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Taking the Higher Ground in Category Management
- 1. Taking the Higher Ground in Category Management September 16, 2018 | Scottsdale, AZ Presented by Doug Van Wingerden
- 2. What’s the difference? Category Strategy Category Management insightsourcing.com | @ISG__Sourcing Is the strategic, category-centric approach to procurement. Happens post-sourcing to ensure full potential value is attained.
- 3. Age Old Problem for Procurement Chief Financial Officer insightsourcing.com | @ISG__Sourcing “Where are the savings you promised?”
- 4. Why is Category Management Hard? Polling Question: What barriers are preventing procurement from effectively implementing category management programs today? We don’t have the right data We don’t have the capabilities to process and analyze the data We don’t have the right category knowledge There is not a clear ROI for Category Management
- 5. About Insight Sourcing Group Strategic Sourcing & Procurement Transformation Consulting Services Assessment & Roadmap Development Strategic Sourcing Procurement Transformation Spend Visibility Category Visibility Category Management-as-a-Service Group Purchasing (GPO) Programs Energy Management-as-a-Service 8% - 20% Average client savings 4x - 10x Average client one-year ROI on sourcing programs 5,000+ Strategic sourcing projects 1,500+ Managed Services clients $3T+ Spend analyzed since inception Execution Analytics Managed Services POWERED BY
- 6. ISG’s Insight Analytics Business Our managed service approach focuses on delivering value from data-driven insights. insightsourcing.com | @ISG__Sourcing ISG’s Category Management as a Service Analysis Insights Actions • Collect detailed usage data directly from suppliers • Analyze key category metrics and value drivers • Leverage category dashboards to actively manage spend • Uncover valuable insights that maximize savings • Implement actions with suppliers and stakeholders • Recover lost savings and realize incremental value • Over $1B in spend under management • 30 unique categories • 22 additional categories onboarding in 2019 • 200+ suppliers Representative Spend Categories
- 7. The Case for Category Management: (Old Thinking) Projected Savings + 2-4% . Demand Management SKU Rationalization Volume Rebate Monitoring Supplier Relationships - 15% Time . Pricing Inaccuracies Non-Preferred Suppliers Contract Compliance Supplier Cost Increases insightsourcing.com | @ISG__Sourcing Upside Opportunity Deals Erode Over Time 15%+2-4%
- 8. The problem is much worse… insightsourcing.com | @ISG__Sourcing …and the opportunity is much greater.
- 9. . Pricing Inaccuracies Maverick Spend Uncontrolled Fees and Surcharges Supplier Gamesmanship The Case for Category Management: (New Realities) Projected Savings + 20% 37% Demand and SKU Management Supplier Mix Optimization SLA Performance Rapid Renegotiations -37% Time insightsourcing.com | @ISG__Sourcing Upside Better Than Expected 20% Leakage Worse Than Expected Source: 2019 ISG Category Management ROI Study
- 10. Case Study: Waste Disposal • Sourcing event yielded 20% savings across 3 suppliers • Only 66% of expected savings were realized in first 60 days Zero pricing errors Excessive site equipment Unexpected service fees • Expected savings were fully recovered insightsourcing.com | @ISG__Sourcing
- 11. On track to realize 200%+ of original savings ~ $400 / ton ~ $80 / ton Case Study: Waste Disposal Additional Upside Identified Pricing Outliers Container Optimization Award Scenario Optimization Open Top Front Loading Insight: Open Top 5x cost per ton Action: Optimize sites not best suited for Open Top
- 12. Baseline 20% Projected Savings 7% Savings Leakage Case Study: Waste Disposal Savings Recovery Additional Savings Cost of Category Mgmt. 7% 20% ~ 0.5 - 1% The ROI for Category Management
- 13. Since there is a ROI for Category Management… insightsourcing.com | @ISG__Sourcing
- 14. …what about the other barriers? Analytical Capabilities Category Skills insightsourcing.com | @ISG__Sourcing Robust Data
- 15. Barrier 1: “Perfect System” = “Perfect Data” • Best-of-Breed S2P system will capture line item detail (LID) • LID data is sufficient for world-class category management insightsourcing.com | @ISG__Sourcing
- 16. Barrier Buster: “Perfect” data exists at suppliers • Suppliers have perfect data about your usage • Secure “data rights” during sourcing event • Combine supplier data with other data sources insightsourcing.com | @ISG__Sourcing Supplier Data Supplier Data Supplier Data AP Data Operations Data Contract Data PO Data Sourcing Data Market Data Benchmark Data
- 17. Barrier 2: “I Need Big Data Capabilities” insightsourcing.com | @ISG__Sourcing • I need Data Scientists to manage this level of “Big Data” • I need specialized programming skills (Python, R, etc.)
- 18. Barrier Buster: You Don’t Need Data Scientists Extract, Transform, Load (ETL) Tools insightsourcing.com | @ISG__Sourcing Dashboards & Visualization Tools • Today’s tools make the hard “Big Data” stuff easy • You probably already have a license for them • Recent graduates will be well versed in these tools
- 19. Barrier 3: “I need to hire an army of category specialists” insightsourcing.com | @ISG__Sourcing • Expert for every category • Expert for every line of business
- 20. Barrier Buster: Critical skills can be developed insightsourcing.com | @ISG__Sourcing + Leverage a Category Management Playbook Business Unit Experts External or 3rd Party Sources Prior Sourcing Experience Get Smart by Leveraging…
- 21. • You don’t need this level of category management on all categories. • There is a business case for category management. • Secure “data rights” from suppliers during sourcing. • Build your “big data” sandbox using pre-existing COTS software. • Empower your “athletes” with methodologies & tools. Final Thoughts & Takeaways insightsourcing.com | @ISG__Sourcing
- 22. Thank you! Doug Van Wingerden Senior Vice President dvanwingerden@insightsourcing.com www.insightsourcing.com Have specific questions? Visit my roundtable tomorrow at 2:40pm!