Category Management in Purchasing

A Strategic Approach to Maximize Business Profitability

Jonathan O'Brien

• Publisher: Kogan Page
• Year: 2019
• ISBN:
  9780749482626
• Edition: 4
• Topic: Negocios y empresa
• Subtopic: Operaciones

Category Management in Purchasing is a comprehensive guide to strategic category management which provides a step-by-step guide to its implementation and use, and enables readers to deliver value and cost savings when sourcing and purchasing. Now in its fourth edition, this text has cemented its place as the essential reference for category management practitioners.
In this new edition, Jonathan O'Brien shows how a strategic approach needs to integrate with other approaches, such as supplier relationship management and how the procurement function negotiates. Additionally, this new edition includes some new insights, based upon the experience of senior practitioners in industry, on how to make category management a success in the organization. It also includes some general updates and contextualizes the future procurement function and an ever increasing digitally enabled, de-globalized, post Brexit world. There is also additional material on the effect of international developments on procurement, updated tools and templates, and examples of how these have been successfully used in industry. Category Management in Purchasing, 4th edition connects theory and practice and provides readers with the tools to analyze complex sourcing situations quickly and clearly, and so develop innovative and creative proposals for sourcing.

04

Stage 1: Initiation

This chapter explores the tools, techniques and process steps within the first or initiation stage. We examine how the category project is established and how the team is formed. We look at some of the early analysis that is conducted to gain some initial insight into the category and verify the opportunity. We explore how the wider business is engaged to secure buy-in and understand the business needs for the category. Finally we examine how the category project is planned.

Pathway questions addressed in this chapter:

1. 4 How can I identify and prioritize potential opportunity for each category so I can direct my resources accordingly?
2. 6 How do I engage the wider organization within a category-based approach?
3. 7 For any given category, how do I identify what the organization needs to buy?
4. 8 For each and any category, what is my current position?

The initiation toolkit

Stage 1, initiation, is about kicking off the category management process and conducting the early project planning. There are a number of things that need to be established at the outset of the process. The most important of these is the cross-functional team, as it is now that the team is established and formed, and work is done to align thinking and agree a common purpose.

Initiation is also the first time we explore the category in question. It is our first opportunity to define the scope of the category and its boundaries and to establish some goals for the size of benefits we wish to attain. Initiation therefore seeks to achieve a number of key objectives:

• formation, alignment and motivation of the cross-functional team that will work on the category project;
• verification of the opportunity, along with gaining some early insight into and understanding of what is happening in the category;
• identification of how stakeholders will be engaged and how project progress and results delivery will be communicated to them and the wider business;
• formation of a precise statement of the business requirements;
• identification of potential sources of value;
• delivery of early benefits;
• planning of the project.

For initiation to be successful a series of early project activities or steps are required; these are given in the process diagram (see Figure 4.1).

Figure 4.1 Stage 1: Initiation

Stage 1: Initiation

KICKING OFF THE CATEGORY MANAGEMENT PROCESS

Category management projects typically begin with a lone category manager or purchasing practitioner having been assigned a category to work on. Initially, this can feel quite daunting but it doesn’t need to be and the first steps in the process are concerned with orientation as to what the category is and who is going to help work on it.

Scoping the category project

This step is an Enabler and is Essential

Before the project begins to take shape, clarity as to what it is about is essential. If the boundaries of the category project are not absolutely clear, then an activity to gain alignment and an early definition of the scope of the category must be carried out by the cross-functional project team. This should be one of the first activities in the first kick-off workshop.

In a multi-project environment the scope would ideally be determined in advance of the project commencing by the senior leadership team responsible for category management organization-wide. It is possible that wider consultation with the business is required here. It is also possible that once the project begins, and following discussion by the team, the scope may need refinement or even redefinition and that is why this is the first activity identified within the process.

Defining the scope requires careful thought, and caution is required if breakthrough opportunities are not to be excluded at this early stage. Constrained thinking here will constrain the whole project, so effort should be put into making sure the scope is correct and precisely defined. Key questions to answer here are:

• How do we define the category?
• What does the category do, and should the scope be based around this?
• What are the market boundaries? How is the marketplace organized and what determines the boundaries of the marketplace? Our starting point for the category scope is that it should mirror how the market is organized and be market facing, looking as wide as possible
• What are the geographical boundaries? Defining geographical boundaries must reflect how the marketplaces for the category are organized, but multiple category projects could work on different territories, with overarching collaboration.
• Are there any time-frame implications that would define the scope? For example, a tour operator may organize business around the annual bulk printing of all holiday brochures for the forthcoming season. The category scope may be to look to provide the sourcing strategy for a defined number of seasons or time periods.
• Are there any organizational boundaries that need to be imposed, perhaps where pre-existing arrangements prevent changing current contractual arrangements? An example scope statement here might be: ‘Electricity utility provision for all European sites except the two German factories’. However, be careful not to exclude areas without good reason: you could be excluding a breakthrough!

The output required here is a simple statement or definition of the scope of the project. Using facilitation, the cross-functional team should explore their understanding of the scope, then develop and refine this to arrive at an agreed definition. If reaching an agreed definition is proving difficult, then the team should identify what is preventing alignment. Defining exceptions is often a good way to overcome difficulties. Some sample category scope definitions are:

• printed packaging: for all US operations;
• travel agency: global travel agency provision for all sites except Australia;
• bulk chemicals: bulk supply (ie loads over 1 tonne) to all UK sites of sodium hypochlorite, sodium bisulphate, ferric chloride and calcium nitrate.

It is possible that as the project progresses it becomes necessary to go back and revise the scope. If this is the case, then the work to date through the process will also need to be revisited and possibly reworked.

Opportunity analysis revisited

This step is a Tool and is Optional

In the last chapter we explored the process of opportunity analysis, typically conducted at a macro level to define the overall category management programme and determine the prioritized category projects that will be worked on. Ideally this would be reasonably detailed, delivering multiple-category opportunity analysis using spend data, market knowledge and consultation with stakeholders. The initial OA might typically be carried out us...