Most
companies have implemented or are implementing strategic procurement
initiatives such as category / commodity management. (In this article we refer
to the category management process, but this is interchangeable with commodity
management in most instances.)
Depending on the maturity of the organisation, the complexity of the spend,
capability and capacity of the central group procurement team, results have
varied from exceeding all expectations to high levels of frustration and
limited results.
Where there are issues over organisational maturity, internal stakeholder
buy-in, limited capability and/or capacity of the central group procurement
team, the organisation’s senior management need to address these internal
roadblocks to support the strategic procurement team and unlock the value that
is being missed by the organisation.
When category management has been successfully implemented, with quick-wins and
strategic-procurement strategies fully executed, procurement will have reached
the final stage 5 of category management, known as the “Improvement Stage”,
which focuses on supplier relationship, supplier management, and continuous
improvement processes.
Keep the focus
At
this point it is easy for category managers to lose direction as the process is
not a structured and well-defined process like the initial stages of category
management. Furthermore, the organisation’s internal stakeholders often do not
understand this stage as they tend to align strategic procurement function to
more traditional procurement processes.
The respective procurement strategies developed during the category management
process should also clearly identify the key performance indicators that need
to be used in the contract service-level agreements and supplier-evaluation processes.
These supplier-performance measurements should drive the correct supplier
behaviour.
The above activities are important and should be viewed as the minimum
requirement to maintain the strategic procurement strategies on track.
This process of continually finding improvements is not a specific activity
with a set of procedures. Continuous improvement can relate to value, quality,
performance, price, process, innovation, opportunity costs or any other value
lever as perceived by the organisation.
The need for
support
Many
of the continuous-improvement philosophies were originated by quality
practitioners in the 1980s. From this have come some very structured programmes
from Japan such as the Toyota “Lean” manufacturing. A version of this is a supplier-development
programme (also originally developed by Toyota), successfully implemented as
Nissan South Africa, is now used internationally by many organisations. These
structured improvement processes require a high level of commitment and
investment. They are generally implemented as a company-wide philosophy. They
also require internal or external specialists who have been trained to
implement these structured continuous-improvement processes. If you can get the
support of your organisation’s management to implement one of these processes
and apply it to your strategic partners in the supply chain, it is worth the
effort and will assist in yielding value in your strategic categories beyond
the traditional procurement savings.
However, in the absence of one of these initiatives, most category managers
need to proactively identify and implement continuous improvements by
themselves, which requires a large amount of intuition by the category manager.
The category manager at this stage should be an expert of his or her category
and this should assist in knowing where real opportunities can be found.
Three approaches to
take
There
are three basic approaches that can be applied: attracting innovation,
discovering new breakthroughs, and finding new sources of value in your
business processes.
Innovation requires that the correct environment is established. As a category
manager, you can build relationships in your supply chain with the objective of
developing innovation. Such innovation must be done jointly with internal
stakeholders, such as marketing, and with strategic suppliers that supply
custom-designed products and service to your organisation. An easy way to
identify where this type of approach could work is to identify strategic
suppliers who are supplying you with Original Equipment Manufacturers
products.
Another way to create an environment for innovation is to invest in joint
product development with a strategic supplier. This type of arrangement should
only be considered if a long-term relationship has been established. These
arrangements should be backed-up with a formal contractual agreement for
managing the risk and reward in the joint-development relationship.
Discovering new breakthroughs sounds easier than it is. There are often many
potential possibilities being pitched by the market. The category manager must
be able to evaluate if these proposed breakthroughs are scalable and/or ready
to move from theory / design into practise / industrialisation. While being the
lead in a new technology can give your organisation a significant market
advantage, the risks are also significant. The best approach is to limit the
breakthrough ideas to the few that you as category manger believe you can
motivate and implement. Analysis methodologies can also be applied to rank
levels of feasibility. The best way to manage the risk is to form
cross-functional evaluation teams with all relevant stakeholders to complete
joint evaluation of possible breakthrough ideas, build consensus, and then
pilot before going to full implementation.
The last area where additional value can be found is in the internal and
external processes of the supply chain that are relevant to your category.
Business-process improvement can include approaches such as process
reengineering, brown paper / process mapping, and theory of constraints to
remove bottle-neck processes. These approaches normally require internal or
external specialists to assist in the implementing. They are also normally best
implemented and lead from within one of the operational departments of the
organisation, and not procurement.
However, the category manager can initiate such programmes and offer to act as
lead facilitator in areas where the process improvement can have a positive
impact on their commodity deck. While the improvement stage of category
management is outside the comfort zone of most procurement professionals and
procurement departments, this is the stage that differentiates your
organisation’s category management from the rest of the industry when
implemented.
Contributed by: Dion de Gruchy, Associate Director: SCM Advisory at Bespoke Group Africa
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