3 ways to succeed in category management
HOUSTON — Category management isn't a one-size-fits-all approach, Professor Janet Hartley replied when asked about best practices for deciding which types and how much of overall spend should be enveloped into a category management strategy.
It all depends on the size of the buyer, the types of spend, the relationship with suppliers and myriad other factors, the professor in the College of Business at Bowling Green State University told attendees at the Institute for Supply Management (ISM) conference in Houston Tuesday.
The topic of category management came up frequently during sessions throughout the conference, as procurement teams strive to use the approach to deliver more strategic value to their organizations. Three focus areas of success in delivering business value emerged.
Understand the market
Automate where possible
Involve the right people
"Companies tend to look internally and base spend on what they're doing, instead of externally and what's happening in the market," Hartley said.
Siloed functions may be able to get away with basing most of their work on internal company proceedings, but when purchasing becomes centralized — as frequently happens when companies adopt category management, according to Hartley — understanding external factors is critical.
Matt Devlin, director of sourcing for P.F. Chang's, outlined several key elements procurement professional should include when conducting a market analysis.
At the econ 101 level, a market analysis for category management should incorporate industry supply and demand. "If you're new to category management, this is good place to start," Devlin said.
For P.F. Chang's, agricultural products play a major role in the restaurant chain's procurement. Weather can quickly alter supply. Recent and ongoing flooding in Nebraska have created widespread shortages of key crops such as corn — and the supply may not be replenished for months as farms recover from the damage. "The ultimate wildcard is mother nature," Devlin said.
Trade policy and consumer preferences are other key parts of market analysis, Devlin said. Tariffs on U.S. imports from China — and possibly the EU in the near future — have forced companies to rethink sourcing and analyze the categories of goods they buy. Devlin pointed to Burger King's recent debut of the Impossible Burger, a plant-based patty, as an example of companies adjusting to market shifts in the form of consumer trends.
More specifically, Devlin said, category managers must understand the suppliers' market as standing among competitors can be a bargaining chip in contract negotiations. Supplier technology investments and R&D can signal clues as to what's on the horizon in product and service development. For some light reading, Devlin joked, buyers can glean significant insight from a supplier's 10-K filings with the Securities and Exchange Commission (SEC).
The market changes rapidly and sometimes with little notice. A sudden weather event or Trump tweet can set the market off course, putting procurement professionals and category managers in a position where they need to react swiftly.
Technologies such as predictive analytics or robotic process automation (RPA) could help to automate parts of category management.
Devlin gave the example of food cost management technology that can analyze a restaurant menu, categorize spend and calculate cost with minimal human intervention.
Hugo Evans, vice president in digital at A.T. Kearney, went so far as to suggest category managers may not be needed in the future and the entire process could be automated — although he acknowledged his idea was provocative.
Devlin advised attendees to think of automation in the profession as less about headcount and more about enabling category managers to focus on value-added and strategic work.
Companies Hartley has studied and interviewed tend to have retention problems with category managers. She said businesses often bring an employee on board only to have that person leave after two years for another company. The issue, according to Hartley, is a lack of clear growth in the category management field.
"It's a really interesting mix of skills," she said of a category manager. "You need someone who's analytical, as well as someone who is creative and entrepreneurial."
Succeeding in category management also requires support from peers across supply management categories, who must be willing to break away from silos and manage spend in a centralized fashion, Hartley said.
Lisa Martin and Jami Bliss, executives at British healthcare company GSK, said the firm held employee trainings when it implemented a category management program. Initially the results were favorable, but employees eventually retreated into old habits because of a lack of reinforcement on the training. That initiated the need for reinforcement training.
External stakeholders can also be just as critical to making or breaking a category management transition. Hartley recommended focusing on "small wins" to resolve pain points for business partners and build relationships.
These three strategies can set organizations up to transition to category management in a way that delivers business value.
The question, posed by one attendee, is how does a company measure success? What are the KPIs?
"That's the million dollar question," Hartley said. She said even companies in the advanced stages of category management implementation have struggled to determine the metrics for success.
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