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Category Management
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Grouped products into categories based on how the consumer used the product e.g.
Rekitt Benkiser products/brands are distributed across 8 categories
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Bang, Mortein Veet Nurofen Clearasil Strepsils Gaviscon Mucinex Scholl Frenchs
19 Power Brands
Each ranked 1 or 2 worldwide 75% of net revenue
13% 13%
Food Pharmaceutical
3% 7%
Grouped products into categories based on how the consumer used the product e.g.
Rekitt Benkiser products/brands are distributed across 8 categories
Helped retailers grow sales and profit by maximising synergies and minimising unproductive competition between their own brands and products. For example:
Michelin also manufacture Kleber tyres which are marketed as a high quality (Michelin connection) budget brand (price connection) tyre thus securing market share in 2 segments.
Governance process which crosses organisation boundaries. Depth of category specific knowledge and expertise market & technical. Emphasis on planning and use of analytical tools.
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Upstream
Need Specification Enquiry
20%
Agreement/Contract Re-active
Downstream
Expediting Problem Solving Receiving Inspection
80%
Handling Emergencies!
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The organisation was leaking like a sieve! $880m Approved Contract Value
$210m (24%) extra Scope Growth, Claims, Variations, Use of contingency Poor post-contract mgt etc
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80%
Negotiation
Upstream
Market Analysis
Supplier Management
Tender Improvement
Agreement/Contract
Downstream
Receive Goods & Services Manage Performance & Pay
20%
Category tree extends to the level at which the organisation is likely to buy.
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Environment (54m)
ICT (11.67m)
Domiciliary Care(18.6m)
Events (8.55m) Buildings and Civil Construction Projects (61.4m) Waste Management (5.4m) Highway Maintenance and Construction (4.66m) Transport Service And Materials (10.6m)
Schools Supplies & Equipment (4.73m) Advertising, Print, Design & Post (4.16m) Office Consumables & Services (3.62m)
Consultancy (7.49m)
Parks and Ground Maintenance (3.54m) Building Materials (3.02m) Highways Materials (2.26m) Traffic and Telematics (1.95m) Facilities Maintenance (1.78m) Leisure and Other Facilities (779k) Utilities and Energy (11.6m)
Fostering Services (8.6m) Supporting People (3.49m) Other Adults Services (3.14m) Other Childrens Services (2.77m) Substance misuse (2.45m)
Catering (6.47m)
Cleaning (1.25m)
Corporate Indirect
Exempt
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L1 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
L2 Sub Categories
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Commodity Structure
Environment, Transport & Trades
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Category tree extends to the level at which the organisation is likely to buy.
A Category Manager develops a Category Plan in conjunction with one or more service lines for procurement of the products or services within the category.
Categories may cross service lines e.g. legal services or desk top IT. Alternatively, a category may be an essential component in the delivery of a single service e.g. childrens care services or vehicle transmission systems.
The Category Plan gathers all relevant data to identify, quantify and prioritise improvement opportunities in conjunction with service lines/stakeholders.
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Sub Commodity (incl L1 where invoiced directly) Care Services Las Agencies & Other Bodies Uncategorised Publishing Utilities Charity Building Contractors Community Groups Recycling Construction Consulting Engineers Staff Training Health Care Training Services Consultants Financial Services NHS/Health Board Clothing Facilities Plant Hire Lights IT Hardware & Software Taxis Vehicle Sales Furniture Educational Services Fuel Telecommunications Provider Concrete Products Solicitors Security Office Equipment Vehicle Rental Electrical Contractors Blacksmiths Landscapers Asphalt & Tar Products
PMMS Consulting Group 2011 All Rights Reserved
Spend 24,430,228.35 17,182,613.96 13,779,485.01 10,566,345.10 10,294,622.01 8,417,679.13 6,741,115.04 5,873,978.45 5,043,594.86 4,718,777.35 3,657,616.07 3,542,526.85 3,240,109.74 2,624,570.31 2,513,996.63 2,306,458.56 1,983,075.50 1,953,417.68 1,918,545.80 1,834,079.16 1,601,897.63 1,544,424.24 1,491,135.17 1,441,703.78 1,403,641.01 1,384,859.43 1,368,003.99 1,361,794.90 1,303,213.57 1,154,833.46 1,080,304.72 963,919.93 942,590.05 911,048.72 897,275.90 896,454.72 805,952.45
The Tail
10% of spend on 81% (330 No) of sub commodities
Most are low value and relatively straightforward to procure but some are high value and complex. The Category Management process must accommodate both.
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STRATEGIC SECURITY
STRATEGIC CRITICAL
(21m)
Filter Nozzles
Risk
Low value spend 2m
GRP Building Kiosks
Specialist Civils Subs e.g.Piling HV Switchgear Misc Tanks General Piling Standby Generators Pressure Vessels Filter Media Pipe Fittings
Building Products
Ductile Iron Pipe Fabricated Plant Penstocks Steel Pipe Mech Installation Plant Hire Steelwork
TACTICAL ACQUISITION
0.3% (150k pa)
PMMS Consulting Group 2011 All Rights Reserved
TACTICAL PROFIT
(12m)
6m pa
% of Total Expenditure
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PMMS 2011
Category plan identifies all opportunities within a category along with the anticipated means of achievement. For simple procurement, it may also define the procurement strategy.
PMMS Consulting Group 2011 All Rights Reserved
Low value simple procurement may simply involve implementation of the conclusions of the category strategy e.g. use a collaborative framework/contract, change the specification and re-negotiate terms. More detailed investigation is required for high value complex procurement. This is often referred to as Strategic Sourcing or Procurement Strategy.
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How the market works Suppliers Capabilities Trends & Developments Tools: Supply Positioning Supplier Preferencing Supply Chain Analysis Vulnerability Analysis Financial Analysis Strategy Analysis
Strategy Development
Implementation
Contract Management
Review
Lessons learnt
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Develop
Stage 3
Off Line Analysis
Stage 4
Workshop 2
Stage 5
Workshop 3
Stage 6
Workshop 4
Stage 7
Face 2 Face
Kick Off
Opportunity Analysis
Initiation
Business Needs & Market Analysis PESTLE Analysis Porters Five Forces Trends & developments Supply chain & vulnerability analysis PPCA cost drivers Portfolio Analysis Supplier analysis incl Preferencing Market Management Matrix
Strategic Options
Spend Data
Milestone Plan
Confirmation of Scope
Category Analysis
Market Analysis
De-centralised
CLAN or matrix management Devolved There is no right answer choice of organisational model depends on the nature, culture and needs of your business.
Commodity teams
Collaborative Informal networks Formal consortia Informal consortia Mandatory & non mandatory
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Communications Leader 1
Airport Logistics 25
Maintenance 4
Facilities 4 Maintenance
Product Teams Construction Account Mgt 2 Baggage Systems 2 Infrastructure 1 Fit-out 3 Consultants 4 Baggage Operation 3 Shell & Core 3 Building Services 3 Total 21 Product Teams P2P Process & Systems Lifecycle Mgt Process Total
Product Teams IT & Telecomms 8 Mkting & Business Services 5 Cleaning 2 Total 15
7 1 8
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Develop
Stage 3
Off Line Analysis
Stage 4
Workshop 2
Stage 5
Workshop 3
Stage 6
Workshop 4
Stage 7
Face 2 Face
Kick Off
Opportunity Analysis
Initiation
Business Needs & Market Analysis PESTLE Analysis Porters Five Forces Trends & developments Supply chain & vulnerability analysis PPCA cost drivers Portfolio Analysis Supplier analysis incl Preferencing Market Management Matrix
Strategic Options
Spend Data
Milestone Plan
Confirmation of Scope
Category Analysis
Market Analysis
Can be challenging when decision making authority does not cross organisational boundaries
Particularly problematic for direct areas of spend i.e. when service line success depends on the quality of the category plan & sourcing strategy
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Collaborative Consortium
User Intelligence Group signs off category allocation, sourcing scope and strategy
PMMS Consulting Group 2011 All Rights Reserved www.pmms-group.com
Sourcing Programme
Delivery Management
Relationship Management
Contract Administration
Continuous Improvement
Ensuring that the contract is delivering what has been agreed to the required performance standards.
Handling the formal governance of the contract e.g. change control, cost monitoring, payment, management reporting etc). Aiming for improvement over the life of the contract. May include incentive mechanisms.
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Building open and constructive relationships that enable problems to be identified and resolved early.
PMMS Consulting Group 2011 All Rights Reserved
Enables productive procurement engagement without compromising service line ownership of strategies and outcomes.
Focuses attention on the planning phase which offers the greatest scope for improved performance and ground breaking solutions
Provides the toolset and process to support a strategic approach to procurement and helps create a supportive environment
Enables realistic targeting of savings and other benefits which are agreed with and owned by service lines. Minimises off contract spend through service line engagement, ownership and sign off Enhances procurement capability within the procurement function and across the organisation
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Category Tree
Sub categories excluding professional services
Engineer
Architect
QS
H&S CDM
S1
Sn
M1
Mn
Aggregation & Standardisation Opportunities Integration & Standardisation Opportunities e.g design, build and maintain Planning
Engineer
Design
Engineer Architect QS M&E H&S CDM
Construction
Engineer
Maintenance
M&E
Usage
Value Chain
S u p p l y
C h a i n s
Architect
QS M&E H&S CDM
H&S CDM
Prof Services Trades
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Heavy workload initially but this diminishes significantly once category plans are approved and sourcing is underway.
Law of diminishing returns reduces savings opportunities over time and political direction may change. Pursue savings and other benefits
A narrow category focus could be career limiting in organisations which need staff with broad experience and expertise. Loss of local expertise where categories are assigned to collaborative arrangements. Too much emphasis on process and too little on outcomes.
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dave.porter@pmms-group.com
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