Whether your organization is doing Strategic Sourcing OR Category Management the answer to my question is usually “YES BUT. . . . . . . not all the time, not thoroughly, not under a disciplined framework, we really don’t know what we are doing.” If you or your organization were to give any one of the aforementioned responses, you definitely ARE NOT doing Category Management and most likely NOT EVEN doing Strategic Sourcing. I am often asked, “if we know we have too many suppliers today, why should we bother looking for more?” Good question, but do you have the “right” suppliers under the current / projected market conditions? If you aren’t doing Supply Market Analysis how do you even know what’s currently happening in your supply markets?
In my opinion, this is THE part of the sourcing process that is most often overlooked. It is also one of THE most important steps and the one that solidifies our role(s) as an internal consultant, a category manager and a strategic business partner. Let’s start with the internal consultant role. A good consultant determines the problem they are trying to solve and some potential solutions to that problem (hypotheses) and then develops some key questions to prove or disprove their hypotheses. The key questions (which are critical) drive the data gathering required for your supply market analysis? Here are some typical key questions:
- What are the economics of the industry, i.e., what drives the market?
- Cost structure
- Supply and demand
- Growth rates
- Volatility (sensitivity to shifts in financial markets)
- How important is brand value in your category?
- What are the main quality issues?
- How global is the industry (present and future)?
- Threat of foreign competition
- Degree of political and currency risk
- What is the technological complexity of the goods/services?
- Proprietary nature
- Product life cycle
- Ease of duplication
- What are the recent trends / innovations in the Supply Market? How can you take advantage of those advancements to meet the demand of your business partners?
Now that you’ve got your key questions, use your skill as a category manager to get the answers. You can use several data sources to answer your questions such as industry analysts (e.g. Gartner, etc.), research firms, associations or general internet searches, just to name a few. But, who better to provide those answers than suppliers themselves? It seems simple enough but we have found that very few organizations engage suppliers (their incumbents and others in the supply market) in a meaningful way. If that sounds like you or your organization, you ARE NOT doing Category Management. Supplier engagement is CRITCAL to understanding what is actually happening in their world and is a key element of Category Management. The only explanation I have found for the hesitancy to engage suppliers is the guidance we were given years ago to keep suppliers at arms-length to create / maintain leverage. It is not only ridiculous but is getting in the way of us playing that Strategic Business Partner role. Suppliers are THE experts in your category and can be extremely helpful in completing your analysis.
We have many, many client examples where skipping this step has led to a supply strategy that is outdated or in some cases just simply does not make sense. You might be surprised at how willing Suppliers are to share what is happening in their industry and their business. Technology (and now policy changes) is rapidly disrupting most industries and we, as Sourcing / Category Management / Supply Chain professionals MUST stay on top of our Supply Markets. As Category Managers, this step cannot be Sourcing event driven but should be a continuous dialog and collaboration with our business partners and the Supply base.
Since this is such a hot topic, please join in the conversation . . . . . . . . . . . .
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If you are interested in getting the proceeding from our last PERT (Procurement Executive Round Table) meeting on this topic OR would like to talk about some of our client experiences (I always love a good one-on-one debate) please just send us a quick email @ email@example.com.