Category Management - CIPS
CIPS South Wales Branch Category Management
Presented by: Dave Porter Consultancy
Negotiation
© PMMS Consulting Group 2011 All Rights Reserved
Skills Development
Recruitment
Interim Management
Asia Sourcing
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
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Reckitt Benkiser – Brands & Categories
Bang,
Finish
Mortein
Lysol
Veet
Dettol
Nurofen
Vanish
Clearasil
Woolite
Strepsils
Durex
Gaviscon
Calgon
Mucinex
Airwick
Scholl
Harpic
French’s
19 Power Brands Each ranked 1 or 2 worldwide 75% of net revenue
Fabric care
22%
Health care
13%
Food
3%
Surface care
17%
Personal care
13%
Pharmaceutical
7%
Dishwashing
11%
Home care
14%
© PMMS Consulting Group 2011 All Rights Reserved
8 Category Groups & Revenue Share 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
•
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 © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
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.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
The Planning Issue
Upstream
20% Need Specification Enquiry
Agreement/Contract
Available Resource (time)
Re-active Expediting
Downstream
Problem Solving Receiving
Inspection
80%
Excessive Contract Supervision Storing
Invoice Matching
Handling Emergencies!
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
The organisation was ‘leaking like a sieve’! $880m Approved Contract Value
$880m Contract Value
© PMMS Consulting Group 2011 All Rights Reserved
$210m (24%) extra Scope Growth, Claims, Variations, Use of contingency Poor post-contract mgt etc www.pmms-group.com
The Planning Solution Pro-active Business Objectives
Strategic Plans
Supply Planning Strategy
Upstream
Market Analysis
Contract
80% Negotiation
Supplier Management Tender Improvement
Agreement/Contract Downstream
Available Resource (time)
Receive Goods & Services Manage Performance & Pay
20%
Category Management helps invert the triangle © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
How does category management work?
•
Category tree extends to the level at which the organisation is likely to buy.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Category Management Structure 2009/10 SOCIAL & PEOPLE
Social Care (£83.4m)
Residential Homes (£18.77m)
Domiciliary Care(£18.6m)
Supported Living (£14.94m)
ENVIRONMENT
People and Professional Services (£33.5m)
Construction and Special Projects (£62.5m)
Building Maintenance Services (£30.3m)
Professional Services (£12.99m)
Other Children’s Services (£2.77m) Substance misuse (£2.45m)
Transport & Facilities Management (£59.8m)
Corporate & ICT (£34.7m)
Passenger Transport Services (£19.9m)
ICT (£11.67m)
Events (£8.55m) Buildings and Civil Construction Projects (£61.4m)
Waste Management (£5.4m) Highway Maintenance and Construction (£4.66m)
Consultancy (£7.49m)
Transport Service And Materials (£10.6m)
Plant, Tools, Equipment and Services (£2.07m)
Parks and Ground Maintenance (£3.54m)
Marine Services (£1.16m)
Building Materials (£3.02m) Highways Materials (£2.26m)
Supporting People (£3.49m) Other Adult’s Services (£3.14m)
Environment (£54m)
Agency (£13.1m)
Nursing Homes (£10.63m)
Fostering Services (£8.6m)
CORPORATE
Traffic and Telematics (£1.95m)
Cardiff Council Category Structure
Facilities Maintenance (£1.78m)
(extends to level 3 sub categories)
Leisure and Other Facilities (£779k)
Schools Supplies & Equipment (£4.73m) Advertising, Print, Design & Post (£4.16m) Office Consumables & Services (£3.62m)
Utilities and Energy (£11.6m)
Property Leases & Accommodation Service (£7.9m)
Catering (£6.47m)
Cleaning (£1.25m)
Books and Publications (£1.04m) Domestic Furniture & Equipment (£915k)
Edinburgh City Council Commodity/Category Structure
Learning and Care
Corporate Indirect
Environment , Transport & Trades
Construction & Consultancy
Exempt
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Commodity Structure Environment, Transport & Trades
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
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.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Sub Commodity (incl L1 where invoiced directly) Care Services Las Agencies & Other Bodies Uncategorised Publishing Utilities Charity Building Contractors Community Groups Recycling Construction Consulting Engineers Staff Training Health Care Training Services Consultants Financial Services NHS/Health Board Clothing Facilities Plant Hire Lights IT Hardware & Software Taxis Vehicle Sales Furniture Educational Services Fuel Telecommunications Provider Concrete Products Solicitors Security Office Equipment Vehicle Rental Electrical Contractors Blacksmiths Landscapers Asphalt & Tar Products © PMMS Consulting Group 2011 All Rights Reserved
Spend £24,430,228.35 £17,182,613.96 £13,779,485.01 £10,566,345.10 £10,294,622.01 £8,417,679.13 £6,741,115.04 £5,873,978.45 £5,043,594.86 £4,718,777.35 £3,657,616.07 £3,542,526.85 £3,240,109.74 £2,624,570.31 £2,513,996.63 £2,306,458.56 £1,983,075.50 £1,953,417.68 £1,918,545.80 £1,834,079.16 £1,601,897.63 £1,544,424.24 £1,491,135.17 £1,441,703.78 £1,403,641.01 £1,384,859.43 £1,368,003.99 £1,361,794.90 £1,303,213.57 £1,154,833.46 £1,080,304.72 £963,919.93 £942,590.05 £911,048.72 £897,275.90 £896,454.72 £805,952.45
Understanding Spend is Crucial 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
80% of spend on 9% (37 No) of sub commodities
The Tail 10% of spend on 81% (330 No) of sub commodities
Most are low value and relatively straightforward to procure but some are high value and complex. The Category Management process must accommodate both. www.pmms-group.com
The Process Must Also Take Account of Risk
Only influencable spend > £150k is positioned
(£21m)
STRATEGIC CRITICAL
STRATEGIC SECURITY
General Elect Subs Process Plant
Filter Nozzles
Chemical Dosing Specialist Civils Subs e.g.Piling
Risk Low value spend £2m
General Civil Subs Mech Plant
HV Switchgear
Building Products GRP Building Kiosks
Misc Tanks
Ductile Iron Pipe Fabricated Plant Penstocks Steel Pipe
General Piling Standby Generators
Mech Installation
Pressure Vessels Filter Media
Pipe Fittings Plant Hire Steelwork
TACTICAL ACQUISITION
TACTICAL PROFIT 0.3% (£150k pa)
© PMMS Consulting Group 2011 All Rights Reserved
© PMMS 2011
(£12m) £6m pa
% of Total Expenditure www.pmms-group.com
Category Management Process Key Components
Establish team & governance structure
Gather data & analyse internal & market
Identify & quantify opportunities
Comprehensive category plans addressing all sub categories
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. © PMMS Consulting Group 2011 All Rights Reserved
Develop procurement strategy options
Implement preferred procurement strategy
Specific strategy for procurement of one or more sub categories
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. www.pmms-group.com
Strategic Sourcing Process & Tools • Membership • Clear Objectives
• • • • •
How the market works Suppliers Capabilities Trends & Developments Tools: • Supply Positioning • Supplier Preferencing • Supply Chain Analysis • Vulnerability Analysis • Financial Analysis • Strategy Analysis
Establish multi-functional team
Understand current supply arrangements
Market Analysis • What the business really needs Business Needs
© PMMS Consulting Group 2011 All Rights Reserved
• Technical/Functional Spec
• Confirm Business Needs
Strategy Development
Preferred Procurement Strategy • 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
What is being purchased, why and how Existing Suppliers What works well Problems/issues
Implementation
Contract Management
Review
• Option Analysis
• Select preferred Option • Implementation Planning • Detailed Business Case • Endorsement to implement
• • • •
Delivery Management Relationship Management Contract Administration Continuous Improvement
Lessons learnt www.pmms-group.com
Category Management and Strategic Sourcing Category Management Process Flow Identify
Develop Communications Plan
Stage 1
Stage 2 Workshop 1
Kick Off
Gather Category Information
Category Grid Governance
Spend Data
Cat Man and Service Strategy
Confirmation of Scope
Stage 3
Stage 4
Off Line Analysis
Opportunity Analysis
Workshop 2
Category Development Plan
Category Insight Report
Category Development Plan
Business Needs & Market Analysis
Form cross functional team & confirm scope
Category Analysis
Market Analysis
STP Spend/Supplier Analysis Demand/Supply Analysis Current process
Opportunity Analysis
Workshop 4
Stage 7 Face 2 Face
Strategic Options
PESTLE Analysis Porters Five Forces Trends & developments Supply chain & vulnerability analysis PPCA – cost drivers Portfolio Analysis Supplier analysis incl Preferencing Market Management Matrix
Responsibility Questionaires Interviews
Stage 6
Workshop 3
Initiation
Milestone Plan
Intro to Category Insight Report
Stage 5
Business Needs Analysis
Risk & Contingency Planning
Analysis Summary & Conclusions
Strategic Option Generation, Evaluation & Selection
Stakeholder Analysis Business Needs Analysis
Strategic Option Definition
Sourcing Strategy Sign Off
High Level Implementation Plan
Governance
Initial Stakeholder identification
Initial Stakeholder Engagement
SRO Sign Off 1
Sustainability Assessment
Opportunity Plans
SRO Sign Off 2
SRO Sign Off 3
Strategic Sourcing Strategy
SRO Sign Off 4
In how many ways can we organise procurement? •
Centralised
•
De-centralised
•
CLAN or matrix management
•
Devolved
•
Commodity teams
•
Collaborative
There is no right answer – choice of organisational model depends on the nature, culture and needs of your business.
– Informal networks – Formal consortia – Informal consortia – Mandatory & non mandatory •
Agency arrangements or outsourced service
© PMMS Consulting Group 2011 All Rights Reserved
Category management can be accommodated within any of these organisation models.
www.pmms-group.com
What is the impact on organisation structure? •
Procurement teams reflect defined categories.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Category Based Structure – Single Organisation GSC Director 129 PA
Head of Supply Chain 88
Head of Supply Chain 16
Support Pool
Head of Product Category 16
Head of Product Category 30
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 Lifecycle Mgt Process Total
4
Utilities Sustainability Mgt
Airport Logistics 25
Travel & Transport 4
Head of Supply Chain 21 Supply Chain Development Supply Integration/CRM Risk & Governance
Maintenance 4
Change Project Leader 1
Communications Leader 1
Facilities 4 Maintenance
Product Teams IT & Telecomms 8 Mkting & Business Services 5 Cleaning 2 Total 15
7 1 8
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
What is the impact on organisation 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
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Category Management and Strategic Sourcing Category Management Process Flow Identify
Develop Communications Plan
Stage 1
Stage 2 Workshop 1
Kick Off
Gather Category Information
Category Grid Governance
Spend Data
Cat Man and Service Strategy
Confirmation of Scope
Stage 3
Stage 4
Off Line Analysis
Opportunity Analysis
Workshop 2
Category Development Plan
Category Insight Report
Category Development Plan
Business Needs & Market Analysis
Form cross functional team & confirm scope
Category Analysis
Market Analysis
STP Spend/Supplier Analysis Demand/Supply Analysis Current process
Opportunity Analysis
Workshop 4
Stage 7 Face 2 Face
Strategic Options
PESTLE Analysis Porters Five Forces Trends & developments Supply chain & vulnerability analysis PPCA – cost drivers Portfolio Analysis Supplier analysis incl Preferencing Market Management Matrix
Responsibility Questionaires Interviews
Stage 6
Workshop 3
Initiation
Milestone Plan
Intro to Category Insight Report
Stage 5
Business Needs Analysis
Risk & Contingency Planning
Analysis Summary & Conclusions
Strategic Option Generation, Evaluation & Selection
Stakeholder Analysis Business Needs Analysis
Strategic Option Definition
Sourcing Strategy Sign Off
High Level Implementation Plan
Governance
Initial Stakeholder identification
Initial Stakeholder Engagement
Sustainability Assessment
Opportunity Plans
SRO Sign Off 1
SRO Sign Off 2
SRO Sign Off 3
SRO Sign Off 4
Strategic Sourcing Strategy © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
What is the impact on organisation 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 © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Collaborative Consortium
User Intelligence Group signs off category allocation, sourcing scope and strategy © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Implementation and Benefits Delivery Establish team & governance structure
Gather data & analyse internal & market
Programme and project management infrastructure and expertise
Identify & quantify opportunities
Sourcing Programme
Relationship Management
Delivery Management
Ensuring that the contract is delivering what has been agreed to the required performance standards.
Implement preferred procurement strategy
Management of frameworks & contracts
Contract Administration
Continuous Improvement
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. © PMMS Consulting Group 2011 All Rights Reserved
Develop procurement strategy options
Aiming for improvement over the life of the contract. May include incentive mechanisms. www.pmms-group.com
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
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Are there any risks or disadvantages? •
Narrow focus on categories may obscure interdependencies and associated cross category opportunities
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Interdependence & Missed Opportunity Construction Services
Professional Services
Engineer
Architect
QS
H&S CDM
Sn
S1
Maintenance Services
M1
Mn
Category Tree Sub categories excluding professional services
Aggregation & Standardisation Opportunities Integration & Standardisation Opportunities e.g design, build and maintain Planning
S u p p l y
C h a i n s
Design
Construction
Maintenance
Engineer
Engineer
Engineer
M&E
Architect
Architect
Architect
H&S CDM
QS
QS
QS
Prof Services
Estates
M&E
M&E
Trades
Fin/Econ
H&S CDM
H&S CDM
© PMMS Consulting Group 2011 All Rights Reserved
Contractor & Sub Contractors
Usage
Value Chain
www.pmms-group.com
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.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
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
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
For more information on
Category Management or Strategic Sourcing please contact
[email protected]
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Presented by: Dave Porter Consultancy
Negotiation
© PMMS Consulting Group 2011 All Rights Reserved
Skills Development
Recruitment
Interim Management
Asia Sourcing
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
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Reckitt Benkiser – Brands & Categories
Bang,
Finish
Mortein
Lysol
Veet
Dettol
Nurofen
Vanish
Clearasil
Woolite
Strepsils
Durex
Gaviscon
Calgon
Mucinex
Airwick
Scholl
Harpic
French’s
19 Power Brands Each ranked 1 or 2 worldwide 75% of net revenue
Fabric care
22%
Health care
13%
Food
3%
Surface care
17%
Personal care
13%
Pharmaceutical
7%
Dishwashing
11%
Home care
14%
© PMMS Consulting Group 2011 All Rights Reserved
8 Category Groups & Revenue Share 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
•
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 © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
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.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
The Planning Issue
Upstream
20% Need Specification Enquiry
Agreement/Contract
Available Resource (time)
Re-active Expediting
Downstream
Problem Solving Receiving
Inspection
80%
Excessive Contract Supervision Storing
Invoice Matching
Handling Emergencies!
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
The organisation was ‘leaking like a sieve’! $880m Approved Contract Value
$880m Contract Value
© PMMS Consulting Group 2011 All Rights Reserved
$210m (24%) extra Scope Growth, Claims, Variations, Use of contingency Poor post-contract mgt etc www.pmms-group.com
The Planning Solution Pro-active Business Objectives
Strategic Plans
Supply Planning Strategy
Upstream
Market Analysis
Contract
80% Negotiation
Supplier Management Tender Improvement
Agreement/Contract Downstream
Available Resource (time)
Receive Goods & Services Manage Performance & Pay
20%
Category Management helps invert the triangle © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
How does category management work?
•
Category tree extends to the level at which the organisation is likely to buy.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Category Management Structure 2009/10 SOCIAL & PEOPLE
Social Care (£83.4m)
Residential Homes (£18.77m)
Domiciliary Care(£18.6m)
Supported Living (£14.94m)
ENVIRONMENT
People and Professional Services (£33.5m)
Construction and Special Projects (£62.5m)
Building Maintenance Services (£30.3m)
Professional Services (£12.99m)
Other Children’s Services (£2.77m) Substance misuse (£2.45m)
Transport & Facilities Management (£59.8m)
Corporate & ICT (£34.7m)
Passenger Transport Services (£19.9m)
ICT (£11.67m)
Events (£8.55m) Buildings and Civil Construction Projects (£61.4m)
Waste Management (£5.4m) Highway Maintenance and Construction (£4.66m)
Consultancy (£7.49m)
Transport Service And Materials (£10.6m)
Plant, Tools, Equipment and Services (£2.07m)
Parks and Ground Maintenance (£3.54m)
Marine Services (£1.16m)
Building Materials (£3.02m) Highways Materials (£2.26m)
Supporting People (£3.49m) Other Adult’s Services (£3.14m)
Environment (£54m)
Agency (£13.1m)
Nursing Homes (£10.63m)
Fostering Services (£8.6m)
CORPORATE
Traffic and Telematics (£1.95m)
Cardiff Council Category Structure
Facilities Maintenance (£1.78m)
(extends to level 3 sub categories)
Leisure and Other Facilities (£779k)
Schools Supplies & Equipment (£4.73m) Advertising, Print, Design & Post (£4.16m) Office Consumables & Services (£3.62m)
Utilities and Energy (£11.6m)
Property Leases & Accommodation Service (£7.9m)
Catering (£6.47m)
Cleaning (£1.25m)
Books and Publications (£1.04m) Domestic Furniture & Equipment (£915k)
Edinburgh City Council Commodity/Category Structure
Learning and Care
Corporate Indirect
Environment , Transport & Trades
Construction & Consultancy
Exempt
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Commodity Structure Environment, Transport & Trades
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
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.
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Sub Commodity (incl L1 where invoiced directly) Care Services Las Agencies & Other Bodies Uncategorised Publishing Utilities Charity Building Contractors Community Groups Recycling Construction Consulting Engineers Staff Training Health Care Training Services Consultants Financial Services NHS/Health Board Clothing Facilities Plant Hire Lights IT Hardware & Software Taxis Vehicle Sales Furniture Educational Services Fuel Telecommunications Provider Concrete Products Solicitors Security Office Equipment Vehicle Rental Electrical Contractors Blacksmiths Landscapers Asphalt & Tar Products © PMMS Consulting Group 2011 All Rights Reserved
Spend £24,430,228.35 £17,182,613.96 £13,779,485.01 £10,566,345.10 £10,294,622.01 £8,417,679.13 £6,741,115.04 £5,873,978.45 £5,043,594.86 £4,718,777.35 £3,657,616.07 £3,542,526.85 £3,240,109.74 £2,624,570.31 £2,513,996.63 £2,306,458.56 £1,983,075.50 £1,953,417.68 £1,918,545.80 £1,834,079.16 £1,601,897.63 £1,544,424.24 £1,491,135.17 £1,441,703.78 £1,403,641.01 £1,384,859.43 £1,368,003.99 £1,361,794.90 £1,303,213.57 £1,154,833.46 £1,080,304.72 £963,919.93 £942,590.05 £911,048.72 £897,275.90 £896,454.72 £805,952.45
Understanding Spend is Crucial 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
80% of spend on 9% (37 No) of sub commodities
The Tail 10% of spend on 81% (330 No) of sub commodities
Most are low value and relatively straightforward to procure but some are high value and complex. The Category Management process must accommodate both. www.pmms-group.com
The Process Must Also Take Account of Risk
Only influencable spend > £150k is positioned
(£21m)
STRATEGIC CRITICAL
STRATEGIC SECURITY
General Elect Subs Process Plant
Filter Nozzles
Chemical Dosing Specialist Civils Subs e.g.Piling
Risk Low value spend £2m
General Civil Subs Mech Plant
HV Switchgear
Building Products GRP Building Kiosks
Misc Tanks
Ductile Iron Pipe Fabricated Plant Penstocks Steel Pipe
General Piling Standby Generators
Mech Installation
Pressure Vessels Filter Media
Pipe Fittings Plant Hire Steelwork
TACTICAL ACQUISITION
TACTICAL PROFIT 0.3% (£150k pa)
© PMMS Consulting Group 2011 All Rights Reserved
© PMMS 2011
(£12m) £6m pa
% of Total Expenditure www.pmms-group.com
Category Management Process Key Components
Establish team & governance structure
Gather data & analyse internal & market
Identify & quantify opportunities
Comprehensive category plans addressing all sub categories
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. © PMMS Consulting Group 2011 All Rights Reserved
Develop procurement strategy options
Implement preferred procurement strategy
Specific strategy for procurement of one or more sub categories
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. www.pmms-group.com
Strategic Sourcing Process & Tools • Membership • Clear Objectives
• • • • •
How the market works Suppliers Capabilities Trends & Developments Tools: • Supply Positioning • Supplier Preferencing • Supply Chain Analysis • Vulnerability Analysis • Financial Analysis • Strategy Analysis
Establish multi-functional team
Understand current supply arrangements
Market Analysis • What the business really needs Business Needs
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• Technical/Functional Spec
• Confirm Business Needs
Strategy Development
Preferred Procurement Strategy • 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
What is being purchased, why and how Existing Suppliers What works well Problems/issues
Implementation
Contract Management
Review
• Option Analysis
• Select preferred Option • Implementation Planning • Detailed Business Case • Endorsement to implement
• • • •
Delivery Management Relationship Management Contract Administration Continuous Improvement
Lessons learnt www.pmms-group.com
Category Management and Strategic Sourcing Category Management Process Flow Identify
Develop Communications Plan
Stage 1
Stage 2 Workshop 1
Kick Off
Gather Category Information
Category Grid Governance
Spend Data
Cat Man and Service Strategy
Confirmation of Scope
Stage 3
Stage 4
Off Line Analysis
Opportunity Analysis
Workshop 2
Category Development Plan
Category Insight Report
Category Development Plan
Business Needs & Market Analysis
Form cross functional team & confirm scope
Category Analysis
Market Analysis
STP Spend/Supplier Analysis Demand/Supply Analysis Current process
Opportunity Analysis
Workshop 4
Stage 7 Face 2 Face
Strategic Options
PESTLE Analysis Porters Five Forces Trends & developments Supply chain & vulnerability analysis PPCA – cost drivers Portfolio Analysis Supplier analysis incl Preferencing Market Management Matrix
Responsibility Questionaires Interviews
Stage 6
Workshop 3
Initiation
Milestone Plan
Intro to Category Insight Report
Stage 5
Business Needs Analysis
Risk & Contingency Planning
Analysis Summary & Conclusions
Strategic Option Generation, Evaluation & Selection
Stakeholder Analysis Business Needs Analysis
Strategic Option Definition
Sourcing Strategy Sign Off
High Level Implementation Plan
Governance
Initial Stakeholder identification
Initial Stakeholder Engagement
SRO Sign Off 1
Sustainability Assessment
Opportunity Plans
SRO Sign Off 2
SRO Sign Off 3
Strategic Sourcing Strategy
SRO Sign Off 4
In how many ways can we organise procurement? •
Centralised
•
De-centralised
•
CLAN or matrix management
•
Devolved
•
Commodity teams
•
Collaborative
There is no right answer – choice of organisational model depends on the nature, culture and needs of your business.
– Informal networks – Formal consortia – Informal consortia – Mandatory & non mandatory •
Agency arrangements or outsourced service
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Category management can be accommodated within any of these organisation models.
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What is the impact on organisation structure? •
Procurement teams reflect defined categories.
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Category Based Structure – Single Organisation GSC Director 129 PA
Head of Supply Chain 88
Head of Supply Chain 16
Support Pool
Head of Product Category 16
Head of Product Category 30
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 Lifecycle Mgt Process Total
4
Utilities Sustainability Mgt
Airport Logistics 25
Travel & Transport 4
Head of Supply Chain 21 Supply Chain Development Supply Integration/CRM Risk & Governance
Maintenance 4
Change Project Leader 1
Communications Leader 1
Facilities 4 Maintenance
Product Teams IT & Telecomms 8 Mkting & Business Services 5 Cleaning 2 Total 15
7 1 8
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What is the impact on organisation 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
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Category Management and Strategic Sourcing Category Management Process Flow Identify
Develop Communications Plan
Stage 1
Stage 2 Workshop 1
Kick Off
Gather Category Information
Category Grid Governance
Spend Data
Cat Man and Service Strategy
Confirmation of Scope
Stage 3
Stage 4
Off Line Analysis
Opportunity Analysis
Workshop 2
Category Development Plan
Category Insight Report
Category Development Plan
Business Needs & Market Analysis
Form cross functional team & confirm scope
Category Analysis
Market Analysis
STP Spend/Supplier Analysis Demand/Supply Analysis Current process
Opportunity Analysis
Workshop 4
Stage 7 Face 2 Face
Strategic Options
PESTLE Analysis Porters Five Forces Trends & developments Supply chain & vulnerability analysis PPCA – cost drivers Portfolio Analysis Supplier analysis incl Preferencing Market Management Matrix
Responsibility Questionaires Interviews
Stage 6
Workshop 3
Initiation
Milestone Plan
Intro to Category Insight Report
Stage 5
Business Needs Analysis
Risk & Contingency Planning
Analysis Summary & Conclusions
Strategic Option Generation, Evaluation & Selection
Stakeholder Analysis Business Needs Analysis
Strategic Option Definition
Sourcing Strategy Sign Off
High Level Implementation Plan
Governance
Initial Stakeholder identification
Initial Stakeholder Engagement
Sustainability Assessment
Opportunity Plans
SRO Sign Off 1
SRO Sign Off 2
SRO Sign Off 3
SRO Sign Off 4
Strategic Sourcing Strategy © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
What is the impact on organisation 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 © PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
Collaborative Consortium
User Intelligence Group signs off category allocation, sourcing scope and strategy © PMMS Consulting Group 2011 All Rights Reserved
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Implementation and Benefits Delivery Establish team & governance structure
Gather data & analyse internal & market
Programme and project management infrastructure and expertise
Identify & quantify opportunities
Sourcing Programme
Relationship Management
Delivery Management
Ensuring that the contract is delivering what has been agreed to the required performance standards.
Implement preferred procurement strategy
Management of frameworks & contracts
Contract Administration
Continuous Improvement
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. © PMMS Consulting Group 2011 All Rights Reserved
Develop procurement strategy options
Aiming for improvement over the life of the contract. May include incentive mechanisms. www.pmms-group.com
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
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Are there any risks or disadvantages? •
Narrow focus on categories may obscure interdependencies and associated cross category opportunities
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Interdependence & Missed Opportunity Construction Services
Professional Services
Engineer
Architect
QS
H&S CDM
Sn
S1
Maintenance Services
M1
Mn
Category Tree Sub categories excluding professional services
Aggregation & Standardisation Opportunities Integration & Standardisation Opportunities e.g design, build and maintain Planning
S u p p l y
C h a i n s
Design
Construction
Maintenance
Engineer
Engineer
Engineer
M&E
Architect
Architect
Architect
H&S CDM
QS
QS
QS
Prof Services
Estates
M&E
M&E
Trades
Fin/Econ
H&S CDM
H&S CDM
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Contractor & Sub Contractors
Usage
Value Chain
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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.
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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
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For more information on
Category Management or Strategic Sourcing please contact
[email protected]
© PMMS Consulting Group 2011 All Rights Reserved
www.pmms-group.com
