Dorset Procurement

Dorset Procurement – Category Management

What is Category Management?

Key Features

• The procurement organisation is clustered by similar expenditure groups, called Categories

• Categories have sub-category areas, which are assigned to team members

• A strategic sourcing process is followed

• The sourcing process flows from stakeholder engagement to supplier relationship management

2.5

2.4

2.2

2.1

1.6

1.5

1.3

1.2

1.1

4.4

4.3

4.2

4.1Total Annual Spend

Collaboration

Identify Business Needs

Market Analysis

Specification Creation

Research the Market

Contract Procedure Rules

Tendering Background

Tender Evaluation

Tender Number Registration

Contract Approaches

Target and Manage Continuous Improvement

Review Supplier Performance

PQQ

Review and Update Contract

Agree Contract Variables

Stakeholder Management

Meeting Current Suppliers

The Suppliers’ View

1.4

2.3

Business Needs Sourcing PlanThe Tender and Implementation

Supplier Relationship Management

Tender acceptance, award and unsuccessful tenderer(s)arrangements

Contract SignatureM1 Milestone 1

2.6

Milestone 2M2

Price, Usage, Process2.7

Implementation and Communication

Milestone 3

Contract measurement & reporting

3.6

3.5

3.4

3.3

3.1

3.2

3.7

3.9

3.10

M3

The Category Management Process

Annual volumes and costs by supplier

Meeting Potential Suppliers

1.7 Managing Risk

3.8

Tender Opening

So what’s different?• Category teams are wholly responsible for the sourcing, operations, supplier

relationships and contracts within that expenditure group• Accurate requirements, appropriate evaluation criteria• Supply market understanding and engagement for optimal value• Total price and contract compliance• Consistently good supplier performance and cost control• Ongoing value delivery

• Stakeholders are cross-functional team members rather than “customers”• Defining needs• Challenging demand• Brainstorming sourcing, contracting and relationship options• Redesigning function

• Category management is on the journey to effective cross-functional working

The Stakeholder Relationship

Purchase Agents

Sourcing Influencers

Purchasing Professionals

People who have supplier contact and/or influence the sourcing process, e.g., setting the specification or defining the business needs.

People that spend the majority of

their time working with the sourcing

process

People that spend company money but

does not have purchasing as profession, e.g., Marketing Directors, IT Managers, Secretaries

Delivery of Value to the organisation

High

Low

Procurement Function to Cross functional teams

The Procurement Journey

TransactionalPurchasing

TransactionalPurchasing

Category Management

Category Management

SupplierRelationshipManagement

SupplierRelationshipManagement

SourcePlanning

SourcePlanning

Tactical CostManagement

Organising for Category Management• First, we need to understand

• What do we spend?• On what?• With what suppliers?

• Spend analysis provides us with this picture• Then we can start to organise and prioritise categories and projects

Category Sub-Categories Contracts Projects

Professional Services •Recruitment•Consultancy•Temporary Labour•Legal services•Audit services•Professional subscriptions

•Tax and advisory

•Temporary Recruitment

•Permanent Recruitment

•Specialist Recruitment

• Interim Recruitment•Paralegal services•Legal services

•Recruitment review•Professional fees review

Organising for Category Management

• Key tools to support Category Management Implementation include• A Sourcing Process – designed to your process and

policies• A Toolkit – often supplementing or replacing

purchasing SOPs/handbooks/contracting rules• Stakeholder engagement - to communicate the

process to colleagues, collaborative partners and suppliers

• Training and development – to communicate the process to procurement

The Category Management Toolkit• A quick reference “how to” guide for each tool• Addresses practises and behaviours with stakeholders and suppliers• Becomes a single point of reference and common ways of working

Stakeholder Engagement• Traditionally Procurement was a “support function”

• Stakeholder-centred category management is focussed on business needs

• These needs drive category plans and supplier selection

Transactional Purchasing

(Service Centre)

Core

Purchasing

(Profit Centre)

Strategic

Purchasing

(Strategic Imperative)

• Centrally funded• Placing Orders• Catalogue

management• Req. Processing• GRN Processing• Record Keeping• Service focus• Individual fire

fighting

• Self-funding• Stakeholder-

cantered• Cost Management• Supplier Selection• Managing contracts• Category Planning• Team Objectives• Value Delivery

• Revenue-generating• Cross Functional Teams• Strategic Partnering• Collaborative Sourcing• Supply Chain Control• Breakthrough Projects• Source Planning• Continuous improvement

Impact Service & Support Profit & Value Comptve. Advantage

Perception Support Staff Role Purchasing / CostManagement Role

Impacting the Lives of the Community

Best Practice

The benefits• Professionalising the function

• Staff motivation • Sub-category ownership • Creativity of approach• Expectation of benefits delivery

• Improved ROI• Projects focussed on benefits delivery• Benefits defined in terms of life improvement outcomes

• Stakeholder satisfaction increased

• Supply market knowledge utilised to engage more effectively with it

Learning from other organisations

• Every sourcing process has to start with stakeholder engagement and ends with supplier relationship management

• The Category Management drivers dictate the nature of the sourcing process– Cost focus?– Compliance focus?– Relationship focus?

• The Category Management objectives dictate the approach to implementing the process– Mandatory?– Output-driven?– Gateways?

“Understand your suppliers’

environment”

“Be proactive about engaging

the supply market to create

competition”

“Don’t let it and forget it!”

“Who will manage performance,

compliance and cost for

collaborative contracts?”

“Be assertive in clarification to

understand and challenge whole

life costs and cost management”

“Question specification,

needs, wants and demand”

“Could sub-categories be bundled at a

different level?”

Business Needs Sourcing Plan The Tender and Implementation

Supplier Relationship Management

Some key Category Management messages

“Question specification,

needs, wants and demand”

“Could sub-categories be bundled at a

different level?”

Business Needs

Some key Category Management messages

Example Analysis of Sub-Category segmentation by

DCC procurement team

“Understand your suppliers’

environment”

“Be proactive about engaging

the supply market to create

competition”

Sourcing Plan

Some key Category Management messages Example Analysis of

Grounds Maintenance Sub-Category by DCC

procurement team

Some key Category Management messages

“Don’t let it and forget it!”

“Who will manage performance,

compliance and cost for

collaborative contracts?”

Supplier Relationship Management

Example Analysis of Sub-Categories by DCC procurement team

The Need for Collaboration• “Supply Chain Integration” is recognised as one of the

key areas of competitive advantage*

• This includes• Business systems that help share information like past and

forecasted demand and spend

• Effective relationships with our suppliers that are about joint value improvement rather than price

• Building networks of procurement peers who can share resources to improve their purchasing power (collaboration)

* Cavinato ,Flynn & Kauffman (The Supply Management Handbook, 2006)

Benefits of Collaboration

• Volume leverage

• Single commercial voice

• Shared information

• Common approaches

• Greater interest in performance management

Collaboration is often lacking when negotiating with partners

“‘Best-in-Class’ companies forge lasting, ‘Win-Win’ relationships by negotiating fiercely but fairly with their suppliers. This is what GE should do….must do. Companies that view their suppliers as adversaries rather than partners believe that negotiating ‘We-must-WIN-even-if-they-LOSE’ agreements will improve their bottom line.

“Instead, this approach is both costly and inefficient.”  

JEFF IMMELT, CEO of GE (2006)