Tag Archives: Sourcing

Category Management (CM) VS category management (cm)!!

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I was recently invited to speak to the Board of FSMA on an issue that has them totally perplexed.  FSMA is an organization of large food manufacturers and their agents which has been experiencing the following: longer sales cycles, lower margins, demand for additional services, challenges to prove their value add, etc., etc.  And lo and behold – they thought they had found what was causing them all this angst – it was this new thing called Category Management (CM).  For those of you not familiar with the retail sector, this is an integrated process to manage the entire lifecycle of a category of consumer goods.  What it is not, is the category management (cm) process that people in sourcing and supply chain use.  And this is where the confusion and tension arises.

The goals and objectives of CM are strategic in nature and try to maximize the value generated throughout the entire lifecycle of the category - a mini P&L if you will.  Think of Product line organizations or business units with their P&L.  The sourcing process or cm is a subset of the CM process.  The needs of a particular category are developed in the CM process but are then funneled through the cm (sourcing) process to the suppliers.  Let’s take a moment and think about that.  The goal of the CM process is to maximize the profit from a category – the goal of the sourcing process is to find the lowest price supplier.  The head of CM is measured on overall profit – the head of cm is measured on price savings. 

Now imagine the suppliers caught in this vortex.  They are constantly bombarded with the needs of CM where the head of CM is looking for tighter integration of their supply chain, supplier investments in Big Data projects so that they can do a better job of matching demand and supply, tracking effectivity of promotions, understanding consumer behavior better, etc., etc.  Yet their interface to the buying organization is ultimately the sourcing process (cm).  And the sourcing process is all geared towards reducing prices, managing TCO, lowering inventory levels, etc.  While one can argue that the goals of the sourcing process enhance the profitability of the category by reducing price – they do so at the cost of sub-optimizing the overall profitability of the category.  The poor supplier is being set up for failure.  Supplier decisions and behaviors are therefore influenced far more by the sourcing process than they are by the CM process.  No CM director has ever been fired for paying  higher prices to suppliers while a sourcing manager may well lose their job for the same higher prices.  Thus you have these somewhat competing processes with somewhat mis-aligned goals trying to influence the decisions and behaviors of the suppliers  - no wonder they were all tearing their hair out at the FSMA BOD meeting. 

Here is a description of the CM process from one of their major customers: “We are contributing to new product development, exclusive brands redesign and promotional activities, and helping extend XYZ’s leadership in innovation,” said Jody W., senior vice president, Category Management— Bakery, Beverage and Disposables.  That sounds phenomenal and I would love to be a supplier jointly working with my customer and helping them in all of those goals.  The customer goes on to say: “The Category Management team has also launched Strategic Vendor Management, a process for simplifying vendor relationships and streamlining the number of suppliers in each product category…….discussions with respect to assortment, pricing and promotion will be led by the team where we can leverage the buying power of a multibillion-dollar company versus 65 divisions buying individually.”  Sound familiar?????

This dichotomy and tension between CM and cm needs to be acknowledged and recognized so that it can be resolved and aligned.  If so, then all parties involved will benefit tremendously because everyone’s decisions and behaviors will be driven by the goals of CM.  If not, then the poor suppliers will continue to spin in this vortex.  There are many strategies and tactics that the suppliers have available to utilize that mis -alignment for their competitive advantage and actually gain market share and I shared a few of them with the audience.  Ultimately, the goal of the suppliers is to get rid of that mis-alignment to force overall goal congruency.  Till that happens, the title of this blog will stay accurate.  When that happens, the title will become – Category Management!

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Who is the First Person You Should Hire?

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If I had a dollar for every time I’ve been asked that question-well you know how that story goes?  At every single conference across the globe I’ve spoken at, that question has been asked in some way, shape or form.  Almost every single client has asked that question or some variation thereof.  And the ones that did not should have asked that question.  You can think about it in terms of what is a critical role that you must fill in your Sourcing/Supply Chain organization or any other internal “support” function (IT, Finance, legal) or shared service to confirm my contemporary bona fides.

Before I give you the answer, we need to make sure that we are asking the right questions.  And for those of you that have been through TMG’s decision making module, that refrain will sound very familiar.  Remember the New England Journal of Medicine exercise where physicians were asked to evaluate patients for toncillectomies and they were wrong 49% of the time ?  Otherwise, we can turn to what a couple of my friends said.  Pete says “The most common source of mistakes in management decisions is the emphasis on finding the right answer rather than the right question.” My friend Al goes on to say basically the same thing: “The formulation of a problem is far more essential than its solution, which may be merely a matter of mathematical or experimental skill.”

Typically, would you agree that in most cases (not including yours of course):

  • Organizations struggle with convincing their stakeholders of the value they create?
  • They face strong resistance in expanding their influence or footprint?
  • Budget wars are an annual and the quarterly norm?
  • Savings numbers are always questioned for validity?

If any of the above is true, then the answer to the title becomes self-evident.  A Marketing person!  I kid you not.  In the first Sourcing organization I set up in my career 16 years ago we had a full time marketing person (Peter).  His job was to constantly market our services and we took a marketing approach to it.  This wasn’t about creating some spreadsheets or graphs of generated savings.  He had to make sure that we continued to expand our footprint inside the company.  To sell our value to the stakeholders.  To keep in constant communication with them.  To make sure we were getting repeat business.  To ensure that we were getting referral to other stakeholders.

Now I’m sure that you are doing all of the above but I’m talking about most of the other organizations.  We have not seen  a true marketing focus being applied to this effort and I’m always surprised by that.  Especially given the tools available today.  It does not necessarily mean that you need to have a full time dedicated resource but you do need to fulfill that role.  So next time you are sitting in a budget meeting being asked one more time to take another haircut, you may want to think about your marketing effort.  Oh, Pete is Peter Drucker and Al is Albert Einstein.  Let me know if you would like more details.

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Market Perspective: What is Keeping You Up At Night?

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I was recently asked to speak at another regional ISM event (click here to download the presentation Market Perspective: What Keeps Chief Supply Chain Officers Up at Night?) and having done a significant number of these over the years, I put together a presentation that I thought would work.  Until I realized that this was a rather unique audience and had to switch gears a week before the event.

This was a gathering of various Presidents of the ISM and NAPM regional chapters and they were gathered together in that capacity.  They were trying to figure out how to become more relevant for their regional markets and their customer was the entire Procurement, Sourcing and Supply Chain community of that region.  I decided to give them a perspective of their market based on a lot of the research that we have done and provided them with the proverbial Top Ten list (in no particular order).

I have included the list below and now it is your chance to test and challenge what I provided them and help us rank the list. Please mark your top three organizational challenges. Or if you think an item should not be included, then go ahead and add your inputs in our comments section.

Please pick the three items you lose the most sleep over.

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The Games People Play

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Sourcing/Procurement and sales professionals both want a solution that will fit the end user’s  needs.  Sourcing/Procurement needs to satisfy its internal customers that it is doing the job right and sales wants to get repeat business – which they will only get if their customer’s customer is happy with the buying experience and its results. However, both sides engage in behavior that is dysfunctional and doesn’t achieve what either party is attempting to do. 

Suppliers complain that customers:

  • Can’t articulate what they need
  • Procrastinate (or seem to)
  • Don’t know what they need
  • Don’t give all of the right information 
  • Are unrealistic about the dollars, time and manpower needed to acquire a particular product or service.

 

When we talk to procurement folks we hear that sales people:

  • Think they know what the customer needs better than they do
  • Make assumptions that don’t reflect reality
  • Don’t listen and understand
  • Try to fit their solution into what they “think” the needs are. 

 

As a result, if you asked most customers, particularly higher level managers (Directors, VP and the “C” level) what their primary issue is with sales people today, most would argue that it is that they are tired of playing the game of Battleship — “C3!  Did I hit anything??”  And, if you asked most sales and marketing leaders what their primary issue is with sourcing / procurement professionals, most would say they are tired of playing the game of 20 Questions — “Do you know what I know??”

The situation where a sales person shows up for a sales call, knowing little or nothing about the account, the responsibilities of the individual they are calling on, or how to marry up their products and solutions with the client’s needs has become painful for both the seller and the buyer.  Most basic sales courses teach the sales person to come into the buyer’s office and “find their pain”. This usually manifests itself by their looking into the buyer’s eyes with a very earnest expression and asking some variant of, “So, what is your business pain?” or, “What keeps you up at night?” or, “Pick from this list of twenty problems and I’ll sell you my solution” (whether it fits or not).

My personal response, when I was in a “C” level position, (and I have received a lot of chuckles of agreement from colleagues of mine that have been in similar positions), was,  “Well right now, YOU’RE MY PAIN, because you’re the ninety-fifth sales person to come in here and ask me that question. It’s not my job to sit here and answer your questions – it’s your job to find out about my business, understand what my business needs are, and then match my needs up with what you sell to present me with ideas and solutions that can address my needs – I don’t have time to play this game with you”. The sales game of “Battleships” has become old and painful for all of us.   So how do we stop playing this game?

Many sales people will represent that, “Oh, I don’t do that, I research the companies I call on and know everything about them”. Unfortunately, when I have questioned those individuals about companies that they are working on, they have lots of isolated facts about the company (name of the CEO, gross revenues, EBITDA, etc.) but can’t use those facts for anything in particular. This is because they have data – not information. In order to have a meaningful conversation with someone in the enterprise that cares and knows about the business, it’s critical that sales people have some way to take all the facts and put them into a framework that can guide their conversations with enterprise managers and show that they can partner and add value to those conversations from the minute they walk in the door. 

On the other side of the desk, it has been interesting to me how many sourcing, procurement and other professionals cannot articulate this same information for their own company.  Far too many companies rely on their suppliers to come up with the best way to meet their needs.  (After all, they’re the experts in their industry!)  And, while everyone recognizes that needs and requirements are rapidly evolving in virtually every industry, sourcing and procurement people are all to willing to accept outdated specifications, poorly articulated requirements, and a whole host of other poorly defined needs as the basis for their RFQs, RFPs, and virtually every other communication with suppliers.

When the sales people don’t come in with the information, and the people they are talking to don’t know it, it’s no wonder that we have disconnects between sourcing and supply. The dysfunction is on all sides. Businesses need to make sure that the supply chain and sourcing groups understand the business and its needs and can articulate it when they go to market. The sales people and the sourcing / procurement people need to do their homework so that they are up-to-speed as much as possible before they get together. This saves everyone time and makes it more likely that the business will get what it needs from their suppliers.

At a high level, one of the ways to implement this as a solution is for both sides to map out the basics mentioned above. We’ve seen that many managers can do this with some initial assistance.  If sourcing / procurement professionals can visualize what the company is trying to achieve (Competitive Strategy, Business Initiatives), how it intends to achieve it (Operating Initiatives), and can then put it paper, they can more readily inform both themselves and their suppliers as to what the company needs.  Doing so avoids the Twenty Questions approach to securing the goods and services an organization needs.( It also insures that projects and programs within their division or departments are aligned with the corporation’s direction and as a result will be funded and ultimately successful.)

Similarly, if sales people can take the initiative to convert the data they have into information and make some educated guesses about where their customers are headed, they can skip playing Battleship and present some options that are on target from the outset.  (At first glance, many sales people (and sales managers) see this as a daunting task –  but, as it turns out, with templates and some guidance, most salespeople can put this kind of information together into a meaningful business map using publically available information.)

If both sides take the time to create this roadmap, understand it, and communicate relationships will rapidly improve, results will be improved for both sides of the relationship, and the value captured in the relationship will be unleashed.  Not a bad outcome!

If I’ve raised any questions or inspired any thoughts, please share them.  I’d be interested in your take on this topic.

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