The procurement category management role has become a staple of procurement organizations around the world. Moving away from the local and siloed procurement approach, organizations have set up these centralized teams that aim at optimizing their spend on strategic segments.
As I started to work in such organizations, which was setting up a category manager team across Europe, I found myself a little confused about my role: I was supporting buys in a category where budgets were defined by Finance, and buying decisions were made by the business partners so where exactly would I fit in this? One day, while pondering these thoughts, I discussed with a very senior (soon retired) procurement manager who said: “It should be very straightforward, think of your category as your own business, and look at each part of your process and optimize it. These words resonated a lot with me, and throughout the next couple of years, I tried to think of my category as a business in itself, where I had to remove friction to make the “machine” more efficient and create more value for my customers.
Understanding your environment
As a category manager or a procurement entrepreneur, you first need to understand your environment. That is you need to make sure you have clarity on :
- Your customers: Who are your key customers (stakeholders), what are they looking for, and what are their vision and objectives? Take time to map out these people and understand their motivations, goals, and aspirations otherwise, it may be very difficult for you to propose solutions that actually fit their needs.
- The spend: Any entrepreneur should have clarity on what it buys, how much it spends, where does it spends it, etc. Getting this data can be challenging in some organizations but even if not perfect, any category manager should have a big picture of this to start with.
- Your suppliers: Understand who are the players in your market, who are the incumbents, and why they were selected. Meeting incumbents and other key competitors is one of the key activities any new category manager should undertake in the first weeks of their role. If you don’t yet know the account manager in charge of your account, find them through Linkedin or through the supplier website.
- Your buying process: understand each part of the P2P process, how efficient is it? How much time does it take your requestors to place an order? Are suppliers acknowledging the order fast enough? Are their invoices processed easily and correctly?
Identify the opportunities
Your role is going to be to create value for the business, at that stage, you understand your business stakeholders’ vision and objectives, where the spend goes, who are the key players and what they offer. With these piece of information ask yourself what would help my customers the most? From there, you can start making plans to create value in many ways :
- Renegotiation: If your analysis suggests that the opportunities lie in old, historical, or no longer relevant contracts, you can aim at renegotiating existing spend. Old contracts are not always the sure way to big savings, but it’s often a good start. Whether through tender or direct negotiation, the goal is to obtain better terms so that the business can either reduce the budget or get more for the same amount.
- Process improvement: Savings from process improvements are my favorites, as they can come from anywhere in your P2P process (LINK). Where are the inefficiencies in your buying process? You will be amazed by just how many opportunities there are to simplify the ordering process or improve the invoicing flow of your suppliers.
- Risk management: if your procurement function is new, there are likely opportunities in managing risks. Is your business too reliant on one supplier? Do your suppliers have enough capacity to deliver to you on time? Do you have contracts in place to provision for any dispute?
- Innovation: At other times, the opportunity can come from innovation that has not yet been adopted by the business but can have a tremendous impact on costs and the way you are doing things. Your discussions with incumbents and other suppliers’ account managers should give you good indications on this.
Capture the value
Now that you have identified the opportunities, you will need to convince your stakeholders and sell them on the vision. To do this, the best practice is often to define a category strategy and document it so that you have a clear plan for unlocking these opportunities over the next couple of years. It should outline the following :
- Where you are now: This is basically the summary of the first section’s questions.
- Where you want to be: Design the desired state including the operational model (who does what when and through what process or tools?) and benefits to achieving this result (savings but also value created, time saved, etc…)
- How you plan to go there: Establish planning with timelines, resources needed and mapping of all stakeholders (RACI).
With this document validated by your stakeholders, you will have set the right foundations for your category and its execution will guarantee you have found your place within the organization and will deliver value for the business, beyond the simple cost reduction. Don’t forget to remain agile and flexible to adapt to external and internal changes.
