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Consultancy Negotiation Skills Development Recruitment Interim Management Asia Sourcing

© PMMS Consulting Group 2011 All Rights Reserved www.pmms-group.com

CIPS South Wales Branch

Category Management

Presented by:

Dave Porter

http://www.pmms-group.com/




History of Category Management

• Originated in marketing in the 1980’s.

• Grouped products into categories based on how the consumer

used the product e.g.

– Rekitt Benkiser products/brands are distributed across 8

categories


Fabric care 22%

Surface care 17%

Dishwashing 11%

Home care 14%

Health care 13%

Personal care 13%

Food 3%

Pharmaceutical 7%

Reckitt Benkiser – Brands & Categories

8 Category Groups & Revenue Share

19 Power BrandsEach ranked 1 or 2 worldwide

75% of net revenue

Finish

Lysol

Dettol

Vanish

Woolite

Durex

Calgon

Airwick

Harpic

Bang,

Mortein

Veet

Nurofen

Clearasil

Strepsils

Gaviscon

Mucinex

Scholl

French’s


History of Category Management

• Originated in marketing in the 1980’s.

• Grouped products into categories based on how the consumer

used the product e.g.

– Rekitt Benkiser products/brands are distributed across 8

categories

• Helped retailers grow sales and profit by maximising synergies

and minimising unproductive competition between their own

brands and products. For example:

– Michelin also manufacture Kleber tyres which are marketed

as a high quality (Michelin connection) budget brand (price

connection) tyre thus securing market share in 2 segments.

Adapted and adopted progressively by procurement functions


What is Procurement Category

Management?

• Category management is a process which relies on cross functional teamwork

to generate procurement outcomes that fully satisfy agreed business needs.

– Categories group products and services together based on the ability of

the market to supply not on the basis of organisational boundaries.

• BUT - this has been the goal of the procurement profession for many years –

what is so special about category management?

– Extent of engagement and teamwork with stakeholders for all expenditure

with suppliers.

• Not simply allocating categories/commodities to procurement team members

– Governance process which crosses organisation boundaries.

– Depth of category specific knowledge and expertise – market & technical.

– Emphasis on planning and use of analytical tools.


Agreement/Contract

Need

Specification

Enquiry

Re-active

Expediting

Problem Solving

Receiving Inspection

Excessive Contract

Supervision

Storing Invoice Matching

Handling Emergencies!

Upstream

Downstream

Available

Resource

(time)

20%

80%

The Planning Issue


$210m (24%) extra

Scope Growth, Claims, Variations,

Use of contingency

Poor post-contract mgt etc

$880m

Approved

Contract Value

$880m

Contract Value

The organisation was ‘leaking like a

sieve’!


Agreement/Contract

Receive Goods

& Services

Pro-active

Supplier Management

Tender Improvement

Business Objectives Strategic Plans

Supply Planning Contract

Strategy

Market Analysis Negotiation

Manage

Performance

& Pay

Upstream

Downstream

Available

Resource

(time)

80%

20%

The Planning Solution

Category Management helps invert the triangle


How does category management work?

• Category tree extends to the level at which the organisation is likely to buy.

Category Management Structure 2009/10

Social Care(£83.4m)

Transport & Facilities Management (£59.8m)

Construction andSpecial Projects (£62.5m)

Environment (£54m)People and Professional Services (£33.5m)

Corporate & ICT (£34.7m)

Residential Homes

(£18.77m)

Transport ServiceAnd Materials (£10.6m)

Buildings and Civil Construction Projects (£61.4m)

Building Maintenance Services (£30.3m)

Agency (£13.1m)

Office Consumables& Services (£3.62m)

Property Leases & Accommodation Service (£7.9m)

Marine Services (£1.16m)

Highway Maintenance and Construction (£4.66m)

Advertising, Print, Design & Post (£4.16m)

Catering (£6.47m)

Leisure and Other Facilities (£779k)

ICT (£11.67m)

Utilities and Energy(£11.6m)

Waste Management (£5.4m)

Books and Publications (£1.04m)

Facilities Maintenance (£1.78m)

Events (£8.55m)

Domestic Furniture & Equipment (£915k)

Cleaning (£1.25m)

Professional Services (£12.99m)

Consultancy (£7.49m)

Building Materials (£3.02m)

Highways Materials (£2.26m)

Parks and Ground Maintenance (£3.54m)

Plant, Tools, Equipment and Services (£2.07m)

Schools Supplies &Equipment (£4.73m)

Traffic and Telematics (£1.95m)

Domiciliary Care(£18.6m)

Supported Living

(£14.94m)

Nursing Homes (£10.63m)

Supporting People

(£3.49m)

Fostering Services

(£8.6m)

Other Adult’s Services (£3.14m)

Other Children’s Services

(£2.77m)

Substance misuse

(£2.45m)

Passenger TransportServices(£19.9m)

SOCIAL & PEOPLE ENVIRONMENT CORPORATE

Cardiff Council

Category Structure(extends to level 3 sub

categories)


Edinburgh City Council

Commodity/Category Structure

Learning and

Care

Corporate

Indirect

Environment ,

Transport & Trades

Construction &

ConsultancyExempt

L1 Sub

Categories

L1 Sub

CategoriesL1 Sub

Categories

L1 Sub

Categories

L1 Sub

Categories

L2 Sub

CategoriesL2 Sub

CategoriesL2 Sub

Categories

L2 Sub

CategoriesL2 Sub

Categories


Commodity StructureEnvironment, Transport & Trades


How does category management work?

• Category tree extends to the level at which the organisation is likely to buy.

• A Category Manager develops a Category Plan in conjunction with one or more

service lines for procurement of the products or services within the category.

– Categories may cross service lines e.g. legal services or desk top IT.

– Alternatively, a category may be an essential component in the delivery of a

single service e.g. childrens’ care services or vehicle transmission systems.

• The Category Plan gathers all relevant data to identify, quantify and prioritise

improvement opportunities in conjunction with service lines/stakeholders.


Sub Commodity (incl L1 where invoiced directly) Spend

Care Services £24,430,228.35

Las Agencies & Other Bodies £17,182,613.96

Uncategorised £13,779,485.01

Publishing £10,566,345.10

Utilities £10,294,622.01

Charity £8,417,679.13

Building Contractors £6,741,115.04

Community Groups £5,873,978.45

Recycling £5,043,594.86

Construction £4,718,777.35

Consulting Engineers £3,657,616.07

Staff Training £3,542,526.85

Health Care £3,240,109.74

Training Services £2,624,570.31

Consultants £2,513,996.63

Financial Services £2,306,458.56

NHS/Health Board £1,983,075.50

Clothing £1,953,417.68

Facilities £1,918,545.80

Plant Hire £1,834,079.16

Lights £1,601,897.63

IT Hardware & Software £1,544,424.24

Taxis £1,491,135.17

Vehicle Sales £1,441,703.78

Furniture £1,403,641.01

Educational Services £1,384,859.43

Fuel £1,368,003.99

Telecommunications Provider £1,361,794.90

Concrete Products £1,303,213.57

Solicitors £1,154,833.46

Security £1,080,304.72

Office Equipment £963,919.93

Vehicle Rental £942,590.05

Electrical Contractors £911,048.72

Blacksmiths £897,275.90

Landscapers £896,454.72

Asphalt & Tar Products £805,952.45

Highest spend 37 (9%) sub commodities from a total of

405 sub commodities account for 80% of total spend

90% of spend on 19% (75 No) of sub commodities



The Tail

Most are low value and relatively straightforward to

procure but some are high value and complex. The

Category Management process must accommodate

both.

Understanding

Spend is Crucial

© PMMS Consulting Group 2011 All Rights Reserved www.pmms-group.com© PMMS 2011

Risk

% of Total Expenditure

0.3%

TACTICAL ACQUISITION TACTICAL PROFIT

STRATEGIC SECURITY STRATEGIC CRITICAL

The Process Must Also Take Account of Risk

(£150k pa)

£6m pa

Building Products

Steel Pipe

Ductile Iron Pipe

Pipe Fittings

Plant Hire

Standby Generators

HV Switchgear

Penstocks

Steelwork

Pressure Vessels

Misc Tanks

Mech Plant

Fabricated Plant

Filter Media

Mech Installation

Chemical Dosing

General Civil SubsSpecialist Civils

Subs e.g.Piling

General Elect Subs

Process Plant

General PilingGRP Building

Kiosks

Filter Nozzles

Only influencable spend > £150k is positioned

Low value spend £2m

(£21m)

(£12m)


Category Management Process

Key Components

Establish team &

governance structure

Gather data & analyse -internal &

market

Identify & quantify

opportunities

Develop procurement

strategy options

Implement preferred

procurement strategy

Category plan identifies all

opportunities within a

category along with the

anticipated means of

achievement. For simple

procurement, it may also

define the procurement

strategy.

Low value simple procurement may simply involve

implementation of the conclusions of the category strategy

e.g. use a collaborative framework/contract, change the

specification and re-negotiate terms.

More detailed investigation is required for high value

complex procurement. This is often referred to as

Strategic Sourcing or Procurement Strategy.

Comprehensive category plans addressing all sub

categories

Specific strategy for procurement

of one or more sub categories


Strategic Sourcing Process & Tools

Establish multi-functional team

Understand current supply arrangements

Strategy Development

Preferred Procurement Strategy

Implementation

Contract Management

Review

• Membership

• Clear Objectives

What is being purchased,

why and how

Existing Suppliers

What works well

Problems/issues

• How the market works

• Suppliers

• Capabilities

• Trends & Developments

• Tools:

• Supply Positioning

• Supplier Preferencing

• Supply Chain Analysis

• Vulnerability Analysis

• Financial Analysis

• Strategy Analysis

• What the business really needs

• Technical/Functional Spec

• Confirm Business Needs

• Option Analysis

Business Needs

Market Analysis

• Select preferred Option

• Implementation Planning

• Detailed Business Case

• Endorsement to implement

• RFP / RFQ / Negotiation

• EU Procurement Process

• Select Procedure

• Selection & award criteria

• Contract Notice

• Supplier selection

• Tenders and assessment

• Negotiation plan where

appropriate

• Contract documentation

• Contract management plan

• Contract award

• Delivery Management

• Relationship Management

• Contract Administration

• Continuous Improvement

Lessons learnt

Category Management and Strategic Sourcing

Identify Develop

Spend Data

Confirmation

of Scope

Initial

Stakeholder

Engagement

Questionaires

Interviews

Intro to

Category

Insight Report

Opportunity

Analysis

Milestone Plan

Category

Development

Plan

Form cross

functional

team &

confirm scope

Category

Analysis

Market

Analysis

Business

Needs

Analysis

Analysis

Summary &

Conclusions

Strategic Option

Generation,

Evaluation &

Selection

Risk &

Contingency

Planning

Strategic

Option

Definition

High Level

Implementation

Plan

Sourcing

Strategy Sign

Off

Workshop 1 Workshop 2 Workshop 4Workshop 3

Gather Category

InformationOpportunity

Analysis

Category

Development

PlanInitiation

Business Needs

&

Market Analysis

Strategic Options

Category Management Process Flow

STP

Spend/Supplier Analysis

Demand/Supply Analysis

Current process

Stakeholder

Analysis

Business Needs

Analysis

PESTLE Analysis

Porters Five Forces

Trends & developments

Supply chain & vulnerability analysis

PPCA – cost drivers

Portfolio Analysis

Supplier analysis incl Preferencing

Market Management Matrix

Kick Off Off Line Analysis

SRO Sign

Off 1

SRO Sign

Off 2

SRO Sign

Off 3

SRO Sign

Off 4

Stage 1 Stage 5Stage 4Stage 3Stage 2 Stage 6 Stage 7

Strategic Sourcing Strategy

Communications Plan

Governance

Cat Man and

Service

Strategy

Category Grid

Initial

Stakeholder

identification

Responsibility

Opportunity

Plans

Category

Insight Report

Sustainability

Assessment

Governance

Face 2 Face


In how many ways can we organise

procurement?

• Centralised

• De-centralised

• CLAN or matrix management

• Devolved

• Commodity teams

• Collaborative

– Informal networks

– Formal consortia

– Informal consortia

– Mandatory & non mandatory

• Agency arrangements or

outsourced service

There is no right answer – choice of

organisational model depends on

the nature, culture and needs of

your business.

Category management can be

accommodated within any of these

organisation models.


What is the impact on organisation

structure?

• Procurement teams reflect defined categories.


Category Based Structure – Single

Organisation

GSC Director

Head of Supply

Chain

Change Project

Leader

PA

Head of Supply

Chain

Head of Supply

Chain

Communications

Leader

Head of Product

Category

Head of Product

Category

Product Teams

Construction Account Mgt 2

Baggage Systems 2

Infrastructure 1

Fit-out 3

Consultants 4

Baggage Operation 3

Shell & Core 3

Building Services 3

Total 21

Product Teams

P2P Process & Systems 7

Lifecycle Mgt Process 1

Total 8

30

Product Teams

IT & Telecomms 8

Mkting & Business Services 5

Cleaning 2

Total 15

16

Airport

Logistics25

Travel &

Transport 4Maintenance Facilities

Maintenance

4 4

Support Pool 4

88

Utilities

Sustainability Mgt

16

Supply Chain Development

Supply Integration/CRM

Risk & Governance

21 1

1

129



structure?

• Procurement teams reflect defined categories

• Category teams are multi functional

– Procurement is a member of the team – normally the category manager

– Other team members will include representatives of the services who will be

strongly affected by the outcome plus those with relevant specialist expertise.

• Governance arrangement must ensure endorsement and ownership at an

appropriate level

– Service lines must remain accountable for their service


Category Management and Strategic Sourcing

Identify Develop

Spend Data

Confirmation

of Scope

Initial

Stakeholder

Engagement

Questionaires

Interviews

Intro to

Category

Insight Report

Opportunity

Analysis

Milestone Plan

Category

Development

Plan

Form cross

functional

team &

confirm scope

Category

Analysis

Market

Analysis

Business

Needs

Analysis

Analysis

Summary &

Conclusions

Strategic Option

Generation,

Evaluation &

Selection

Risk &

Contingency

Planning

Strategic

Option

Definition

High Level

Implementation

Plan

Sourcing

Strategy Sign

Off

Workshop 1 Workshop 2 Workshop 4Workshop 3

Gather Category

InformationOpportunity

Analysis

Category

Development

PlanInitiation

Business Needs

&

Market Analysis

Strategic Options

Category Management Process Flow

STP

Spend/Supplier Analysis

Demand/Supply Analysis

Current process

Stakeholder

Analysis

Business Needs

Analysis

PESTLE Analysis

Porters Five Forces

Trends & developments

Supply chain & vulnerability analysis

PPCA – cost drivers

Portfolio Analysis

Supplier analysis incl Preferencing

Market Management Matrix

Kick Off Off Line Analysis

SRO Sign

Off 1

SRO Sign

Off 2

SRO Sign

Off 3

SRO Sign

Off 4

Stage 1 Stage 5Stage 4Stage 3Stage 2 Stage 6 Stage 7

Strategic Sourcing Strategy

Communications Plan

Governance

Cat Man and

Service

Strategy

Category Grid

Initial

Stakeholder

identification

Responsibility

Opportunity

Plans

Category

Insight Report

Sustainability

Assessment

Governance

Face 2 Face



structure?

• Procurement teams reflect defined categories

• Category teams are multi functional

– Procurement is a member of the team – normally the category manager

– Other team members will include representatives of the services who will be

strongly affected by the outcome plus those with relevant specialist expertise.

• Governance arrangement must ensure endorsement and ownership at an

appropriate level

– Service lines must remain accountable for their service

• Collaborative arrangements

– Consortia may be organised around categories

– Can be challenging when decision making authority does not cross

organisational boundaries

– Particularly problematic for direct areas of spend i.e. when service line

success depends on the quality of the category plan & sourcing strategy


Collaborative Consortium

User Intelligence Group signs off category allocation, sourcing scope and strategy


Implementation and Benefits Delivery

Establish team &

governance structure

Gather data & analyse -internal &

market

Identify & quantify

opportunities

Develop procurement

strategy options

Implement preferred

procurement strategy

Sourcing ProgrammeManagement of frameworks &

contracts

Programme and project

management infrastructure

and expertise

Delivery

Management

Relationship

ManagementContract

Administration

Continuous

Improvement

Aiming for improvement over the

life of the contract. May include

incentive mechanisms.

Handling the formal governance of the

contract e.g. change control, cost

monitoring, payment, management

reporting etc).

Building open and constructive

relationships that enable problems to

be identified – and resolved – early.

Ensuring that the contract is delivering

what has been agreed to the required

performance standards.


Benefits of Category Management

• Closer and more constructive relationship with service lines and stakeholders

– Enables productive procurement engagement without compromising service

line ownership of strategies and outcomes.

• Focuses attention on the planning phase which offers the greatest scope for

improved performance and ground breaking solutions

• Provides the toolset and process to support a strategic approach to

procurement and helps create a supportive environment

• Enables realistic targeting of savings and other benefits which are agreed with

and owned by service lines.

• Minimises off contract spend through service line engagement, ownership and

sign off

• Enhances procurement capability within the procurement function and across

the organisation


Are there any risks or disadvantages?

• Narrow focus on categories may obscure interdependencies and associated

cross category opportunities


Interdependence & Missed Opportunity

Professional

Services

Construction

Services

Maintenance

Services

Planning Design Construction Maintenance Usage

Fin/Econ

Engineer

Architect

Estates

QS

Engineer

Architect

QS

H&S CDM

M&E

Architect

Engineer

Contractor & Sub Contractors

H&S CDM

QS

H&S CDM

Prof Services

M&E Trades

Value

Chain

Engineer Architect QS H&S CDM

M&E

Aggregation &

Standardisation Opportunities

Integration & Standardisation Opportunities

e.g design, build and maintain

S

u

p

p

l

y

C

h

a

i

n

s

Sub categories

excluding

professional

services

S1 Sn M1 Mn

Category Tree


What risks do we need to manage?

• Narrow focus on categories may obscure interdependencies and associated

cross category opportunities.

• Overly optimistic view of current skills gaps.

• Heavy workload initially but this diminishes significantly once category plans are

approved and sourcing is underway.

• ‘Law of diminishing returns’ reduces savings opportunities over time and

political direction may change.

– Pursue savings and other benefits

• A narrow category focus could be ‘career limiting’ in organisations which need

staff with broad experience and expertise.

• Loss of local expertise where categories are assigned to collaborative

arrangements.

• Too much emphasis on process and too little on outcomes.


Pre-requisites for Success

• A need for improvement

• Visible top level support – categories cross organisation boundaries

• Change management expertise not just procurement and project expertise

– Establish acceptance of the need for change

– Clearly set out and sell the category management approach

– Gain stakeholder understanding, support, engagement, participation and

ownership of outcomes

– Build procurement capacity and capability in parallel with the category

management process

– Achieve quick wins and build credibility

– Maintain the stamina and determination to bounce back from setbacks

– Progress to more complex procurement

– Share the gains and the pains

• Remember that procurement supports service delivery


For more information on

Category Management or Strategic

Sourcing

please contact

[email protected]

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