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Category Management: The Next Level Creating Mission Industry Study

Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Strategies
for World-Class
Procurement

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Introduction

Strategies for
World Class Procurement
Striving to be the best—­that’s the mission of category management and the next level of pro-
procurement and supply management pro- curement excellence including forward-looking
thoughts on risk management, advanced analytics,
fessionals everywhere. They’re developing
spend management and developing workforce ca-
and executing sourcing strategy and deliver- pabilities.
ing lasting cost and productivity improve-
ments in all spend categories. It also offers practical how-to advice for creating
winning sourcing strategy and adapting sound
To help our readers achieve their goals and provide procurement practices in a non-profit environment.
the latest information on strategies in world class We conclude with valuable sourcing and supply
procurement, My Purchasing Center and OfficeMax management benchmarking metrics we’ve just gath-
have compiled some of the best articles and research ered from 200 procurement operations around the
on the topic posted at MyPurchasingCenter.com into country.
a new guide.
Our guide has something for everyone in procure-
Our guide, Strategies for World Class Procurement, ment and supply management who’s striving to be
presents new thinking on strategic sourcing and the best at strategic sourcing--have a look!

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Category Management:
Beyond the Strategic in Strategic Sourcing
By Pierre Mitchell, Senior Director, Research & Advisory, The Hackett Group
Introduction
Executive Summary Procurement executives are looking to provide greater
Building a category management value to the enterprise beyond cost reductions, but, mar-
capability that crosses organizational
kets can only offer so many savings using traditional ‘stra-
boundaries puts the “strategic” back
into strategic sourcing. Category tegic sourcing’ methodologies. So, their focus from price
management fundamentally differs reduction has gone towards TCO reduction and spend
from strategic sourcing and builds reduction – but more is still needed. Firms must get more
on the creditability that strategic “bang for the buck” (measured by broader business out-
sourcing professionals have created comes) as opposed to just reducing expenditures. Safely
for themselves over the years. For harnessing supply-market power to create competitive
the most part, differences between advantage is the mission of a world-class procurement
category management and strategic
organization. Yet, few companies have the capabilities to
sourcing center on the former’s
make that happen. The primary vehicle for extracting val-
longer time horizon and the broader
scope and scale of its activities. ue from the supply base has been the strategic sourcing
Category management is aligned with methodologies pioneered in the 1980s and 1990s. Sourc-
the life cycle of the processes which ing managers used it successfully to rationalize suppliers,
consume the products and services aggregate buying power, drive down pricing and even
in those categories. It involves improve supplier performance against a contract. Stra-
not only a more comprehensive tegic sourcing also proved invaluable during the recent
internal customer management and
recession to recalibrate pricing to the supply markets
supplier management approach,
when they took a nosedive alongside demand markets.
but a broader, more facilitative
way of constructing solutions that
support both category and business However, as companies try to shift their attention toward
objectives. innovation, globalization and profitable growth, the im-
plication for the Chief Purchasing Officer (CPO), sourcing

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

STRATEGIC SOURCING CATEGORY MANAGEMENT This price-centric methodology is highly effective


Reduce purchased costs for a given Maximize realized category value to the for garnering initial savings if implemented well (i.e.,
commodity, most often by selecting lower- organization, including total cost of ownership a rational and streamlined cross-functional process
Goal cost suppliers through demand aggregation, (TCO), risk, operational performance,
competitive bidding and negotiation. innovation, etc.
creating a solid, price-effective contract), but it is still
a sourcing methodology and geared toward creating
Periodic and project-based. Triggered over Ongoing, day-to-day process. Triggers contracts. Category management, on the other hand,
Frequency one or more years in the course of managing project-based activities and other opera-
evaluates not only the full cycle of a contract or sup-
a commodity. tional improvements as needed.
plier life cycle, but also looks holistically at the life cycle
Develops acategory strategy and applies of the value chains which consume the goods and
Conducted via an n-step sourcing appropriate value levers and supporting services in the spend categories. The differences be-
methodology culminating in transition techniques/tools as needed to meet value
Approach to a new supplier contract. objectives (e.g., strategic sourcing, SRM, tween strategic sourcing and category management
value engineering, process reengineering, are shown in Fig. 1.
demand and compliance management).

Reduced contract pricing translating to Category value is targeted, including Both strategic sourcing and category management
Results actual realized savings hitting the bottom validated savings and broader value organize processes and resources around supply
line. measurement. markets, but category management not only sources
FIG. 1 Category management: More strategic and holistic than strategic sourcing. Source: The Hackett Group
these market categories, but also manages them on an
ongoing basis. Category management involves build-
managers and other staff becomes clear: expand the the supply base in selected commodities. This n-step ing a clear understanding of the organization’s key
value objectives of categories beyond purchased cost process typically starts with procurement-led analysis value objectives for the category (themselves based
reduction to provide broader support for strategic to identify target commodities and opportunities – and on business objectives) and then developing a set of
business objectives. Otherwise, the runway for savings then culminates in a preferred-supplier contract: executable strategies. Procurement’s role is to come to
will exhaust itself, taking procurement’s reason for the table with ideas as to what value is possible to cap-
having a “seat at the table” with it. n
Profile the category ture, even if Procurement might itself not be measured
n
Develop sourcing strategy on all those benefits.
Category Management n
Identify suppliers
Is Broader Than Strategic Sourcing n
Evaluate suppliers Hitting the Wall
The strategic sourcing process is typified by a set of pe- n
Negotiate and award the contract Unfortunately, most organizations struggle to break
riodic processes and projects that seek to reduce pur- n
Transition and implement the contract through to true category management. While it sounds
chased costs by aggregating demand and rationalizing n
Monitor supplier performance straightforward in principle, most organizations strug-

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

mary stakeholders’ processes that consume the prod-


Category value objectives link to stakeholder objectives
ucts and services in those categories. Therefore, it is
Reduce TCO Increase revenue Support other goals not surprising that, while the majority of procurement
organizations have at least a basic strategic sourcing
Improve marketing Improve flexibility/
Reduce purchased costs Improve cost of quality effectiveness responsiveness/delivery process, less than 5% have classified it as truly strate-
gic, and have adopted a truly comprehensive category
Accelerate new product
Reduce cost of risk Reduce working capital development Variabilize asset structure management process. Most have “hit the wall” in terms
of going beyond purchased cost reductions because
Reduce internal Improve Support
Enter new markets their current strategic sourcing methodologies inher-
process costs delivery performance sustainability goals
ently let them go only so far. Some organizations even
Enable new business make the problem worse by renaming their sourcing
Reduce fixed costs Reshape consumption capabilities Strengthen the brand
methodologies as category management, without
Category strategies pull multiple value levers changing the fundamental approach.

Category sourcing Product/service Process Supply base Overall Pulling Back the Covers on Category Management
SRM When implemented properly, category management
Strategic sourcing Value engineering Compliance Risk management
management Supplier stratification is a client-friendly framework. It involves building a
and governance clear understanding of the organization’s key value
Low-cost country Demand Performance
sourcing Design for supply management objectives for the category, then developing a set of
management Supplier collaboration
and development executable strategies that meet those objectives (Fig.
Outsourcing/ Purchase-to-pay Value chain network
make vs. buy support reconfiguration 2). If objectives are defined too narrowly (e.g., hard
Tier 2 supply base
management cost savings and low time/risk to implement), the
Waste elimination default will lead down the path of basic sourcing and
Source: The Hackett Group
exclude too many potential opportunities.
FIG. 2 Category management objectives and strategies.

gle to escape the limitations of their sourcing process. definition, can only be as strategic as the process allows. Still, identifying and scoping this bigger prize is only
One reason is that the strategic sourcing methodologies Category management doesn’t start with a corporate half the battle. Companies must actually seize the
used by sourcing managers (including those called “cat- procurement group creating ‘waves’ of strategic sourc- prize, and that requires capabilities not currently
egory managers”) are, frankly, running out of gas. Sourc- ing projects to support its functional savings goals. possessed by most procurement organizations. The
ing is only one step in a broader value chain, and by Rather, it is tied to the cadence and lifecycle of the pri- strategies shown Fig. 2 pull a variety of value levers

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

that are needed to extract that value from the For most commodities in a category, practices used to optimally manage sup-
supply markets and inbound supply chains. ply categories to meet business objectives.
For most commodities in a category, trans- transformation might start with strategic The framework sits above and guides the
formation might start with strategic sourc- content and sequencing of lower-level
ing to rationalize the supply base. After that, sourcing to rationalize the supply base. methodologies like strategic sourcing and
however, some strategic commodities might supplier relationship management (SRM) to
move toward a strategic SRM and “design for supply” ing techniques such as low-cost country sourcing), satisfy category objectives and business objectives.
path, while other, less-strategic ones might adopt category management most definitely is not about A category is a grouping of materials or services that
an outsourcing and integrated supply approach (i.e., simply putting a new veneer on the strategic sourcing have similar supply and usage characteristics to meet
using value-added aggregators and/or the suppliers methodology. business objectives.
themselves).
Strategic Sourcing vs. Category Management Pierre Mitchell, Senior Director, Research & Advisory,
The methodologies are diverse and it is not advisable Strategic sourcing is a methodology and associated The Hackett Group
to try to force-fit all of them into a sourcing methodol- techniques and tools to optimally source goods and
ogy because they are outside the bounds of a sourcing services to meet business requirements. Includes cat- Mr. Mitchell is responsible for leading the development
process and part of a life cycle management process egory sourcing as well as general/ tactical sourcing ac- of research and other intellectual property within Hack-
(i.e., that of the value chain rather than the sourcing tivities and cross-category sourcing support activities ett’s Procurement Executive Advisory Program, where
process). However, they must both be pursued vigor- (e.g., competitive bidding techniques and e-sourcing he also serves as an adjunct business advisor. He has
ously and coordinated explicitly because of their ben- tools). over 20 years of industry and consulting experience in
efits (e.g., world-class procurement organizations de- procurement, supply chain and information technology.
liver over 3.5X the savings from non-sourcing-related Category sourcing is the use of strategic sourcing pro- Mr. Mitchell is quoted widely in the press and speaks
supplier collaboration benefits than their peers). cesses and techniques to optimally source a category at numerous industry events on supply management
and its constituent commodities/ sub-categories. A trends and technologies. Previously he was vice president
SRM shouldn’t happen in isolation from strategic category is comprised of lower- level commodities/ of supply management research at AMR Research and a
sourcing. The two should be highly integrated, and sub-categories, which can be products or services. manager at Arthur D. Little, here he led numerous sup-
category management is the perfect vehicle for doing A commodity (a.k.a. sub-category) is a well-defined ply chain and procurement transformations at Fortune
so when companies haven’t brought them together. product or service bought and sold in a supply mar- 500 companies. Other industry positions include manu-
So, while it shares many of the attributes of strategic ket. It is typically characterized by the availability of facturing project manager at The Timberland Company,
sourcing (e.g., cross-functional teaming, stakeholder functionally equivalent substitutes. materials manager at Krupp Companies and engineer at
alignment, organizing around supply markets, us- Category management is a frame-work and set of EG&G Torque Systems.

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

The Next Level of Procurement Excellence


Kris Timmermans, Accenture

Kris Timmermans, who leads the Global Sourcing & In that process, tomorrow’s procurement organiza- The best in the business have already started doing so.
Procurement practice in Accenture’s Operations Con- tions will likely make substantial advances in certain They are building comprehensive risk management
sulting business recently completed a research study areas that have begun to feature prominently on their programs to map risks end-to-end, and they are focus-
on procurement organizations, analyzing the emer- priority lists. Our experience shows that masters will ing on anticipating, monitoring and mitigating risk.
gence of procurement as a key business differentiator. commit resources and time to four key areas, building The masters have begun to use specially developed
The study focuses on organizations that “compulsively on their momentum and finding new ways to keep risk-focused tools and services, and they are more
contribute” to their company’s success, beyond the contributing to their businesses: Risk management, than twice as likely as other procurement organiza-
expected improvements in cash and working capital. advanced analytics, spend tions to use risk-sharing contract clauses to mitigate
These compulsive contributors are the procure- management and supply risk.
ment masters. development of work-
force capabilities. Advanced Analytics
In this ar ticle, Kris looks to the Price volatility is another dimension of risk that is best
future and what that will mean Risk Management managed by using predictive tools. In an increasingly
for achieving procurement The cutting-edge pro- globalized world, demand variations across new cen-
mastery. curement practitioners ters of consumption are contributing to gyrations in
know that risk issues commodity prices, calling for a set of forecasting skills
Procurement is set to en- pose a far greater that can respond to these dynamics. Many procure-
hance its already robust con- threat to costs than what ment organizations may not have these sophisticated
tribution to corporate success their toughest negotiators can predictive analytics tools.
in the next four years, under- achieve by way of savings. And
pinned by C-suite recognition the most common and potentially To manage in such a volatile environment, masters
of the masters’ ability to build dangerous procurement risk areas relate have already begun investing in building robust
lasting value. They constantly to supplier reliability and price volatil- predictive analytics tools. Tomorrow’s procurement
innovate to drive performance ity. Aware of the potential negative organizations need to understand the dynamics of
excellence, burnishing procure- fallouts of risk, procurement organi- the commodity markets as well as analytical tools that
ment’s appeal with employees, zations will increasingly focus on would translate complex mathematics into effective
executives and investors. managing risks on every front. solutions, such as scenario planning, or mitigation

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

strategies for anticipated risks. Masters may then as employee engagement and negotiations.
shed their reliance on historic trend-line data, Training participants to solve real business prob-
which fail to adequately capture the effects of lems in small groups, this company has managed
volatility on the future pricing scenario. to quickly enhance the skills of its procurement
professionals. The program will now go beyond
Using these tools, masters will approach supplier the family to include other functions –and even
negotiations with much greater clarity on future the company’s suppliers.
pricing and input breakdowns of raw or semi-finished The company has achieved this cost base by driving
goods. That will give masters not only greater bargain- firm-wide, bottom-up corrective actions, and ty- Of course, examples of innovative workforce transfor-
ing power, but also help assess the risk impact of each ing accountability to executive owners of each cost mation are still rare. But it is time for masters and con-
major supplier. category. tenders alike to emulate these early adapters so that
procurement becomes a magnet for talent.
Spend Management Workforce Capabilities
Masters are also breaking new ground in spend man- Aware of their shortcoming in this area, procurement Call to Action
agement. They are driving accountability for both masters are beginning to transform their workforces In the final assessment, there is no question that
savings and visibility into spend, watching the money to meet the challenges of a volatile global sourcing business pressures will continue to demand more of
from start to finish. They obsess over clear ownership market. The pioneers are already rolling out new procurement. Still, procurement masters will continue
of category spend within the business, bottom-up programs, indicating what the activity will look like to set the pace. They already have a long lead over
category budgeting, and clear direction for buyers and in three or four years. This will include customized, other procurement organizations. Even so, they can
users on appropriate procurement methods. Through skill-based training and exposure to other crucial no more afford to be complacent about their procure-
this, masters can circle back, or close the loop, on functions, as companies try to create the well-rounded ment prowess than their peers whose skills already lag
spend over time. professional who will drive the procurement organiza- the masters.
tion of tomorrow.
Some of the benefits of this rigorous approach to The good news is that the masters stand as a beacon
spend management are already visible. Cutting-edge For instance, a global industrial conglomerate has of what is possible. As the global economy regains
practitioners are managing to hold down general and already made a strong start. The company’s capability velocity, new competitors are waiting to capitalize on
administrative expenses – regarded as a tough area to development program now runs an activity designed opportunities. To keep them at bay, masters and those
control - by closing the loop on spend. A global con- to rapidly enhance the skills of the company’s middle who lag behind must continue to extend their pro-
sumer goods giant operates at a G&A to revenue ratio and senior supply chain managers in financial skills, curement capabilities, making procurement a crown
of 6.5 percent, a level 40 percent lower than its peers. leadership coaching, and skills in functions as diverse jewel that is valued across the company.

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Creating Winning Sourcing Strategies


Dr. Soheila R. Lunney, cation of business to suppliers
President, Lunney Advisory Group by the purchasing function. It is
In the past several months, a multi-functional activity that
I have been receiving re- produces a plan of action for sev-
quests for conducting eral years. Successful sourcing
seminars on the Strategic strategies are built on a rigorous
Sourcing process. Once I analysis of the buy, the supply
learn about the needs of my industry, and the fundamental
drivers of value.
prospective clients and we
get deeper in our conversa-
The act of creating a strategy is
tions, it becomes clear to
intrinsically valuable because it
me that many organizations forces a team to step back and
who jumped on the band- make a comprehensive examina-
wagon to adopt the Strate- tion of the current supply base,
gic Sourcing process have and to take a long-term view of
come to the realization that purchasing-related decisions. It
they may have taken short- also builds cross-functional buy-
cuts, and are not achieving in to the priorities for each com-
the sustainable costs savings that they had many organizations that have not fully taken advan- modity and supplier.
hoped for. tage of this methodology. As a result, I would like to
devote the next three blogs to this topic, and share What Is Strategic Sourcing?
Although, over the past decade, the majority of the with you the principles of creating winning sourcing Cost savings is the most common procurement goal,
Fortune 500 companies have realized dramatic sav- strategies. and strategic sourcing is arguably the most compre-
ings by applying strategic sourcing principles to both hensive method for achieving costs savings. Strategic
their direct and indirect expenditures, there are still Strategically sourcing is far more than a simple allo- sourcing is generally defined as a rigorous process

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

of identifying the right supplier. Not necessarily the ing process. There are many challenges to strategic the management of procurement function, sourcing of
cheapest or highest quality supplier, but the supplier sourcing. Many mistakes can be made if the process materials and services, reducing total cost of ownership
that offers the greatest overall benefit to the and negotiation of complex contracts.
organization, all things considered.
Strategic sourcing is a formalized process Prior to founding Lunney Advisory Group in 2007,
Because strategic sourcing typically culmi- with a defined sequence of steps Soheila joined Education Management Corpora-
nates in a contract with a term of at least tion (EDMC) as the vice president of procurement
three to five years, it should be perceived as that have taken into consideration in January 2004. Prior to joining EDMC, Soheila
the first step in a long-term relationship. By was director/deputy to chief procurement officer
consummating this relationship in the form the most effective methods of at Bayer Corp. During her 17 years of service at
of a contract with a supplier, strategic sourc- Bayer, she held several positions with increasing
ing aims to reduce the cost of doing business. competitive bidding. responsibilities in research and development,
This includes not just a lower price, but also logistics, customer services, materials manage-
other efficiencies that will positively impact the organi- is managed by someone without deep experience. ment, and procurement.
zation’s bottom line. Having the strategic sourcing process led by someone
who has experienced all of the veritable landmines of Soheila obtained her bachelor’s degree in science from
Why Adopt Strategic Sourcing? sourcing leads to higher quality results. National University of Iran followed by MS and Ph.D.
Companies like strategic sourcing for three reasons: from University of East Anglia in Norwich, England. She is
Most important, strategic sourcing has proven to be a member of Board of Directors of Pittsburgh Institute for
Strategic sourcing is based on repeatable best prac- very effective at reducing costs. Cost reductions of 20% Supply Chain Management (ISM) and also served on the
tices. Instead of each department trying to figure out or more in a category of goods or services are common. Board of Directors Pittsburgh Regional Minority Purchas-
how to go about conducting competitive bidding for ing Council. In addition, since 1998, she has been a mem-
its own categories, strategic sourcing is a formalized Dr. Soheila R. Lunney, president of Lunney Advisory ber of the Advisory Board of Supply Chain Management
process with a defined sequence of steps that have Group has more than 20 years of supply management, at Duquesne University in Pittsburgh where she taught
taken into consideration the most effective methods procurement, and business experience, involving both a course in procurement/supply chain management.
of competitive bidding. This maximizes both the ef- domestic and international (Far East, Europe and Russia) Soheila is a frequent speaker on different supply chain
ficiency and the effectiveness of the sourcing process. activities. She has extensive experience in consulting, management topics, the sole holder of a U.S. Patent rel-
coaching and training in supply management, procure- evant to polyurethane technology and author of several
Strategic sourcing is led by experts in the sourc- ment, reengineering the supply management process, publications.

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Mission Driven Sourcing


Rich Weissman, Assistant Professor, Endicott College School of Business and Van Loan Graduate School, director of corporate education

It was not very long ago that heading up

procurement for a not-for-profit organi-

zation was a job done by an entry-level

buyer, an accounting clerk, or perhaps a

volunteer. Yet, in this era of increasing social re-


sponsibility, not-for-profit organizations are under
intense pressure to maximize fund-raising efforts
with documented outcomes and metrics, much like
their for-profit brethren. Donors want to make sure
that their contributions are being used effectively,
efficiently, and with the most return on investment.

For Ian O’Brien, the vice president of strategic sourc-


ing for the Atlanta, Ga.-based American Cancer
Society, the challenges of strategic sourcing for an
iconic not-for-profit has been rewarding personally
and professionally. O’Brien, a veteran of large con- best manage our spend,” says O’Brien. is also a huge area as the ACS needs to develop a large
sulting and banking firms was brought in to the ACS amount of promotional materials for development,
two years ago to address the almost $400 million in O’Brien’s organization oversees a diverse array of com- advocacy, and community service demands. O’Brien
indirect spend. “I’ve always had an interest in sourc- modities for the $1 billion organization, including ben- says that while there is no clinical spend per se, there
ing as the ‘value lever’ for an organization and there efit management, human resources, telecommunica- are some sourcing activities around long-term cancer-
are plenty of opportunities for creating strategies to tions, IT, labor, financial and professional services. Print related clinical studies.

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

“When I came to the ACS we were a federated envi- cess improvement and certified or actual savings, not Endicott College Assistant Professor, Rich Weiss-
ronment with all of the associated inefficiencies,” says just contracted savings,” says O’Brien when asked man, teaches management courses for the School of
O’Brien. “We have moved over to a center-led process about how he measures success. “ We manage Business and the Van Loan Graduate School. He is
where we can look at national contracts, also the director of corporate education,
develop some data models, leverage which includes the Center for Leadership,
spend, and better organize sourcing
across the organization.” O’Brien’s staff
“We manage our money Endicott’s management development
institute. He is vice chair of the planning
includes sourcing, analytics, inventory very carefully committee and also serves on the technol-
management, and supply management ogy committee and the Institution Review
professionals. and spend it wisely.” Board.
O’Brien’s approach is to have a nation-
wide approach to sourcing. “There are Ian O’Brien, Vice President of Strategic Sourcing A practitioner turned educator, Weiss-
12 divisions across the country and each man has more than 25 years of experience
American Cancer Society
has a procurement lead who indirectly re- in all facets of procurement and supply
ports into me and we’ve had some good chain management. He has held positions
success,” he says. “It can be challenging with large business units of Fortune 500
for a new person to come in and significantly change our money very carefully and spend it wisely.” companies, medium-sized contract manufacturing
an existing process but everyone seems to understand O’Brien is excited to work for a successful mission driv- companies, small venture-backed Internet startup
our challenges and they’ve treated me well. It is all en organization “Our employees and volunteers really firms, and third-party procurement, consulting and
about balancing the needs of the divisions while fo- support the ACS mission and that drives us to work strategic sourcing firms.
cusing on the supply chain efficiencies we are trying even harder with suppliers to create value,” he says.
to implement.” “Most of our suppliers bend over backwards to sup- Rich holds an M.S. in Management from Lesley
port us and offer some special deals.” Yet some have University and a B.A. in Economics from Rutgers
When addressing sourcing decisions, O’Brien likes to had integrity issues. “Sadly, we’ve found some suppli- University. He is past president of the Purchasing
utilize what he calls the “Sourcing Wheel of Life” that ers have taken advantage of us over the years, thinking Management Association of Boston and a recipient
includes areas such as total cost of ownership, qual- of the American Cancer Society as an easy target,” says of the Harry J. Graham Memorial Award, the highest
ity, risk, and efficiency. “We are really focused on pro- O’Brien. “We are weeding them out.” honor bestowed by the association.

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Office Products Industry Study


Opportunity for Procurement
Now, more than ever, procurement operations have economy is recovering, business is expanding and Compared to three years ago,
an opportunity to optimize sourcing of a vital spend cat- companies expect to increase sourcing through of- the economy now is:
egory—office supplies and related products and servic- fice products suppliers in coming years. Procurement Growing
es -and deliver additional value to their organizations. operations participating in the 2012 Study now source
office supplies and other related products and services
Take the leap, procurement. through office products suppliers. The same
The 2012 OfficeMax Office Products Industry Study
conducted by My Purchasing Center shows the Procurement operations are satisfied with perfor-
Contracting
mance of office products suppliers. Office products
suppliers are doing an outstanding job at customer
service, quality, delivery and cost management.
0% 10% 20% 30% 40%

Results of earlier research on procurement products suppliers by expanding agreements to in-


best practices such as the 2011 OfficeMax clude such items as paper, toner, furniture, private-label
Purchasing Study and anecdotal evidence products, breakroom supplies, technology and print.
based on interviews with representatives of
procurement operations with responsibility By partnering with their providers, and leveraging
for office-products sourcing show world-class compa- spend across multiple categories with a single supplier,
nies continue to work to consolidate spending help- procurement operations could realize cost savings.
ing to reduce costs and improve productivity for their
organizations. The Economy and Sourcing Activity
Procurement operations at organizations participat-
Yet the 2012 OfficeMax Office Products Industry Study ing in the 2012 OfficeMax Office Products Industry
finds there appears to be hesitation among procure- Study source office products and other related goods
ment operations to leverage relationships with office and services through office products suppliers. Two

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

What items do you now buy through your office products supplier? In three years, do you expect to buy more,
100% less or same amount of office products
and other related goods and services
80% through your office products supplier?
67.2%
60% 59.6% More
50.8%

40%
33.8%
30.3%
21.7% 21.2% 23.2% Less Same
20% 14.1% amount
35.2%

0%
Office Office Technology Print Breakroom Paper Toner Private label
supplies furniture (computer services supplies office supply
hardware vate-label items (30.3%), breakroom supplies (23.2%),
and peripherals)
computer hardware and peripherals (21.7%) and print
hundred procurement operations at organizations related goods and services through their office prod- services (21.2%) are other items procurement sources
across the nation took part in the 2012 Study. ucts suppliers today than they were three years ago. through office products suppliers.
Another third is sourcing the same amount as in 2009.
For three-in-four procurement operations, economic Looking ahead three years, 35% of procurement op-
conditions are favorable. The rest are experiencing an By far, office supplies is the most popular spend cat- erations expect to source more products and services
economy that’s contracting. egory procurement sources through office products through their office- products suppliers. Another 51%
suppliers. Nearly every procurement operation in plan to source the same amount. Just 14% will source
That optimism is reflected in procurement’s recent the study (99.5%) sources the category through the less. Those plans, however, do not show increases
sourcing activities. Thirty percent of participants in suppliers. Procurement operations also source paper in sourcing of specific related products and services
the 2012 Study are sourcing more office products and (67.2%), toner (59.6%) and office furniture (33.8%). Pri- through office products suppliers.

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Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

In three years will you look to your office products supplier


for assistance with any of the following? breakroom supplies, technology and toner--at more
100% competitive prices.
Yes
No 82.6% At the same time, many procurement operations in
80% the 2012 Study also do not have plans to extend their
agreements with office products suppliers to include
64.5% certain services. Roughly half (49.5%) will look to their
60% supplier for assistance with meeting goals for environ-
49.5% 50.5%
mental sourcing initiatives in 2015.

40% 35.5% Another 35.5% will seek help from their supplier with
meeting goals for spending with diversity suppliers.
Nearly 18% expect to expand their company’s sourc-
20% 17.4% ing to other regions of the world.

Measuring Supplier Performance


0% The 2012 OfficeMax Office Products Industry Study’s
Meeting goals for Meeting sourcing goals Expanding your company’s
environmental for spending with sourcing strategy to other findings on procurement’s sourcing plans are some-
sourcing initiatives? diversity suppliers? regions of the world? what surprising given that these office products suppli-
ers provide a wide range of products and service--and
Three years from now, nearly every procurement of private-label items (30.8%), breakroom supplies deliver high levels of performance overall.
operation (98.5%) plans to source office supplies (25.3%), computer hardware and peripherals (22.2%)
through their current office-products supplier. In 2015, and print services (22.2%). On performance, procurement operations give office
figures for other categories that procurement cur- products suppliers good or excellent ratings. Nearly
rently sources through the suppliers also will remain Asked to name additional products they’d like their 43% say office products supplier performance is excel-
virtually unchanged compared with current sourcing officeproducts supplier to provide, most procure- lent. Another 52% rate office products supplier per-
activity: Procurement plans to source paper (63.6%), ment operations appear satisfied with current offer- formance as good. Just 5% find supplier performance
toner (55.6%) and office furniture (33.3%). Procure- ings. However, some suggest that office products to be fair. None describe performance office products
ment also will be sourcing roughly the same volumes suppliers offer related products such as janitorial/ suppliers as poor.

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Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

What ’s more, per formance How do you rate overall performance How does the performance of new ideas to manage cost and increase
only continues to get better. of your office products supplier? your office products supplier revenue. Sixty-nine percent of procure-
Performance of office products
now compare to three years ago? ment operations say suppliers are do-
suppliers has improved over Good ing a good or excellent job at this.
the past three years for nearly 52.0% Same
one in four procurement opera- 72.7% Overall, a majority of procurement
tions. For the majority (72.7%), operations (56%) view their office sup-
performance remains the same. pliers as being capable of bringing for-
Fair
About 3% are sourcing through Excellent ward innovation and new ideas to their
5.1% Improved
office products suppliers whose 42.9% procurement organizations. However,
performance has declined. Declined 23.7% nearly 20% give them a poor rating in
3.5%
this area. Compare this figure with 3%
And performance of office products suppliers is on par vice; 41.3% give their supplier an equally high mark for of procurement operations of procurement operations
with that of procurement’s other strategic suppliers. handling delivery issues and 36% use similar kudos for that say office products suppliers are doing a poor job
Fifteen percent of procurement operations in the 2012 quality performance. at helping to manage costs.
Study find office-products supplier performance to be
better than other strategic suppliers. For the majority Managing costs, technical support and geographic To the question “What does your office products suppli-
(82.3%), performance is about the same as for other range of service are other metrics for which office er do particularly well” procurement operations partici-
strategic suppliers. products suppliers receive excellent ratings from pro- pating in the 2012 Study provided responses that call
curement operations. out office products supplier proficiency at delivery and
Service Stands Out customer service. Here is a sampling of their responses:
Asked specifically how their office products suppli- The majority of procurement operations are more
ers perform in certain areas, procurement operations liberal with “good” ratings for all these performance “Consistent and efficient order processing, integration
n

participating in the 2012 OfficeMax Office Products metrics. Office products suppliers also are doing a of ecommerce tools and analysis of usage activity.”
Industry Study say the providers do particularly well at good job at assisting with demand management, “Online ordering, prompt delivery and good prices.”
n

customer service, delivery and quality. assisting with compliance, geographic capability, “Responds to company needs and suggests additional
n

e-commerce capability and technical support. areas of savings.”


Fifty-four percent of procurement operations rate “Provides great service especially from drivers and
n

their supplier as excellent at providing customer ser- Increasingly companies are looking to suppliers for CS folks.”

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WORKPLACE
Category Management: The Next Level Creating Mission Industry Study
Introduction Beyond the Strategic of Procurement Winning Sourcing Driven Opportunity for
in Strategic Sourcing Excellence Strategies Sourcing Procurement

Specifically, how does your office products supplier now perform in these areas?
Good
n
“Retain knowledgeable staff that is and remains
Excellent Fair Poor
communicative and responsive when issues arise.”
Customer service 54.0% 37.9% 7.1% n
“Add more items to house-brand program.”
n
“Website improvements, communications, packaging
Managing costs 29.9% 54.3% 12.7% of orders that we receive, pricing.”
n
“Price margins, online technology, relationship
Assisting with compliance 15.9% 72.8% 9.7%
between local office and corporate office.”
n
“ We occasionally see items go out-of-stock/
Technical support 23.6% 65.6% 9.2%
discontinued without immediate replacement of like
Handling delivery issues 41.3% 52.6% 5.1% product. Would like to encourage cost-containment
without our having to cost compare.”
Assisting with demand management 13.8% 80.0% 5.1% n
“Account management across states or countries
‘global account management.’ Also assist with
Geographic range of service 23.5% 69.9% 6.1% conversion of products to more economical brands.”

Quality 36.0% 59.4% 4.6% By and large, procurement operations that have these
issues with office products suppliers should be able to
E-Commerce capability 23.4% 68.0% 8.1% resolve them with improved communication/closer
collaboration with the providers. Office products is
Innovation/new ideas 12.6% 56.6% 11.1% 19.7%
a spend category that procurement operations at
0% 20% 40% 60% 80% 100% many world-class companies go to as a test for imple-
menting new strategies, such as online ordering, with
n
“Provides good monthly and year-end reports, enables When asked “In what areas is there room for your of- good success. With this favorable report on supplier
approval limits and persons to be set up for ordering fice products supplier to improve?” the majority of performance and improving economic and business
supplies to corporate office and stores with a good procurement operations in the 2012 Study answered conditions it may be time for procurement to leap at
website.” “none.” Others mentioned that they are looking for the opportunity for optimizing the spend with office
n
“Efficient procure-to-pay process, order distribution better delivery, customer service and cost perfor- products suppliers--and deliver additional value to
and delivery performance.” mance. Here is a sampling of their responses: their organization.

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