SIG University Certified Sourcing Professional (CSP) program graduate Devendra Pathak shares how the focus on Category Management can help your organization grow with his very own with a step by step model.
Category management is one of the areas in which I should focus on my organization.
After the category management session, I understood the importance of category management. A category plan has two main aspects, category analysis, and category planning. However, before starting to work on any category plan, I would like to understand the category maturity. It will give me a real picture of the category and areas where we should be more focused. Once I study the category maturity in terms of spending and contracts, I will then work on the category plan.
Category analysis where I will study the following,
- Global industry trends,
- Spend analysis
- Demand & supply dynamics
- Porter’s five forces
Global Industry Trend- This is all about the latest trend in the category across all regions. What is the new commodity which has the highest demand globally and where we have less demand due to technological change or updates?
Spend Analysis- I can say that spend analysis is the heart of category management. It has a major role in developing a sourcing strategy. I will analyze category spending to understand the top 10 sub-categories then the top 10 suppliers and top 10 commodities where we have the highest spending in the category.
Demand & Supply Dynamics- What is the industry trend? I will study the increasing spending trend for all regions to know where we have the highest demand and how suppliers are catering to this demand. Is there any shift in demand from one commodity to another commodity? For example, in the Marketing category spend where I have observed a shift from traditional media to non-traditional media. The percentage of ad spend in digital media has already crossed 50% of the total spend. I will then study how the supply side is preparing itself to fulfill the demand.
Porter's five forces- I will study the category for all five forces. One example is given below.
Buyer Power- I must check what are my leverages? Whether spending is increasing? Is consolidation possible?
The next part is category planning. It involves the following.
- Sourcing strategy
- Engagement Models
- Price Drivers
- Pricing Models
- Contract Models
- Supplier Analysis
Sourcing Strategy - Which sourcing strategy can be used? Global or Local/regional or Hybrid. Information can be leveraged from category analysis to determine the sourcing strategy. Global sourcing is the most predominantly followed sourcing strategy when there is high spending in the category. When I have low volumes and distance is a major contributor to pricing then I shall use a local or regional supplier. A hybrid strategy is useful when there is high spending, however sometimes you may need quick support, in such case you should use a hybrid strategy
Engagement Model – This is where It has to be decided how I should engage with suppliers. Whether I should consolidate all requirements with network agencies and engage only them or a roster of agencies or take a hybrid approach.
Price Drivers - Various contributing factors can be studied such as complexity of the work, competitor pricing, profit margins, and experience of the strategist.
Pricing Models - Various pricing models can be used such as commission-based, fixed fees, hybrid, and payment by results. The commission-based pricing model is used when you don’t know about actual volume, hence certain mark-ups are agreed upon with the supplier. Fixed fees are a fixed compensation irrespective of output or performance. Value-based model compensates suppliers based on pre-determined KPIs. Hybrid is the most widely used model. It gives some fixed compensation to the supplier and a commission when the supplier meets KPIs.
Contract Models - Depending on the sourcing strategy, I can finalize the contracting model. It can be short-term or medium-term or long-term contracts with suppliers.
Supplier Analysis – Here I will cover the supplier company profile for top suppliers of the category. I will be mainly interested in supplier performance over the last few years, supplier client base, supplier revenue for the last 3 years, and any merger & acquisition.
Once the category plan is prepared, I will work on the category playbook which would be more specific about execution.
The following points are to be covered in the category playbook.
- Category Definition; high level
- Category Strategy Summary
- Category- Specific guidelines for sourcing, contracting
- Preferred suppliers, Supplier Capabilities, etc.
The Certified Sourcing Professional (CSP) Program is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.
Education and Qualifications: -
- Master of Business Administration (MBA) Operations and Material Management, Rajgad Collage, Pune, India
- Master of Science (Msc) Chemistry, Garware Collage, Pune, India
- Batchelor of Science (Bsc) Chemistry, Garware Collage, Pune, India
Nine years of experience in procurement; presently working as Senior Procurement Analyst at CDK Global LLC. I am part of S2C team. I am responsible for initiating sourcing projects, contract negotiations both legal and commercial, capture savings.