12 Causes of Sub-Optimal Category Management & Strategic Sourcing

Evidence from IIAPS Benchmarking & Improvement Methodologies

Most leading organisations have developed a category management and strategic sourcing process, so why do so many of them fail to deliver exceptional value for money outcomes?

Over the last ten years IIAPS benchmarked a large number of organisations using its PSCM Index Methodology.  This approach analyses organisations against 184 attributes of procurement and supply chain management competence. The figure below demonstrates the current performance of organisations by sector when scored against a potential world-class top score of 100%.

PSCM Index Scores by Sector

Few organisations score in the Top Quartile (over 75%), which demonstrates the current lack of overall use of all of the tools that are potentially available to manage procurement and supply chains effectively. Interestingly enough, when we analyse only the use of tools for category management in our database, it is clear that there are significant gaps in across particular steps in the process.

8-Step Process Benchmarking Scores

The figure above demonstrates that organisations score highest for the use of tools in Steps 5 and 6—the market test and negotiation process. They also score reasonably well in Step 3 supply market analysis. The evidence shows, however, that there are significant gaps in performance in the pre-contractual Steps 1, 2 & 4 and post-contractual Steps 7 & 8.

Our view is that it is in these poorest performing Steps that the greatest impact can be made in leveraging improved value for money. So why is performance sub-optimal and so weak in these areas?

IIAPS benchmarking research indicates that there are 12 key causes why sub-optimal performance occurs:

  • Lack of cross-functional buy-in so that all value for money options are never considered
  • Lack of early involvement so that options are closed
  • Insufficient time and resources (people/money) to undertake the necessary analysis of options
  • Excessive fragmentation of spend, with short-term management philosophies dominating organisational sourcing thinking
  • Lack of rigorous and robust current and future spend management data with a lack of segmentation methodology to identify categories of spend
  • Lack of embedded performance management culture using rigorous and robust KPIs for all categories of spend, with focus only on price/cost savings rather than value for money KPIs
  • Endemic maverick spend, with a lack of mandate for Procurement staff to be involved in the whole of the sourcing process pre- and post-contractually
  • Lack of embedded and on-line processes/systems to manage categories of spend, and to undertake sourcing strategy development and/or supplier relationship management
  • Lack of use of sophisticated power and leverage positioning analytical tools to develop sourcing strategies
  • Lack of knowledge management, leading to staff reinventing the wheel
  • Lack of fully competent staff, with a fully rigorous methodology to analyse all value for money trade-off options
  • Failure to fully develop supplier relationship management options in the pre-contractual steps of the process

In our benchmarking experience (as discussed in our World-Class or Best-in-Class? White Paper) these issues recur across all organisations time and again.

We will be writing blogs in the future about each of these 12 key causes of sub-optimal performance. In these blogs my colleagues and I will try to explain IIAPS thinking about how to resolve these issues and improve competence in category management and strategic sourcing.

Paul Ireland
Paul Ireland
Director of Corporate Services,IIAPS
Paul has over 20 years procurement experience in academic, consulting and management roles with leading universities, global blue chip companies and major public sector organisations. His work has focused on the development of best practice in strategic sourcing and category management and the use of the Internet and IT applications to facilitate best practice. This work has been presented widely at academic and practitioner conferences and disseminated in numerous books and articles.

14 thoughts on “12 Causes of Sub-Optimal Category Management & Strategic Sourcing”

  1. Thank you Andrew. I enjoyed reading through your 12 key causes of sub-optimal performance. This is a topic that is on my 2015 stretch goals, however, your mention of limited time/resources to actually make changes for the better resonate with me. Intuitively companies should be spending more resources on collaborative performance management efforts in today’s commodity uncertainty than reducing resources and simply focusing on cost.

    1. Chris, I defiantly agree although, if you accept that there is a difference between a Strategic Value-Driven, as opposed to a Tactical Price/Cost Driven category management and strategic sourcing process, then much of the initial time and effort, must be put into achieving buy-in and cross-functional participation. If this is not one then trying to drive collaboration becomes almost impossible in our experience.

  2. Excellent work. Imperative in commodity management that pre-contractual opportunities are identified, understood and maximised in the negotiating process, to safeguard opportunistic behaviour once the contract has been awarded. Think, how could the supplier come back more…… Leave nothing on the table. Look forward to next instalment Andrew.

  3. Very interesting analysis. It’s not surprising that Steps 5 and 6 score higher for use of tools given that eSourcing is something of a commodity these days. I’m a bit surprised that the contract management scores are so low, as there are a raft of excellent tools out there to handle that piece, as well as other key areas like SRM, Savings Tracking and such like.

    However, it comes as no surprise that Steps 1, 2, and 3 score poorly. This is exactly the pain we’ve looked to address with our Category Dojo tool to help organisations identify and prioritise their procurement opportunities, expose the risks, drive stakeholder involvement, delve into power and leverage positioning of incumbents all just by asking the right set of questions at the beginning. It seems there isn’t a consistent and robust way to do this otherwise.

    1. Nick, The scores are low because we are not just benchmarking the contract management process, but the whole of the post-contractual P2P, performance management and relationship management space.

  4. Look forward to the series Andrew. Your results are very similar to our observations when benchmarking organisations.

    One potential explanation that strikes me, is that many organisations have simply re-branded what they did before as “category management”, with maybe a few more longer term deals, and aggregating volumes. Volume aggregation is a tool in the procurement toolkit, but it’s use doesn’t make procurement strategic.

    I also don’t think we haven’t helped ourselves by including sourcing as a formal step in our catman processes either. Going to market and negotiating a new deal is an approach, but is not the only implementation option in a category management process. What if the biggest levers to value and performance improvement come from developing the supply base, working with existing suppliers, or managing demand and specification?

    1. Thanks for the positive response Randy. We will be explaining more about the 12 causes in more detail in the next few weeks, so I hope you get something from these series of blogs. Our view is that there is a genuine lack of understanding about the difference between a Strategic Value-Driven, as opposed to a Tactical Price/Cost Driven category management and strategic sourcing process. You have to understand the key differences and have the right methodologies in place to do it properly.

  5. As ever, an interesting and insightful paper. The thing that struck me was that the 12 points addressed process issues, which is fine, but the real problem in most organisations is that executive leadership doesn’t appreciate the importance/value of doing SCM / Category Management well so they don’t set a context where it can flourish. So a lot more needs to be done in terms of securing leadership commitment / buy-in as if that’s not there, then success will be at best, patchy.

    1. Spot on as usual Granville.

      Although you will see in our forthcoming blogs this week on the first elements about Buy-In and Early Involvement that these can only be resolved by senior leadership understanding and engaging willingly. We believe this is the necessary and sufficient condition of success. Unfortunately, it is (as I know you already know) the most difficult thing to acquire.

  6. An interesting blog! I certainly encounter many of these problems on a daily basis. The first few issues related to getting buy-in from stakeholders is key as unless you have this you will face many of the other problems.

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