Real world sourcing - Taking on a New Category

Taking on a New Category Agenda 1. Introduction 2. Your aims and objectives 3. Getting to grips with the current situation 4. Bringing it together 5. Real World Sourcing Scholarship©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 2

Taking on a New Category Part 1 – Introduction The Real World Sourcing Series is a series of 6 sessions covering hot topics for procurement professionals. The Real World Sourcing Series is promoted and supported by BravoSolution, and developed by Peter Smith (Spend Matters) and Guy Allen (4C Associates). Peter Smith started his procurement career with Mars Confectionery, then was CPO for Dun & Bradstreet Europe, the Department of Social Security and the NatWest Group. He is now a consultant, author, non- executive director and editor of the Spend Matters website. He was President of CIPS in 2002/3.©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 3

Taking on a New Category Category Management Phases • Category prioritisation Conduct high level cross-category analysis to prioritise categories into Waves according to importance, likely impact and complexity • Strategy Conduct detailed analysis of each category and review enabling arrangements to develop deep category understanding • Planning Create a plan for each category to achieve the targets, including the tactics which will work best • Implementation Achieve the targets by methodically and rigorously applying the plan • Review progress against plan, manage performance and identify and implement continuous improvement©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 4

Taking on a New Category A typical Category Management process Develop, implement and embed category management Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Stage 7 Understand Develop Define scope internal Understand Contract and category Select Implement and category requirements market and supplier strategy and supplier(s) contracts structure & suppliers management plan stakeholders Iterative process©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 5

Taking on a New Category Part 2 - Your Aims and Objectives This briefing is all about helping you and your colleagues succeed in category management (and more widely in your procurement activities) • But sometimes we need to look at reasons for failure to understand how to succeed! • What are the major causes of procurement professionals failing in their roles?©ALL RIGHTS RESERVED - Confidential 6

Taking on a New Category Part 2 - Your Aims and Objectives Procurement people fail when they lose the confidence of their boss and / or key internal stakeholders. • To ensure you maintain that confidence, it is critically important that you understand what your boss wants from you, including timescales, outputs, expected results • You should also clarify the resources available to help you • And it is critical to understand the expectations, fears and needs of key stakeholders • Failure rarely comes through “doing a bad deal” or failing to meet a savings target – it will come if you lose the confidence of key people, even if that is a subjective judgement©ALL RIGHTS RESERVED - Confidential 7

Taking on a New Category Aims & Objectives – New or Existing Categories There is a considerable difference between taking on a totally new category and inheriting one that’s been “category managed” for years. • Case study one – the procurement function has been asked by the CFO to “take a look” at legal services procurement across a large, multi-site, organisation. • There has been no procurement involvement up to now, the head of legal services owns a large central budget but around 20 different unit heads all spend smaller amounts of money when they need to in that area. You have been asked to take on that role.©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 8

Taking on a New Category Aims & Objectives – New or Existing Categories • Case study two – the category manager for desktop IT hardware has left the organisation after running that category for several years, pretty competently in the eyes of most people. You have been asked to take it on (in addition to some current responsibilities) • There is already a robust category strategy and plan in place, and the role of procurement is quite well established with the stakeholders • One situation is not necessarily easier than the other – but they are very different©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 9

Taking on a New Category Aims & Objectives: new or existing category? New Category Pre-Managed Positives • Chance to make your mark • Some data and history to • May be major savings inform decisions opportunities • Stakeholders familiar with • Market may welcome a new procurement role / more structured approach • Suppliers understand procurement processes Negatives • Data may be limited • “She’s not as good as the • Probably many stakeholders last one” / budget holders • Hard to find new • Suppliers may be very opportunities to shine and entrenched deliver benefits • Specifications and demand • Stakeholders and suppliers may be unclear or unhelpful set in their ways or used to a certain approach©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 10

Taking on a New Category Aims & Objectives – Your Priorities What do you need to do in order to succeed? We would suggest you have three key goals in the short term (first 3-6 months): 1. Build credibility with key internal stakeholders, key suppliers and procurement colleagues, particularly your staff & boss 2. Demonstrate some “quick wins”, or at least some fresh ideas that you are bringing to the table 3. Show that you have – or at least are developing - a longer-term plan that looks likely to deliver good results©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 11

Taking on a New Category Aims & Objectives – Building Credibility We’ve explained the importance of building credibility with stakeholders. But how do you do that? 1. Listen to them, understand their objectives, targets and challenges and relate what you can do to those 2. Speak their language – acknowledge their expertise and look to build your own in specific category issues to a reasonable level as quickly as possible 3. Think about what you bring to the table – is it market knowledge, commercial skills, process understanding? 4. Deliver! Work to timescales, achieve objectives, keep promises©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 12

Taking on a New Category Your Aims and Objectives We recommend you approach this with a project management mentality. It doesn’t have to be this complicated but you do need to plan your course of action. Stakeholders Quick wins Long-term©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 13

Taking on a New Category Time-Out: Discussion Read the Case-Study, “A Legal Matter” • How do you feel about your new assignment? Positive or negative? • If you can ask your boss one question, what would it be?©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 14

Taking on a New Category Part 3 – The Current Situation There are a set of key questions that you need to ask (and answer)! • What is the current and future requirement for this category? • When and where do we need it (logistics and physical supply)? • Who are the suppliers within the market(s) and within our current supply base? • How are we buying – procurement strategy and approach? • And overarching all of these - Why do we do it like this?©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 15

Taking on a New Category Current Situation – Defining Categories How is the Category currently structured; and is it appropriate? Professional services Master category Real estate Management Audit Legal Temporary consulting services services labour advisory Category services Strategic consulting US attorneys Marketing consulting European lawyers Sub-category IT consulting Barristers (UK) Finance consulting©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 16

Taking on a New Category Current situation – key factors Analyse the situation in terms of INTERNAL and EXTERNAL factors Current spend Market Demand CATEGORY Current suppliers MANAGEMENT Specifications Potential suppliers Stakeholders Regulatory issues INTERNAL EXTERNAL©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 17

Taking on a New Category Current Situation – the internal dimension • What is the current spend in these categories (by business area or geography if relevant? What is the spend pattern; are there factors such as seasonality, regional differences? • Is the spend (total, or patterns of spend) likely to change over the next 3 years? • How are the goods or services used in the business? How important or strategic are they? • Who are the key users, specifiers or other key influencers of your categories? • How do they perceive the goods and services provided, and the suppliers they use? • Where ‘corporate’ contracts are already in place, what is the internal compliance to these contracts? • What are the current specifications? Are those specifications likely to change over the next few years? Or is there potential to look at changes as a source of greater value? • What are the cost drivers – both internal (demand, specification) and external (market pressures, technology)©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 18

Taking on a New Category Current Situation - Spend Consider Spend Analysis processes / technology if at least basic level data is not available • Identify current spend levels (“the Spend Cube”): – Sub-category – Time period – Supplier – Business Unit – Budget-holder – Geography • Obtain a view if possible on future trends in terms of spend levels and patterns©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 19

Taking on a New Category The Current Situation - Stakeholders Stakeholders can make or break success, and their views of what they want from suppliers may be very different to your ideas of the ideal category approach • Don’t be afraid to challenge, BUT don’t be arrogant. Your stakeholders may well know more about their topic – and even the market – than you do. • Similarly, be prepared to listen to suppliers but don’t take everything at face value. • Do avoid the classic “using the stationery tender for management consultants” trap.©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 20

Taking on a New Category The Current Situation - Stakeholders • Who are they and what roles do they play? (Specifier, budget holder, order placer)? • How powerful are they and who actually holds the power? • How do they feel about the current supply situation and current suppliers? • Is compliance to procurement policy, process and agreements good? If not, why not? • What are their key drivers and objectives? • How do they feel about procurement and what (if anything) do they want from you? • What do they need and want from their suppliers??©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 21

Taking on a New Category The Current Situation - Stakeholders Stakeholders can make or break success, and their views of what they want from suppliers may be very different to your ideas of the ideal category approach Don’t be afraid THIS MAY BE THE to challenge BUT don’t be arrogant. Your stakeholders may well know more about their topic – and even the market – than you do. MOST IMPORTANT SLIDE TODAY! Do avoid the classic “stationery tender for management consultants” trap.©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 22

Taking on a New Category Questionnaire for Stakeholders How important are the following objectives to you in choosing your suppliers, and how well do you think current suppliers meet that need? • Cost savings •Importance 1 2 3 4 5 6 7 8 9 10 (very important) Current suppliers 1 2 3 4 5 6 7 8 9 10 (very important) • Service • Reporting & controls • Innovation • Personal relationships • Opportunity for revenue©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 23

Taking on a New Category Current Situation - Stakeholder analysis Mapping the priorities for PROCUREMENT three different stakeholder Reciprocal Service groups – where might the trading tensions be? Personal Control relationships USER Innovation BOARD©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 24

Taking on a New Category Current Situation – demand / specification • Demand and specification management are two very powerful tools, often under-considered • What and who drives demand? • How flexible / variable could that be? • What are the specifications? • How harmonised are they across the organisation? • How easy is it to change specification? • Is the market dynamic, with market-driven improvements? (e.g. technology change, process improvements?) • Or do you have to take the lead in looking for possible rationalisation / harmonisation opportunities?©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 25

Taking on a New Category Current Situation - Process issues Essential to understand both the “purchase to pay” transactional process, and the “sourcing” (selecting and contracting with suppliers) process • What is the model for transactions in this category? • “Req. to Cheque”: end-to-end process understanding and opportunities for process simplification • Fit with overall programme – Procurement Card, marketplace options, ERP, etc. • Is the sourcing process fit for purpose? • Are there opportunities for e-auctions, market informed sourcing...?©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 26

Taking on a New Category Current Situation - Market Moving on to external factors - understanding the market is key in order to determine the right actions • Market analysis; size, growth, key players, dynamics, trends and developments • What are the key market features? o Size (including geographic data) o Number of suppliers, market shares, concentration o Historical development and future market growth o Static or dynamic (in terms of new entrants, changes in market share or position) o Size (including geographic data) o Impact of innovation or technology o Buyer / supplier power issues and market types (monopoly, competitive etc.)©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 27

Taking on a New Category Current Situation - Kraljic Matrix (adapted) High Critical Strategic Ensure availability: Collaboration - close supplier • long-term contract management: • price indexes • detailed contract • contingency planning • collaborate Supply risk • market awareness Acquisition Leverage Minimum attention: Drive for value: • price formula • market pricing • call-off contract • aggressive approach • look to rationalise • use leverage Low Magnitude of spend High©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 28

Taking on a New Category Kraljic Matrix (adapted) – Mapping the Category High Critical Strategic Ensure availability: Collaboration - close supplier • long-term contract management: • price indexes • detailed contract • contingency planning • collaborate Supply risk • market awareness Acquisition Leverage Minimum attention: Drive for value: • price formula • market pricing • call-off contract • aggressive approach • look to rationalise • use leverage Low Magnitude of spend High©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 29

Taking on a New Category Current suppliers Who are the current ‘top suppliers’? • Current and historical performance as suppliers to the organisation • Size, financial strength, geographical coverage • Business strategy , financial margins and cost structures • Historical development and growth prospects • Strengths and weaknesses • Product / service offerings and competitive advantage • How well are they meeting your needs? Stakeholder satisfaction, value for money, service and quality, innovation, good to work with? • Are there value improvements that can be driven though incumbent suppliers? • Are there other attractive suppliers available in the market place?©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 30

Taking on a New Category Quick Wins Savings potential = 100% Demand management Specification management Market re-structuring Competitive pressure Contract management©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 31

Taking on a New Category Quick Wins Savings potential = 100% Demand management Specification management Market re-structuring Competitive pressure Contract management©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 32

Taking on a New Category Options for quick – and longer term - wins We’re not trying to describe every option that might form a valuable part of a category strategy. But here are some broad headings and ideas; • Leverage – aggregate spend, reduce supplier numbers, use the buying power of the purchasing organisation better. • Competition / supply market activity – even if direct leverage is not used, market facing activities can drive benefits (e.g. timing of purchase, new low cost suppliers). • Demand management – an old cliché, but ‘the best way to save money is not to spend it’. Revise policies, introduce spend “gates”. • Specification management – are the most appropriate specifications being used? Can a lower cost option be used, or different specs rationalised? • Strategic partnering – develop a “gain-sharing” strategic relationship with key suppliers. • Process change – ensure that the transactional processes around working with suppliers are as efficient as possible, or use sourcing processes to drive benefits. • Outsourcing opportunities – consider outsourcing or insourcing (for appropriate categories).©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 33

Taking on a New Category Conclusions and key messages •Understand what you are inheriting (existing categories) • Look to balance visible quick wins with longer term strategies and plans • Credibility is everything for a new category manager • Internal stakeholders are THE key audience who determine that credibility • Look to gain understanding quickly, don’t be afraid to challenge, but don’t think you immediately know best • Quick wins often come from specification or demand management rather than commercial initiatives©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 34

Taking on a New Category Read the Case-Study, “A Legal Matter” • How might Susan feel about this meeting – and how might that influence your approach? • What are three key questions you would like to ask her? • The information to date is limited, but what sort of activities might lead to “quick wins” in this category?©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 35

Taking on a New Category Real World Sourcing Scholarship • £2500 towards any procurement based training • Log on to the BravoSolution Education Network with the details you’ll receive tomorrow • Complete the certification programme • Check your ranking! • The winner will be announced at the Sourcing Experts dinner on 19 December©ALL RIGHTS RESERVED - Confidential Spend Matters UK/Europe 36

Real world sourcing - Taking on a New Category

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