In a series of previous blogs based on our benchmarking data (see also the PSCM Index and our World-Class or Best-in-Class? White Papers), we outlined the 12 Major Causes of Sub-Optimal Category Management and Strategic Sourcing, and promised to provide a series of blogs (The Problem of Cross-Functional Involvement & Buy-In and Tactical Solutions to the Lack of Cross-Functional Involvement & Buy-In) on how IIAPS believes these issues can be resolved.
In this blog we explain our QV Methodology. This approach is used by IIAPS to improve staff competence when developing category strategies, and addresses some of the key causes of sub-optimality that we identified earlier, in particular:
- 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.
- 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.
- 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 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.
To overcome these obstacles it is necessary to improve processes and staff competencies. This is achieved by the use of a rigorous and robust analytic methodology for the development of sourcing strategies at the category level. This type of methodology must focus on how to improve Value Flow Management by improving leverage of value for money (not just cost down).
The QV Methodology focuses specifically on understanding where, and how, improvements can be made in sourcing technical and/or commercial value from suppliers. To achieve this, it is necessary to undertake Power Positioning. This means understanding the resources that provide value leverage opportunities for buyers relative to suppliers.
In our view, the objective situations that buyers and sellers always find themselves in are outlined below:
To be able to position suppliers in this Power Matrix there are 4 key questions that must be asked:
- What are the objective power resources currently available to us as a buyer, and to particular suppliers?
- Given this, what is the current and future potential power position we have to manage?
- In order to leverage improved value for money what are the full range of sourcing options available to us?
- Given this, which sourcing option (or options) should we use to achieve improved value for money?
The ability to answer these questions correctly for each potential supplier in each category (and sub-categories) of supply is essential if competence in value leverage is to be achieved.
The central problem that we have experienced is that most practitioners do not have the competence or tools to understand where they are currently located (or could be in the future) in the Power Matrix. This problem is most acute for Line Managers/Specifiers than it is for buyers in the procurement function.
As a result, most companies do not appear to possess a Category Strategy Challenge Methodology, or On-Line or Excel-based Knowledge Management System.
It is for this reason that the QV Methodology was created to:
- assist buyers in engaging strategically with the business to discuss value for money issues/options;
- understand their power resources and power positioning circumstances; and,
- analyze the full range of sourcing options available to them to deliver improved value for money
This approach is normally operated through a two-day facilitated workshop with cross-functional members of a category team, and focuses on a specific ‘real-time’ sourcing strategy.
The approach has the following format:
- Day1: Identification of VFM KPIs & Key Demand & Supply Characteristics Impinging on Power & Leverage
- Day 2: Identification of Current & Future Power Positions & Full Range of Sourcing Options Available, with Recommendations for Most Appropriate Strategies to Deliver Improved VFM
This methodology has 5 Key Benefits of engaging and educating Line Managers & Buyers to:
- VFM Issues and KPIs Development
- Key Demand & Supply Management Issues & Questions
- Key Power Resources & Power Positioning Issues & Questions
- The Full Range of Sourcing Options Available
- Creating Cross-Functional Buy-In to the Most Appropriate Strategies to Deliver Value for Money Improvement.
While this provides tremendous cross-functional buy-in to sourcing strategy development, alone it is not sufficient to be a best-in-class performer.
The key differentiator of leaders and laggards is the ability to codify all of the relevant information collected in such cross-functional workshops, so that it becomes a part of the overall knowledge management process within the company.
IIAPS has developed a methodology for category management (either on-line or in a Excel spreadsheet) that allows organisations to embed the QV Way of Thinking, while also allowing them to create their own bespoke knowledge management and shared learning capability (see here).
Few companies possess this capability today. We recommend the QV Way as part of a common-sense approach to category management and strategic sourcing.
- Cox, A., et al, Power Regimes, Earlsgate Press, Stratford-upon-Avon.
- Cox, A., et al, Supply Chains, Markets and Power, Routledge, London.
- Cox, A., et al, Business Relationships for Competitive Advantage, Palgrave Macmillan, Basingstoke.
- Cox, A., et al, Supply Chain Management: A Guide to Best Practice, Financial Times/Prentice Hall, London.
- Cox, A., ‘The power perspective in procurement and supply management’, Journal of Supply Chain Management, 2001, 27 (2).