Do You Know the Difference Between Strategic Sourcing and Category Management?

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Is there any?  This past Tuesday, we had our third meeting of the reenergized Procurement Executives Round Table – PERT (formerly known as Next Practices Xchange) where we discussed “Making the Transition from Strategic Sourcing to Category Management”.  Prior to this meeting we conducted a benchmarking study which made it quite clear that if I asked 50 people to define Category Management, I would most likely get 50 different answers.   We spent the entire day exploring this subject with senior Procurement executives and the discussion was fascinating.  PERT attendees come from a variety of industries – here are the companies represented at the recent PERT meetings:

  • Ace Hardware
  • Ameco
  • Amega Holdings
  • American Family Insurance
  • CNA
  • CF Industries
  • Colliers International
  • Corporate United
  • Coeur Mining
  • Hub International
  • Elgin Industries
  • Finish Line
  • Follett
  • Francisco Partners
  • Knowles Corporation
  • Mastercard
  • PLS
  • Sears Holdings
  • Sidley Austin
  • Tate and Lyle
  • The Mpower Group
  • Walgreens
  • Wesco
  • World Vision International

Our discussion ranged from – “Strategic Sourcing and Category Management are different terms for the same process” to “There is a dramatic difference between the two and the issues and challenges grow exponentially with those differences”.  After our day-long discussion, there was consensus that the differences are dramatic.  Here are the attributes we considered when thinking about the two disciplines:

Category Management

Our benchmarking study asked the respondents to indicate the level of difference between Strategic Sourcing and Category Management for each attribute.  Here is a sample of the output:

 

This output is representative of the responses for each attribute.  What you can conclude is that the majority of respondents saw moderate to significant differences between the two processes but others were not yet convinced. We debated each one, provided real-life experiences within our companies and talked about our own journey toward Category Management.  We concluded that Category Management is the next level of maturity beyond Strategic Sourcing (NOT mutually exclusive from) and MOST companies (even beyond our member organizations) are just not there yet!  The definition of Category Management, the benchmarking survey, the attributes associated with the process and the challenges were derived from TMG’s Sourcing Maturity Model.

We (TMG) developed this model in 2001 and have updated it several times over the years.  Our attendees got a glimpse of the details behind this model and there was a lively discussion about the journey toward Value Creating – Category Management.

 In addition, we discussed the issues and challenges associated with making the transition from Strategic Sourcing to Category Management.  Here are the challenges we discussed:

  • Role
  • Governance
  • Process
  • Planning
  • Business Unit Alignment
  • Supplier Relationship Management
  • Vision & Strategy
  • Behavioral Change
  • Decision Making
  • Program Management

Our benchmarking study also asked respondents to what degree they expect their challenges to increase as they make the transition from Strategic Sourcing to Category Management. Here is a sample of the output:

For a number of theses challenges, we discussed the Next Practice desired end state under Category Management and how to get there. Here is an example of the desired end state for one of the challenges:

Role – Next Practices End State

  • Procurement is embraced as a strategic partner
  • MUST be a consultative collaborator
  • Leader of cross – functional initiatives
  • Proactively engaged in direct customer interaction and Business Development
  • Responsible for overall integrated Risk Management, not just supply risk
  • Challenged to identify and tackle non procurement challenges
  • Accountable for innovation and new products/new markets

Unfortunately, the “How to get There” discussion is only available to the PERT attendees 🙂 !  While we did not solve world hunger in our one-day workshop, we certainly moved the needle in our thinking around Category Management.  Our attendees walked out with a better understanding of the differences between Strategic Sourcing and Category Management, the attributes that drive the two disciplines, the challenges ahead when making the journey and some potential solutions for how to “ease the pain”.  In addition, the networking was invaluable in that they had an opportunity to meet and work with their peers in a “NO SALES” environment.  For those of you that did not attend, I would encourage you to stay tuned and NOT miss the opportunity to be an integral part of this group.  It is the only one of its kind!  If you would still like to participate in this benchmarking study and receive the full report please use the following link:

   Survey link 

The purpose of PERT is to “Build a Community of Practice” with Procurement Executives.   This was our third meeting and the response to our topics (chosen by the members) has been overwhelming.   If your CPO is interested in joining PERT, please let us know.

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Anne Kohler
Anne has been leading consulting and financial management organizations for over 25 years. She has extensive expertise in Strategic Sourcing, change management, contracting & contract management (both the buy side and sell side) organizational design and supply chain management. Anne has a passion for collaborating and educating her clients while helping them to uncover hidden value in their organizations. In addition, Anne has been named by Supply & Demand Chain Executive as a “Top 100 Provider Pro to Know” every year since 2007 and a 2013 Top Female Supply Chain executive.
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20 Comments

  1. Great piece, Anne! My Purchasing Center posted an article written by Pierre Mitchell when he was with The Hackett Group that looked at the differences between the two. It is one of our most-read articles. While it appears there is confusion in the marketplace, it seems procurement and supply management professionals are trying to get a handle on it. Your work does a good job at spelling it out for them. Thank you!

  2. Thanks Susan! I have read the article you are referring to and was VERY well done. We have numerous clients that are really struggling with the definition. We are often asked to help a client move directly from tactical buying to category management with the hope of skipping the other maturity levels in between. I like to compare it to moving a 6 year old from simple math to calculus – it simply can’t be done. In order to move category management you must have a strong foundation in strategic sourcing and have built up the internal credibility to be allowed to play that more strategic role. I firmly believe that this is the best career out there and can have a major impact on our organizations :)!

  3. Great article. I had always been of the opinion that the two things are different and this provides further clarity. Strategic sourcing plays a role within category management. I particularly like how you’ve phrased strategic sourcing as event-specific whereas category management is contextual and more wholesome. I shall definitely be coming back to this blog!

  4. Great report! This is what I had experienced in Sourcing. the categories comparing Strategic Sourcing are not accurate with what I know.
    Strategic Sourcing reviews commodities is a larger scale, short & long term, is not passive, is very active, and the segmentation analisys, helps with value added options, risk mitigation along with Supplier Performance Management are a core for Strategic sourcing. thank you for sharing great research!

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  6. Good article Anne!
    The definitions and understandings might also differ in the global regions and also the English or US language origin and “western/eastern” might be involved here for a common understanding.
    Also a proposal in this and as matter of importance in this profession is to involve the direct/indirect sourcing viewing angle because the risks (impact&likelihood) on sales are from a different level.
    In our new tech world, “innovative sourcing and -parterships” is an important criteria where partnership is getting more dominant.
    Greetings

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