We all know that using a wide range of value levers to develop a category strategy delivers more for our organisation.
The ‘more’ comes from broader stakeholder engagement, delivery in different areas, greater numbers of initiatives to implement and frequently, extending value delivery in a category that has been squeezed dry (applying leverage, consolidating spend).
Although we know this to be true, it is also a common observation that category strategies contain a limited number of procurement focussed value levers, and little beyond that. The reasons given are many and varied: not enough time, no stakeholder engagement, no data or bad data, no ability to change things outside of procurement.
Detailed insight into value levers
All that may be true on a day to day basis, but let’s consider the effect of not using a broad range of value levers to develop a category strategy. Our global study on what makes category management effective gives detailed insight.
Extra value delivery
First, it is important to note the scale of delivery of extra value. Those with better use of category management are delivering more than 3 X the value of those who are starting out. If your regular value delivery performance is 3% you’d expect to see 9+% with well implemented category management.
Then it is important to understand what gets used as a value lever in better performing businesses. We look at the detailed use of specific levers, and price and cost levers are better used by all businesses than risk reduction and stakeholder value / revenue generation areas. However, those good at category management perform far better across all three areas than the rest, and deliver more value.
As examples, 79% of replies agreed that they use volume consolidation. Only 40% agree that they looked for value from new product / service introduction. 47% agreed that sustainability and social value was included in category initiatives. 37% looked at cost and remuneration models as a way of generating value. Only 45% agreed that they looked at demand management.
The best category strategies
There is a repeated story here about the level of ambition which is seen in category strategies. The best are wide ranging, seeking value in lots of areas and are genuinely business strategies by themselves. Many are sourcing strategies, selecting a number of suppliers to go to market with.
We also hear that more is expected from category strategies, but they don’t deliver what is expected. Well, not using the available range of value levers is one way to ensure that a strategy under-delivers. Getting more ambitious, encouraging deeper exploration, fostering the stakeholder relationships needed to achieve that, all need to happen.
Checking for a wide range of value levers
It is worth remembering that there are more than 100 value levers, each with definitions and ways of using them. Testing category strategies for their use of levers is a good way of understanding their fundamental quality. Even better, is to check for the use of value levers throughout the process, to make sure a wide range can be used and that there isn’t a mindset which is closed to broad value at early stages. Having a model of value levers can help.
As an idea, talk to us about how to run a value level workshop. Seek the maximum from a category strategy, and encourage your teams to deliver that. This is one way to show how we can maximise value delivery from procurement.
Further reading on the subject of Value Levers:
Blog post: Value levers impressing our stakeholders
Blog post: Value impact why is it important
About Mark Hubbard
30+ years experience in procurement and supplier management, in line and consulting roles
Previous employment: Positive Purchasing Ltd, SITA,
QP Group, BMW, SWWS, Rover
Education: BSc in Engineering Metallurgy, MBA University of Plymouth
CIPS: Current Member