Comprehensive Category Strategies are Critical to Procurement Success

I often think back to my days leading procurement organizations and wonder why it was so difficult to get the teams to focus on the deeper discussions about building long term category strategies.  Our procurement staff was over worked and stretched thin simply running RFP after RFP, to meet the immediate needs of their clients.  But that old saying “When you don’t have time to plan, you need to take the time to plan” still makes a lot of sense.  I remember how busy we were sourcing medical education events at a pharma company where I worked.  We literally worked on thousands of these field meetings and could never seem to get out from under all the work.  Our procurement lead stepped back and worked with her internal clients to build a strategy that consolidated the supply base, and built a pricing model and allowed her to only work on those events that fell outside of the guidelines in the model. As a result, the workload dropped by more than 90% and the huge savings that were captured put her in great favor with her primary client and allowed the team to work on many other sourcing projects.

Nothing we do as procurement professionals is as important as developing the right approach to a category with the input and help of our internal stakeholders. It puts us all on the same track for building lasting value for the organization and ensures that procurement and the business are properly aligned before taking action.  Yet it is still something that many if not most procurement organizations struggle to do.  While this is a time intensive process, the value generated vastly offsets the effort.  The process requires significant time spent by procurement and willing partners in the business, if this is going to be done properly.

Thinking back, I believe that a big part of the problem was that we did not have a good idea or template for developing robust category strategies.  Here are some of the elements that I think are critical and important to developing impactful category strategies.  

  • Engage Key Stakeholders.   Comprehensive strategies require the input of your key internal clients.  They need to be the decision makers and thought leaders, often senior leaders of a function.  These are the people who are charting the course of their function and they need to share their plans for the future and their thoughts on what they need from the supply base. I still recall a conversation with the president of one of our major business units.  We had some issues in the past and the relationship needed some work.  But when I asked him what his key business priorities were for the coming year and what we might do to help him achieve his objectives, that relationship suddenly improved.  He said “Tony, I have been waiting for you to ask me that question for some time.”  And that was the beginning of a much better business relationship and us becoming a true partner in his business.
  • Take Time to Truly Understand the Business.  What are the key objectives of the business?  What are its key challenges? How are these things likely to change over time? It is critical to understand these things so that the plans you put in place, with the strong support of the business, are a good fit not simply a quick fix for something needed today. I have always been a proponent for Procurement sitting in on budget and strategic planning sessions for the business.  What better way to get close to the business and develop a strong partnership that helps them achieve their business goals?
  • Understanding the Spend is an Integral Part of Developing a Category Strategy.  It is so important to do the leg work and get a good idea of what you are spending in each major category.  This provides the opportunity share information with your internal clients and to shine some light on historical spend patterns.  It is amazing that when this information is shared with the key stakeholders that they are often unaware of the amount of business that the company is doing with various suppliers or simply the sheer number of suppliers being engaged.  Using this as a baseline, the discussion can turn to how this spend might change in the future, the need for different or highly specialized suppliers or the importance of such things as improved quality, customer service, technology or innovation from the supply base.
  • Benchmark the Supply Base.  All too often, when looking at the supply base or drafting an RFP, my internal clients would suggest that we might go through all the effort but they are certain that the current supplier is the best fit for them.  Yet after doing our research, we often find that the marketplace has changed drastically over the last couple of years and new entrants are offering radically different value propositions. The supply market changes at an astonishingly fast pace and we need to perform the due diligence to determine if it will or can impact our business.  This type of evolution in the market place can have an incredible impact on your business if embraced. Suppliers are constantly under pressure to improve, evolve and innovate in order to maintain their competitive advantage. Your best suppliers have a penchant for innovation and solving your ongoing problems.  The key is finding those suppliers who have an interest in doing this with your help and then treating them like partners in the business.  Understanding what is new and different in a particular category must be part of developing your category strategy as it can have a tremendous impact on how you do business and interact with your customer base.
  • Review the Performance of Key Suppliers.  Beyond reviewing spend, evaluating the performance of your suppliers will provide a baseline for understanding what is working well, what needs to change and if the existing supply base is well suited to meet the new demands facing the organization.  Whether this be a review of the periodic supplier meetings or determining if KPI’s are favorable and being met, this information is so important. The obvious questions are “How are we doing? Where could we improve? And are there new requirements that are needed in the future?” 
  • Develop the Category Strategy.  You have now done all the preparatory legwork.  Now it is time to have those in depth discussions with the business and establish the category strategy that will become the foundation for all future sourcing actions in the category.  You will be amazed at how quickly the strategy develops, having done all of this work in advance. 

Shorten Your Sourcing Cycle Times

There isn’t a procurement group in the world that wouldn’t like to have more resources. As the leader of procurement organizations at Bristol-Myers Squibb, WellPoint and Biogen, most members of my teams would often be working on 4-6 active projects at the same time with many more in queue that desperately needed resources. But this is not an insurmountable problem. There are many ways in which to increase the efficiency of the procurement organization without sacrificing the overall quality of the sourcing process and I share just a few things that I have seen to be incredibly impactful over my time in this profession.

1. Set Your Sourcing Limits Appropriately. There will be many purchases by your clients that will not have an impact on the company, whether that be from a cost perspective or from choosing the very best supplier. Those smaller purchases can be handled by the use of P Cards or by setting simple parameters for others outside of procurement to make intelligent supplier selection decisions. More and more companies are also putting Buying Groups or Tailspend Management processes in place either internal to the organization or more likely through outsourced arrangements with leading suppliers who have well-established capabilities and a presence around the world. This can easily generate as much as 5-10% savings on things that would likely not be addressed by procurement. Don’t sweat the small stuff when your resources should be managing the sourcing process for the more impactful buys of the company. Put your attention on that 20% of the spend that will have 80% of the impact.

2. Onboard Sourcing Projects Appropriately with Your Clients. I see too many projects started without fully understanding the key requirements of the internal client or developing the most appropriate and impactful strategy for the company. More time spent upfront will eliminate stops and starts, taking time out of the entire sourcing cycle time and more importantly, making sure that the right supplier is selected that can meet both the immediate needs of the business as well as intermediate and longer term needs. A critical part of this onboarding process is to ensure that you have buy in up the chain of command of your client group. All too often, a project approaches completion only to have a more senior member of the client organization weigh in with something that completely changes the scope or direction of the project. Get them onboard early, get their perspective and set them up as executive sponsors that can support making the project a success. Sourcing cycle times can easily be reduced by an average of 10-20% through a well thought out onboarding process.

3. Use Technology to Your Advantage. I often think back to when I was appointed to lead the Global Sourcing & Supplier Management Group at Bristol-Myers Squibb. Having just completed several years managing the worldwide SAP implementation project, I was a big believer that technology could dramatically transform the procurement organization and improve our efficiency and effectiveness. There were a number of things that we did at BMS and elsewhere to use technology to our best advantage.

a. We got control of the data through the development of a global data warehouse for spend management and used this in conjunction with great spend analytics software that helped us properly classify our spend. This allowed us to properly address spend on a regional or global basis and truly understand the magnitude of the sourcing opportunities in front of us. The ability to drill down by category, country and supplier helped us set appropriate strategies with the appropriate underpinnings of the historical spend and to rationalize the supply base.
b. Deploying eSourcing tools is essential. Electronic RFX and auctions can not only reduce sourcing cycle times, but will also provide the opportunity to significantly reduce costs. The process of preparing and administering RFIs or RFPs can take much of the time of a procurement group. But with the use of technology, this administrative burden can be reduced. With the right tools, RFXs can be prepared more quickly by using templates with standard sections and with the ability to better submit requests to suppliers, track supplier responses and ultimately analyze responses and proceed to the best supplier selection. And in this day of transparency of pricing in our personal lives through the use of the internet, reverse auctions provide this same capability for businesses. Not only do you ensure you are getting the best market pricing (my experience shows incremental pricing benefits of 5-10% on average), but you are also able to take 4-6 weeks of negotiations time out of the process. And this frees up resources to work on other critical projects. Leading companies are using reverse auctions on as much as 50% of their sourceable spend. If done properly, including only suppliers qualified to win the business, and with a system having the right functionality, this can be the most impactful thing a procurement group can do to improve their performance.

While I would never say that you should sacrifice speed for quality, there are many things that can be done to make our procurement organizations much more efficient. If your organization is operating at less than an 8 to 1 ROI (benefits over expenses), or is unable to support your clients as a result of lack of resources, take a hard look at how you can improve your efficiency using some of the ideas I have presented and expand the benefits that your organization contributes to your company.

Ethics in Procurement. It’s Absolutely Essential!

When Susan Avery asked me to participate in a recent My Purchasing Center webcast on Ethics in Procurement, my first reaction was “What do I know about the topic that would be useful discussing with the audience?” But as I thought more about it, I realized that this is a topic that is essential to all of us as supply management professionals and something that I have very strong feelings about. I wanted to share with you some of the things we covered in the webcast.

All one has to do is pick up the newspaper and you will see, almost on a daily basis, a number of stories detailing bad ethics and poor moral judgment. Beyond the failings of Enron, BP and the sub prime mortgage debacle, of which we are continually reminded, I picked up an internet article recently that listed the top 100 corporate crime stories of 2011 and listed only a few of them. The ethical failings ranged from FDA sanctions, poor product quality and OSHA violations, to bribery, FCPA prosecutions and false advertising and product claims. And the surprising thing is that the violators are mostly very well known, large and successful companies. So, this is a topic near and dear to all types of organizations, in the US and around the world.

I thought that this definition from Wikipedia captured the essence of what business ethics is all about. And I particularly liked the references to self-interests, profits and actions affecting others.

“Business Ethics” can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affect others.

While doing some research on this topic, I found an interesting article in the HBR (Ethical Breakdowns: Why Good People Often Let Bad Things Happen. Harvard Business Review, Max Bazerman and Ann Tenbrunsel , April 2011) that dealt with the underlying causes of ethics failures.

• ill Conceived Goals. We all need to think carefully about how we set goals, as they absolutely do drive behaviors. If your procurement group rewards only those who achieve a certain level of savings goals without balance across other key objectives, you may create some bad behaviors on your team and push teamwork, and fair treatment of suppliers to the back burner. I can think of an instance where a very senior executive needed to get a system in place by a certain date or lose virtually their entire bonus for the year. As a consequence, the executive and team pushed ahead without the required due diligence. While they all celebrated the accomplishment, over the next 2 years they dealt with the problem with a bad plan, bad supplier and failed effort to bring up the system properly that touched many of our customers.
• Motivated Blindness. How many times do we see people turn a blind eye, when the unethical actions benefit us? It is only the highly ethical and courageous person who will push back and this is where a strong company culture of ethics and integrity will ensure you make the right business decisions.
• Indirect Blindness. We often soften our assessment of unethical behavior when it’s carried out by third parties. We all need to take ownership of the implications when we outsource or work with third parties.
• The Slippery Slope mutes our awareness when unethical behavior develops gradually over time. Be alert for even trivial infractions and investigate them immediately
• Overvaluing Outcomes may lead us to give a pass to unethical behavior. Examine good outcomes to ensure they’re not driven by unethical tactics.

ISM developed Principles and Standards of Ethical Supply Management Conduct and I believe that they should be top of mind for all supply management professionals. They address a number of critical areas that include integrity in decisions and actions, conflicts of interest, confidentiality and proprietary information and reciprocity, among others. You can access the complete set of Principles and Standards at

I always believed that we could benefit by sharing our procurement goals, supplier code of conduct and standards for behavior with our suppliers. That way it was perfectly clear what we expected from them and what acceptable behavior looked like. The profession has come a long way from the hard nosed, zero sum form of negotiations that can damage the relationship with suppliers and keep them from considering you a customer of choice and sharing their best ideas and access. Something I always talked about with our suppliers was fair price (for you), fair profit (for them). If you are working with the best suppliers who are continually learning and improving, this works and can form the basis of a long and productive relationship.

A big part of ethics rests on culture and visible behaviors. Let me finish with a couple of thoughts that make this work, in my view, at the best companies in the world.
• Focus on the social norms. Leaders need to model behaviors that make it clear that unethical behavior is outside the norm and will not be tolerated, within the company or from suppliers/partners.
• Results and the corresponding behaviors used to achieve those results are both important. Make strong ethics a part of what you interview for and key promotional criteria.
• Unequal treatment is the gateway to rationalizing misconduct. Walk the Talk as leaders as discrepancies only give employees a reason to act inappropriately in their own self-interests.
• No Yes Men allowed. Surround yourself with people with the courage to question if actions truly fit into the ethical culture and fabric of the company. It is so easy to go astray without this input.

While we may often think that high ethical standards are a given, it is an area that needs to be continually managed and monitored. I would be very interested in hearing your thoughts on this topic.

Setting Procurement Savings Goals

Often procurement can be too focused on savings, to the detriment of other important goals such as risk management, driving innovation, talent management, and supplier diversity, among others.  But let’s face it, a big part of why companies invest in the procurement function is to put a reliable supply base in place and improve profitability.  A recent study by AT Kearney pegs the difference in procurement savings between leaders and laggards in the range of 33% to 50%, often representing a huge impact on the overall profitability of the organization. Over the years, I have seen a number of things that work in organizations to help them set and achieve a high level of procurement savings and wanted to share my thoughts with you.

These factors taken collectively, create the “perfect storm” and help a procurement organization achieve significant savings.  Here are a couple of things that I have experienced first hand.

  • Find Your Burning Platform.  Both at Bristol-Myers Squibb and at WellPoint, we went through a period where increasing profitability was top of mind for everyone.  That made it very easy for us to get the attention of business leaders right up through the CEO, and share what we thought we could do to help.  What was important was for us to have done our homework, looking at spend data, new category strategies, specifications needing right sizing and leakage outside the purview of the procurement policy (i.e. violations or areas not previously sourced), and quantifying the upside possibilities for saving.  What we found were very receptive business leaders, especially when the only other options for them were to reduce headcount or cut back on investments in the business.
  • Set the Bar High.  There is often some resistance to setting big goals for savings, for once that is done, the fear is that you will be busy day and night working to achieve the goal.  The key is to set high procurement savings goals but not so high that they are self-defeating and discourage the group.  But if you only set goals where you know exactly how you will achieve them, I would argue that you have set the bar too low and this can often be self fulfilling and limiting.  I used to enjoy reading the letter to the shareholders of GE, written by Jack Welch.  He argued that if you set small, incremental goals that you weren’t doing your job as a key leader in the organization.  It was only by setting transformational goals (e.g. 25-50% improvement) that you forced yourself out of your comfort zone and explored radical new ways to do things.  I tend to agree.  My first year at WellPoint, I inherited a savings goal of $20 million and there was panic that we would fall short.  We overshot that goal, achieving $33 million and I set the following goal at $100 million despite great push back from my team.  But I knew that we had barely scratched the surface in creating impactful and necessary category strategies, pushing on compliance and recruiting and developing the type of talent necessary to support the business.  And we went on to not only achieve that target but doubled actual savings again the following year.  We were forced outside the box and worked hard to find new ways to create value for the company.
  • Enlist The Help of Your Clients.  Sourcing and achieving results is a shared responsibility between procurement and your clients in the business.  Your team should be working with their respective clients, sharing spend data, looking at their goals and objectives for the next year and partnering with them to help them be successful.  It is easy to charge ahead with your own goals and tell the business what you want them to do to help you.  But from my experience, you will gain more support from them and work on more important projects by first understanding their goals and then sharing what you bring to the table in skills and resources to support them.  I will always remember a meeting I had with the president of the Nutritional business at Bristol-Myers Squibb.  The relationship between procurement and the business was strained but when I started our planning session asking Steve what his goals were and what he thought we could do to support him and his business, things changed.  He smiled and said that this approach would open new doors for us and it did, resulting in a significant impact far beyond what had been achieved in the past.  Your clients should help you set your goals, own them with you, and be willing to put the savings commitments in their goals, just as you do in yours.  And they must be willing to put the appropriate people from their organization on the project teams to leverage their deep knowledge of their business and markets.  Alignment with your business partners is critical.
  • Leverage the Deep Knowledge of Your Suppliers.  If you aren’t using your key suppliers to align with and meet the needs of your organization, you are missing a huge opportunity.  Your suppliers often know more about your business, in the niche that they serve, than you do.  They work with many customers every day that have needs very similar to yours, and have a rich database of best practices that they have seen successfully employed by their clients.  Supplier Relationship Management (SRM) programs recognize this and are part of the repertoire of all leading supply management organizations.  Don’t miss the opportunity to ask them for their best ideas or share your most pressing problems for which you would like their input.
  • Talented People are Critical.  There is no substitute for having talented people in your organization.  This comes from a careful selection process that explores behavioral as well as functional skills, a recruitment process that includes targeting the best supply management schools and an investment in training and development. While it is important to have people well skilled at procurement methodology and processes, it is also important, in many areas, to have people who have deep subject matter expertise (SME). I would be the first to admit that our internal clients generally know more about their category than those in procurement, but having some of this knowledge helps build trust with your clients that you will be acting in their best interests and earns you a seat at the table.  I have found that using a blend of SME’s and pure procurement professionals can be a very successful approach.  And quite honestly, it is easier to teach a SME about procurement than the other way around.  The end product is that you bring much relevant thinking to the table when you are building impactful category strategies for the business, rather than simply reacting to what is asked of you by your clients.

Setting and achieving high and impactful goals is motivating for an organization just like being on a winning sports team.  What you will find is that your people will get more enjoyment from their jobs, procurement will be an exciting and highly sought place to work in the organization, and your staff will have many opportunities to work in new areas, develop new skills and grow professionally.