I have noticed that many buyers are struggling with the idea of a category strategy. The concept is a bit blurred for them. Mostly they don’t know how to approach it. The category strategy should be the buyer’s plan to contribute to company’s strategy execution. How to support your company to create value through its strategic goals.
The category strategy creation is not a one man show. In order to bring a visible contribution to the company strategic goals the buyer will need a team to do it. This team should follow a process.
We have seen in previous posts how to create a cross functional team, and to lead it through the purchasing process. I’d like to emphasize how the buyer needs to position herself vs. the demand owner. I perceived sometimes how internal stakeholders are sometimes a bit reluctant to engage buyers in their projects because the threat of losing power and a lack of understanding of what buyers can bring in. I’m referring to the final decision making power.
This is what I mean by “position”. It should be clear from the outset that the buyer won’t be the decision maker. The demand owner should be the one making the final decision.
Having said that the buyer should be one of the main contributors. The buyer’s “positioning” from my perspective should have few facets. Facilitating the team project would be the obvious one. Initiating, organising, facilitating the debate and reporting it.
The collection of tangible supply market facts would be by far the most critical input the buyer will bring to the team. In the exercise of producing a category strategy, these key facts are obviously of a great importance.
Now that the team is well settled it will have to follow a robust process. It starts with the spend analysis.
This one is quite often limited to the understanding of the current contracts. I think that the key points of the spend analysis is to go beyond these usual borders. In a nutshell, how to highlight improvement areas in the current delivery? Let’s imagine a sort of check list of relevant questions the team should go through in order to underline improvement areas. These improvement areas will have to be addressed in the strategy.
The next step will be to pick the right analysis tool which will help the team to identify opportunities and eventually select the most appropriate scenario to generate value for the company.
There are a number of tools at our disposal to better understand the supply market:
Porter 5 forces, supply – demand balance, supplier’s cost structure, make or buy, risk management, total cost of ownership, financial analysis, SCP (Structure – Conduct – Performance), LPP (Linear Price Performance), Kraljic or how the supplier perceives your company as a customer.
The buyer and the team will have to pick the most appropriate tools which, they think, will yield the most tangible output.
Like for the “spend analysis”, I would propose to have a check list questions to go through. These questions list will help identifying the analysis tool that would provide a relevant output. The idea is to associate a set of questions with one specific tool. The buyer and the team will go through these questions. If a large majority of these questions have a positive response it would mean that it would be appropriate to use that tool. If there are more negative responses than positives ones, the team will have to consider not to run that analysis. This question list has to be considered as a support for the decision making, however it doesn’t rule out the fact that if the team sees a great potential in one of the above analysis tool, they should of course just do it.
When carrying out these analysis the buyer will dig out opportunities. Let me give an example. Porter’s five forces could highlight that new entrants are more competitive in the long run. A chosen scenario could be to nurture the most attractive new entrant and build a solid relationship with it. Attached to the scenario; the goals. For example this relationship could lead towards a certain market share under strong principles, like cost transparency, resource allocation and so on… Yet another scenario would be to stay with the same supplier range because these new entrants have a higher risk with their own suppliers for example.
The scenario selection will be closely linked with its potential contribution to company’s strategy execution. The team will have few options among potential scenarios. There will be conservative scenario, offensive or even audacious one.
The selected scenario buy-in by key stakeholders will be next phase. The communication towards these people will be crucial. The team’s ability to sell its ideas is a critical skill to master. The selling process will rely on the quality of the analysis done by the buyer and the coherence between the selected scenario and its contribution to company’s strategy execution.
Something that the internal stakeholders will consider when whether or not supporting the proposed scenario will be the clarity of the goal and the risk management.
My advice regarding goals setup is of course the follow the SMART principles. However I’d like to add that mastering your goals is critical in the process to reaching them. By mastering I mean that the output relies 100% on yourself. Let’s give an example. “I want to be world champion” or “I will practice 5 hours a day”. The first one “I want to be world champion” anyone can feel that many things can be out of your hands and therefore preventing you to be a world champion. The other one “I will practice 5 hours a day” depends only on your own willingness to make it happen.
When gauging internal stakeholders about purchasing contribution one of the most popular response is the risk management. Therefore it’s essential that the buyer and the cross functional team complete and share a comprehensive risk management analysis. The potential impact and likelihood of the risk identified will highlight the most fragile areas. Next task will be to link each risk to a mitigation action with the aim of reducing its likelihood and impact.
Now that you earned the buy-in of the selected strategic scenarios the next step is to execute them. The execution of the selected scenarios will need to respect three main rules. Who is in charge of the execution and who the key stakeholders are? What’s the action plan to make it happen? How to track down the progress through key maturity steps.
Maturity steps describe the status of the execution plan. From its inception to the final approval by the user. The very last step that will have to be performed by the cross functional team will be to double check that the defined goals have been realised and that the contribution to company’s strategy is met and highlighted. As said many times in different posts, the support of financial people is crucial. It will deliver credibility and trust that would be a great foundation for new projects to come. By foundation I mean resources allocation by the demand owner.
Conclusion;
Everything starts with a team. A pool of different competences coming from parties who will be impacted by the category strategy. To guarantee the team works efficiently the buyer will have to position her role as a mere contributor to the final decision making. Roles being well defined within the team, the project can move on and make use of a clear process to select the right analytic tools. The buyer at this stage will have to rely on a check-list. A check-list of questions to pinpoint the analysis that will bring the most tangible opportunities. The strategy work will be to choose the winning scenarios among the opportunities generated, which would contribute the most to the company’s own strategy execution. As any execution plan, mastering your goals and tracking their progress will be critical to make them happen. As a side effect the buyer will earn the trust of people involved and professionally concerned by the project.