Value levers should be a core part of category management and supplier relationship management (SRM) processes, but it is often missing, presumed misunderstood.
It is critical to include value levers as it is the tool or approach which ensures that all the possible value in a particular category or supplier relationship is sought. If they are not used, procurement is very likely to develop a category strategy (or a sourcing strategy, or relationship strategy) that misses significant value-adding opportunities.
What are value levers?
At its most simple, the value levers are a whole series of possible interventions in a category which could deliver additional value to the organisation. It is very unlikely that all of them would be used in a single category. However, it is very likely that, at the start, few of them are being used.
There are a number of ways to use the value levers, but I believe that a category manager should have an understanding of the concept and of the detail at their fingertips.
The importance of full visibility
At the outset of a category or supplier relationship review, the category manager needs to be able to plan the approach that they are going to take when building a detailed understanding of what is happening in a category or relationship. To do that, they need to be open to the potential of a wide range of value levers being used, and to understand what will either support the use of a particular lever, or to clarify why they are not being used.
If the category manager has this awareness at the start of the process, then they are more likely to design their data gathering in a way that tests whether all appropriate levers are being used.
As an example, one value lever asks whether a product or service is being bought from the right country. The emphasis here is on understanding the marketplace from which procurement is buying, and to understand the different opportunities available from different locations. If the category manager gets to the options generation stage of either SRM or category management and then decides that they don’t have enough information to evaluate an approach, they are too late in the process to make adjustments. Or they will need to accept a delay while they investigate further.
Another example is to move beyond price and focusing on getting a better ‘deal’, and to focus on total cost. In other words, to look more broadly at all costs related to procuring and managing a product or service. Ultimately, this is a better measure than best price given most purchases have many other costs beyond price built in.
Frequency and transparency
This means that category managers need to be working with the value levers on a regular basis as a mean’s of testing and steering a course through to a high quality, broad delivery strategy (rather than one, at the opposite end, just focused on price).
It is not just category managers who should be closely focused on the use of value levers. Purchasing leadership teams (PLTs) need to be all over this as well, in their role as coaches and owners of governance approaches. It is critical that PLT members have a clear understanding of value levers so they can test and challenge their teams to ensure that all possible value is being driven out.
Procurement stakeholders already know this is a weakness in procurement teams. Procurement is often challenged to make sure that they are not just focusing on price, to have a broader view of what the organisation requires and to deliver the broader value available. Of course, stakeholders also use value destruction arguments to protect current positions, so the pendulum does swing in both directions.
Future Purchasing’s clear recommendation is for value levers to form a very clear part of any category, sourcing or relationship strategy, to ensure that the most is achieved from it.
Contact Mark Hubbard here to find out more.