Milling & Baking News - May 22, 2018 - 40

Procurement Update

Cyclical category management is
the true procurement 'north star'
During the 1990s the concept of "strategic sourcing" as a new approach to
procurement sourcing gained traction
and attracted considerable hype in the
purchasing space. Some 20 years later
the hype remains high, but the concept
has failed to fully reach the potential
initially projected by the practitioners
and consultants who conceived and
began developing it.
The second purchasing myth
I discussed in the 2017 introductory article of this series related
to the thinking that strategic
sourcing is viewed today by
many as the foundational core
for procurement, the "north
star" that is helping transform
procurement's brand from a
transactional function to a strategic function. My perspective
is that strategic sourcing has
evolved as a tool and capability
for those who have properly deployed it, but it is not the strategic brick in the functional foundation that had been envisaged.
My contention is that "cyclical category management" is the core foundational brick, and strategic sourcing
is a key tool in its toolkit. This thinking
comprises the content for this article.
Strategic sourcing was introduced
as a holistic approach to sourcing; a
formal and staged-process approach
that takes an end-to-end view of a
spend category's life cycle. The approach was a sharp contrast to the
transactional procurement norm that
had long defined procurement across
most industry segments. Incorporating elements such as a comprehensive cost, supply market, and supplier analyses, the crafting of a sourcing
strategy and the careful tracking of
results as part of a continuous cycle,
strategic sourcing generated strong
interest from procurement and business leaders because this new approach defined an end-game of significant cost reduction.
The approach formalized some of
what was known at the time, while
Patrick D. Mitchell is
president of P.D. Mitchell Inc.
and a senior adviser with
McKinsey & Co. He has 35
years of supply chain and
procurement experience.
40 / May 22, 2018

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introducing new concepts that provided analytical depth and insight
formulation to the sourcing effort.
The approach yielded a category
strategy that would be deployed and
govern the category optics and define
the cyclical approach to a category's
life. Seen bringing depth in preparation, continuous improvement
and governance, strategic sourcing

©WLADIMIR1804 - STOCK.ADOBE.COM

BY PATRICK D. MITCHELL

sourcing and the required depth
of analysis around supplier market brought cost transparency that
created savings well beyond norm.
Even those who adopted an approach
but failed to sustain it over time as
core to their spend management
found greater-than-normal savings at
the outset.
Much of the success and failure
for strategic sourcing traction is
founded in the same elements, and
we can look more closely. Strategic
sourcing initially was promoted as
a transformational approach
that required buyers to think
about spend categories more
deeply and open up the review of each category's supply chain more broadly than
ever before. The prize in the
end that was promised was
cost savings well beyond a
baseline, along with a better
understanding of the supply
market, the introduction of
effective new sourcing tools
and more advanced level of
performance management for
suppliers.
It was expected that effective implementation of the approach and maturity of its output over
time would give way to a changed
procurement value proposition and a
newly found respect for procurement
within the business. The approach has
not been broadly embedded across the
procurement space, and where it has,
it hasn't always been sustained. Reasons for this include:
* Procurement leadership broadly
underestimated the change management and the capabilities required to
attain proficiency with the new approach.
* Procurement leadership also
failed to enact governance that would
reinforce the cyclical nature of the approach and the ongoing development
of a fact base around the category.
* In many cases procurement
wasn't ready for strategic sourcing
when basic infrastructure like Procure-2-Pay had yet to be implemented. There are clearly leaders and followers across industry segments and
certainly within industry segments
themselves.
* The structured and systematic approach to awarding business created
visible tension in the relationships
buyers had developed over the years
with suppliers.
* The business was normally left out
of the strategy design process, which

promised a much larger "prize" in
the end.
In some of its earliest formats, strategic sourcing approaches (or models
as they were called) were designed
around a number of stages or steps
with clear interdependencies and
required outcomes. The start was
always understanding the spend itself, what comprised the category
(taxonomy) and a certain level of diagnostics (i.e., segmentation). The
models normally leveraged data and
information around the supply and
the supplier market for the category
with the intent of developing a category sourcing strategy.
It is this category sourcing strategy that would define the buyer's
approach to the market, implementation and negotiating protocol, and
ongoing supplier management. Over
time, the early formats were refined
and expanded and began to include
more tools and in some cases technology enablement, all with the intent of
providing increased robustness and
efficiency.
The approaches for those who adopted them effectively created significant benefits from the outset and
continuous benefits when maintained
properly over time. The compelling
"why" behind the use of strategic

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Milling & Baking News - May 22, 2018

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