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

Total 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 Business NeedsSourcing Plan The Tender and Implementation Supplier Relationship Management Tender acceptance, award and unsuccessful tenderer(s)arrangements Contract Signature M1 Milestone Milestone 2 M2 Price, Usage, Process 2.7 Implementation and Communication Milestone 3 Contract measurement & reporting 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 Transactional Purchasing Category Management Supplier Relationship Management Supplier Relationship Management Source Planning Source Planning Tactical Cost Management

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 CategorySub-CategoriesContractsProjects Professional ServicesRecruitment 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 & SupportProfit & ValueComptve. Advantage Perception Support Staff RolePurchasing / Cost Management 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)