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

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:

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.