leverage
O’Brien: Profit impact high and market difficulty low
Leverage items
Many suppliers so can leverage buying power. Look to rationalise and co-ordinate spend through IT, standardisation, and work closely with requisitioning departments. However, supplier may become complacent so should exercise care and continuously conduct market analysis. Conduct White sheeting and breakdown cost of product to act as baseline to negotiation.
Massin axis
Vertical axis maps Sourcing Groups business impact influenced by consequence of failure, costs, customer value, product differentiation, technology. Horizontal axis maps sourcing groups supply market complexity influenced by barriers to entry, buyers power, substitution, rivalry, supplier power.
Massin is another variation of kraljic
maps sourcing groups
Materials costs
are normally variable costs and vary with rate of activity regardless of whether they are direct or indirect.
Mintzberg’s 5Ps useful strategy advance organisation in the following areas
Plan ( Justified resourced sequence towards explicit measurable targets) Ploy (gain an advantage over competitors) Pattern (Consistent actions) Position (fit between organisation and competitors in terms of swot) Perspective (world view and interpretation).
Mitchell Category Management
Is another category management model like cips
Negotiation
Conflict parties reach jointly acceptable outcome. Purposeful persuasion (persuade the other to see viewpoints) or constructive compromise required (move closer to other positions through common ground. Required to manage change.
Non strategic procurement
Mainly involved in day-to-day: 1) Manages organisations spend 2) Furthers organisations strategies 3) Maximising value added or released 4) Minimising total cost of ownership 5) End to end acquisition process (strategy-service needs-review).
O’Brien
says you must stick to one category management model otherwise you will fail.
O’Brien amended Kraljic
Degree of Profit impact on x vs degree of market difficulty on y
OGC procurement process model
procurement should be open to competition on the whole, sustainability can be considered and procurement should be open.
Pareto analysis
“is an alternative way of categorising costs. 80% of spend on 20% of suppliers.
Pareto analysis forms the basis of ABC analysis.
Cat A (80% value on 20% items), Cat B (10% value on 10% items), Cat C (10% Value on 70% items).
Pareto analysis can be misleading.
£1million on water or £1 on specialist product. Consequently should be balanced against Kraljic model.
Period costs
Expenses incurred during period and not specific to one product or service.
Procurement takes over where sourcing leaves off
Sourcing – Requirement, Pre-qualification, request for info, supplier selection, contract formation Procurement – Acquisition, Supplier management.
Product costs
Identified with product and service such as prime (materials labour and other direct costs) and production overheads (such as indirect materials, labour etc)
Purchasing as reactive?
Respond to events and unplanned. No proactive strategy. May take place within agreed framework procedure – but not involved in its development.
Risk Management
proactive and continuous analysis of possibility of failure, objectives more likely to be achieved, damaging outcomes minimised and less likely, beneficial outcomes more likely.
Similarities between account management and category management
Both have well designed strategy, Both have end to end proactive saving / sales opportunity, both use metrics to analyse performance, both do heavy risk analysis
Sourcing strategies
Crowd, dual, ethical, global, insourcing, low cost country, multi-sourcing, outsourcing, sing sourcing, sole sourcing (no choice).
Sourcing vs Procurement?
Sourcing is what and why, procurement is how.
Standard sourcing group
Massin CSSB matrix: Sourcing Groups Business impact low and Sourcing groups supply market complexity low
Strategic
O’Brien: Profit impact high and market difficulty high
Strategic items
Highly vulnerable as risky and large profit impact so must exert control. Must recognise vulnerability, and look for co-operating, collaborating and integrating with suppliers (co-destiny). Longer term and more strategic (continuous improvement, early supplier involvement, innovation, cost reduction and sustainability. Top end of pareto analysis so must spend time on them. Switching barriers high so sole sourcing, single sourcing an option.
Strategic procurement definition
Process that aligns and develops the vision, goals and competitive strategy. Focuses on supplier base, negotiation, communication, long-term relationships, effects of globalisation, continuous improvement, competitors, csr, supply chain governance and transparency.
Strategic sourcing
is about long-term, high supply risk high value items – ie bottleneck, long term procurement policies, partnership sourcing sustainability. Demand Management (matching supply with demand so no waste ie sales plans etc), supplier management (through supplier management approach – Kraljic), total cost of ownership, sustainability. Appropriate sourcing strategy picked.
Strategic sourcing and category management
require both hard (technical) skills and soft (inter-personal ones)
Strategic sourcing and category management ideas changing rapidly
there are no settled concepts as to what strategic sourcing and category management are, and the activities are moving ever more into a strategic frame.
Strategic sourcing group
Massin CSSB matrix: Sourcing Groups Business impact high and Sourcing groups supply market complexity high
Supply chain analysis
collection of assets, as a collection of processes, supply chain flows.
Tactical purchasing and strategic sourcing 2
Department (tactical) vs Organisation (Strategic), Lower level management (tactical) vs Top Management (Strategic), Short term vs long term, reactive vs proactive, narrow vs broad demands on purchasers, process vs create information, routine vs novel acquisitions, good transactions vs make transactions better, internal customers vs suppliers and end-users, suppliers are antagonists vs resources.
Team Working
Build teams, resolve conflict via Thomas Kilman model.
Technical skills FC Snirl
Financial, cost, supply chain, negotiation, internal consultancy, risk, legal
The Cips strategic procurement and supply model
is an end-to-end procurement process model that is both plugged into the organisation’s strategic concerns and provides operational best practice methods in making procurements.
Thomas Kilmann Model
Importance of issue on y axis Importance of relationship on x axis
Thomas Kilmann Model: Accommodation
Low importance of issue and high importance of relationship
Thomas Kilmann Model: Avoidance
Low importance of issue and low importance of relationship
Thomas Kilmann Model: Collaboration
High importance of issue and high importance of relationship
Thomas Kilmann Model: Competition
High importance of issue and low importance of relationship
Thomas Kilmann Model: Compromise
Somewhere in the middle.
Tony White
provides 10 skills divided into three groups and weights them. 39% Strategy Success 36% Relationship management 25% Domain technical expertise.
Transactional purchasing vs strategic sourcing 1
Reactive, short-term, adversarial, uncoordinated, vulnerable (accepts market conditions), impact on quality (forward thinking suppliers tied up with forward thinking organisations).
Useful questions in dividing categories
Who specifies the product? Why is it needed? Who supplies it? When is it used?
Value added at strategic sourcing
Nothing left to do once contract awarded. Also less value at sourcing stage because procurement has already developed value here. Also, learns a lot so has massive value here.
Value added at traditional, transactional purchasing
Most of value at narrow section of the sourcing process but a lot of work at managing contracting.
Variable and Fixed
Costs that relate to level of activity: Variable (directly influenced) Fixed (Not influenced – must be paid) Semi-variable (Both) Step (fixed in bands).
Waste materials
are indirect costs as they never reached production.
What is Procurement?
Different to purchasing in that it is proactive rather than reactive ie involves many possibilities, processes and responsibilities. Also, not everything that is procured is purchased (leased or traded).
What is Purchasing?
Transactional process of buying products / services that includes raising orders and paying them.
What is Sourcing?
Identifying and evaluating potential suppliers – engaging with suppliers and the selecting best value suppliers. Outcome of the process is usually a contract that defines what is to be procured, on what terms and from which suppliers.