Category Management #CMM Protips below!
Can the Non-Addressable Spend have Potential Opportunity to Source?
Addressable Categories: Consulting, Advertising, IT Software, Facilities, Capital
Non-Addressable: Taxes, Utilities, Transfer Pricing, Salaries, Benefits
But are these really not-addressable? (And yes, by definition, it’s literally that.) But, why can’t you take a second look at their status? You can negotiate your utilities you owe as a single person, why can’t an entity? And are salaries and benefits really non-addressable when you consider back-fills and changes in the organization?
Pro Tip 1 – Challenge the status quo – for those who are part of organizations that have been sourced, sourced again, and then re-sourced… look outside your usual suspects. See how relationships, ideas, and other ‘outside the box’ ideas could change a categories’ status. Ask questions as moving the organization headquarters location be worth the change in TCO?
Pro Tip 2 – Look for other ‘big ideas’ that could impact these categories such as zero based budgeting, new AI technologies, etc.
Protip #1 – Not every organization will have the same category structure due to size and spend (and that’s okay!) Therefore, you should always assess the structure before moving into the sourcing phase (See the three arguable levels below).
Protip #2 – Since there is no hard and fast rule, you must take a look at everything that can help support your choices, such as:
- Internal Spend Levels / Budgets per Category
- Number of Stakeholders
- Overlap between Categories (ex: Meetings / Travel is typically outside S&M)
- External Supplier Capabilities (one or mlutiple categories at what levels)
- Previous strategies/successes and failures at each level
- External Benchmarks and Best Practices
- UNSPSC – Classificiation
Protip #3 – There is no right or wrong! So don’t get bogged down on aligning with external sources, companies or benchmarks. It may help with the implementation of sourcing technology (spend analysis, etc.) but it’s not useful if you are left with way too many or too little categories defined.
#CMM Protip 1 – These are all questions, you should as PRIOR to starting a new project
- Do you have ALL major stakeholders aware/involved?
- Are project goals and milestones clearly defined?
- Are all requirements clearly documented and agreed upon?
- Do you have the proper resources/support and are they committed to seeing the project succeed?
- Do you have a communications plan for the duration of the project?
- Are there any potential process improvements that might impact the project?
- Are there any risk involved? If so, is there a plan in place to address this?
- If budget is needed, has it already been approved by management/finance?
#CMM Protip 1 – You may not be able to achieve Category Management techniques, based on a couple of things:
- Lack of C-Suite Support
- Ability to have major shifts in company culture
- Cross-Functional Buy-In
#CMM Protip 2 – If you can’t get to the true “category management” aspects, then build your business cases with increasing levels of portfolio category management vs. single sourcing of categories. Proving out the business case with minor change management, proves out the idea for the more impactful change management strategies.
Part of category management is building key relationships with strategic partners. What does that mean? Well it means you don’t beat your suppliers over the head with a reduction in rates, payment terms and KPI’s. It also means, that if you want to have a true partnership with a supplier to have innovation, you must treat them like one. This means having them come to the table not to gain more business or decrease pricing, but to become more effecient and effective. It allows then for the opportunity for a collaborative work environment that will foster innovation. Which is at the top of your AQSCI pyramid (the foundational business requirements).
#CMM Protip 1 – If you want to foster a strategic relationship, treat the suppliers as friends, not enemies. Find out what process changes you both can make to ensure profitability and success.
#CMM Protip 2 – Not every supplier will constitute a strategic relationship. Make sure you go through the SRM tiering process to ensure you are focusing on the right ones!
If you are struggling to come up with KPI’s for the Advertising Industry, then look no further. These are the basics to help support your business and set you up for success.
CMM Protip 1 – The KPI metrics vary based on factors such as target audience, strategic or tactical plan, specific insight or goal of the marketer etc. The KPI’s are basically formulated on the basis of marketer’s business vision, in order to help them attain better ROI.
CMM Protip 2 – Include your busines partner in KPI discussions. You’ll want to ensure their buy-In even if they don’t want to be part of the adherence process.
CMM Protip 3 – You can always ask suppliers for best practices in KPI’s and SLA’s they have with other companies.
People. Process. Technology.
The technology roadmap is meant to help leaders makea long-term digital investment strategies that not only aligns with procurement, but also company goals. So it’s useful to take a look at your current systems, and see where they fall within the chart. And because Category Management is about looking at the bigger picture, we must look at how our technologies align with the larger Procure to Pay Organization.
#CMM Protip 1 – Start with an issue or recently identified pain-point in the current process. (Becareful not to boil the ocean!)
#CMM Protip 2 – Don’t keep old systems, just because it’s easier to do so (than having to learn something new). The risk and pain are definitely worth the reward, so ensure you have something that not only will support you now, but also in the future vision of your group.
Want to know more about digitizing the entire source to pay process? Then check out this McKinsey Article for additional insight.
Regional Vs. Global Sourcing
Global sourcing can either be a relatively easy task or one that seems like it’s insurmountable. It’s all dependent upon your category of spend. You may be wondering – why does that matter? Well, I think it’s fair to say finding a global provider for pens, paper, or any other essential commodity should be reasonably easy to find. But when you think of more complex areas, professional services, lab services, advertising – the solution may not be so simple.
Not to say, complexity is the only factor in providing actual global category management. But, business partners are always a crucial part of the conversation. And if you not only have global and regional business partners who manage these areas differently, you could be in for an uphill challenge.
#CMM Protip 1 – If your company is new to strategic sourcing, don’t push for a global strategy. Most likely, the business partners won’t be willing or open to the massive change.
#CMM Protip 2 – Sometimes it’s okay to accept a Regional Strategy vs. Global, even in a mature organization. There are regional requirements, and they may contradict a larger global strategy. Don’t try to put a square peg in a round hole.
#CMM Protip 3 – When assessing best practices for your category, find out industry best practices for your type of leveraging during discussions. Data is critical when you want to persuade some of your tougher business partners, especially if you can make them feel like the company is lagging far behind their peers.
What is BATNA? It’s your Best Alternative To a Negotiated Agreement.
What are examples of BATNA’s during a strategic negotiation?
- Secondary Suppliers
- Bringing a Service In-House (Make vs. Buy)
- Demand Management
CMM ProTip # 1 – Have an agreed upon alternative prior to negotiations – the easiest is using a runner-up in a RFP (this is why not telling a supplier they have won is so important… besides losing all leverage!)
CMM ProTip #2 – If you end up thinking your BATNA is better than the negotiated deal, re-evaluate the deal with your business partners
#CMM Protip 1 – When moving from large to small business, reset your expectations. People will go from beating down your door for a contract to declining RFPs.
#CMM Protip 2 – When you are the big fish in the small pond, just remember a global pandemic could take away all your power. Be sure to be fair with your business partners and suppliers.
Here are my favorite Category Management / Procurement Websites:
We all know category intelligence or benchmarking is key to helping us define our category strategy. Understanding porter’s five forces, your place in the industry, etc.
That said, it’s typically a very long and large document that gives you a snap-shot of industry information at a point in time. So what can you do to track the macro changes that happen on a daily, weekly, or even monthly basis?
#CMM ProTip 1 – Sign up for newsletters for your category of spend. Even if you don’t have time to read them all, at least you can get a high-level look at what’s going on.
For example, I own the Commercial (Sales & Marketing) Categories, so I’m subscribed to lots of agency/advertising/media sites such as Adage, Martech Today, ANA blog, Marketing news, AMA (marketing association), etc. to glance at major changes in the system.
#CMM Protip 2 – When you have downtime or need a break in the day, this is the perfect way to keep your skills up to date! Just don’t let it distract you too much from your day job.
Marketing, Advertising, and Media Category Management Structure
When I first started working in finance, I had the hardest time getting a grip on the differences between what was advertising spend vs. media vs. marketing. And I know I wasn’t alone! So having a visual that lays out the differences is extremely helpful. That’s why I created this category structure above.
#CMM Protip 1 – Most terms will overlap providing further confusion. In general “advertising” is creative and strategic production, and “media” is the actual purchasing of tv ads, print ads, web banner ads, etc. Marketing is the overarching act to promote products (who eventually buy the product).
#CMM Protip 2 – It’s very much industry and company-specific, but on average a company will average ~65-70% in Media spend and 30-35% in advertising.
Although, a great example that this doesn’t fit is in my current role where the media spend is extremely small in comparison to advertising (which is the majority of costs). This makes sense due to the fact that many of our products don’t have any competitors (so there is no need to spend money on tv commercials, etc.)
What is Value Creation? Its a lot of things, to a lot of people. But here’s what it means to me:
- Total Cost of Ownership
#CMM Protip 1 – A reduction in the total cost of ownership, is value creation.
#CMM Protip 2 – Category Management and Strategic sourcing is more than a reduction in costs. It’s the assurance of quality (no matter the cost), compliance, and the innovation from joint collaboration with suppliers. Sometimes it’s the intangible that matters most.
#CMM Protip 3 – Don’t let your partners think your focus is only on cost, make sure to bring up quality, risk and innovation in ALL your conversations! There is more to life than savings!
It’s that time of year, mid-year reviews (if you have them). So what are some of the best practices to make sure you are on track?
#CMM Protip 1 – It’s always a good idea to take a look back at old materials to see what you should be focusing on. Since I have my mid-year review and IDP session coming up, I find it useful to look at these documents.
#CMM Protip 2 – Despite these skills being focused on category management and strategic sourcing, I still find them useful to be a well-rounded employee. Here are the top competency skills you should work on if you are looking to excel in our field:
- Leadership and influence skills
- Project management skills
- Communication and collaboration skills (‘team player’)
- Content expert in Category (learn as much as you can!)
- Ability to think strategically
- Strong analytical (data analysis) and problem-solving (critical thinking) skills
- Ability to think on your feet
#CMM Protip 1 – If these are roadblocks or hurdles, you should focus on fixing them first! You don’t want to waste time on a strategy that you can’t execute on.
Top Causes of Poor Category Management
- Lack of buy-in (especially cross-functional)
- Lack of executive support
- No mandates or SOPs
- Lack of SRM processes in contracts (KPIs and SLAs)
- Lack of early involvement in the purchasing process
- Insufficient time and resources (including data analysis tools)
- Large amounts of maverick spend
- No benchmark or market research information
- Extremely long tail-spend, constant add of new suppliers
Elevator Pitch Definition – A personal elevator pitch is a quick summary of yourself, and a business elevator pitch can be about what you can achieve within the business with support.
Typically, we think of elevator pitches as something you would give if you saw an Executive in an elevator and you wanted to sell them something (an idea, project, etc) by the time they got off on the next floor.
#CMM Protip 1 – Once you finish your category plan or strategy, create your pitch. And practice it every day (you shouldn’t be nervous, practice it until you can say it in your sleep)! Especially if you need an executive or cross-functional support.
#CMM Protip 2 – If you don’t know how to build an elevator pitch, there are tons of resources (blogs, videos, etc.) that give you specific guidance on the type of pitch you are looking to craft.
I know what you’re thinking, what the heck does this have to do with Category Management? Well, if you’re new to the position and don’t have a finance background, there could actually be a lot!
The thing is, you don’t want to incorrectly state your operating expenses. It can literally change the bottom line if your business is profitable or not, and by how much. It also can change the amount of taxes your business pays. Neither of which you want to get wrong!
#CMM Protip 1 –
CAPEX: Land, building, equipment, (computers, desks, monitors, software, etc are assets.) over a certain threshold (ex: 2,500 or 5k).
Ex: If you pay 5k for a computer (asset), you will can “amortize” the costs. Basically spreading the costs over a longer period, even though you may have paid upfront. This helps increase profit.
OPEX: Day to day costs or expenses of doing business. It’s a one-time expense. So think office supplies, consulting project fees, etc.
#CMM Protip2 –
Even though I personally worked in FP&A and had to go through this accounting drill with my business partners, the rules can change from company to company. So when in doubt, just ask someone in accounting or finance (I would always do this to double-check). They’ll be more than happy to help you figure it out!