Insight

Considerations for Sourcing and Category Management

Can Category Management & Sourcing save the day?

Nikhil Parva

Nikhil Parva

Manager, Procurement and Business Services, KPMG US

+1 972-310-4444

Len Prokopets

Len Prokopets

Managing Director, Procurement and Business Services, KPMG US

+1 203-233-9077

Category management and Sourcing are arguably the most valuable contributions procurement functions make to their organizations. COVID-19 has created opportunities for Procurement to aggressively pursue activities to help the organization survive and emerge stronger post crisis.

Category management and Sourcing professionals by virtue of their close involvement with the supply base, clear alignment with the business requirements and a maniacal focus on bottom line impact will experience increased reliance as organizations try to maintain a sense of stability in these pandemic times.

To seize the opportunity and achieve the right results, Category management & Sourcing need to

  • Engage with your internal customers and suppliers
  • Be proactive
  • Prioritize
  • Take a strategic view that balances the savings and risks

We have formulated a set of recommend actions based on discussions with our clients to use the power of Category Management & Sourcing to maximize the value from procurement. For the sake of simplicity, these actions have been aligned with “Early Reaction (0 to 100 days)”, “Need for Resilience (3-12 months)” and “Early Recovery (12+ months)”.  Here is an overview of these six areas along with some key questions to be addressed.  

Revenue Assurance

  1. What actions are needed to fulfill demand? Early payments, alternate suppliers, expediting, financial support for your suppliers and reallocating supply across your business
  2. What stabilization in the Supply Chain and Operations is needed to assure the business flows smoothly. E.g. supporting your employees through virtual operations, managing operational disruptions, providing real time support to all parties.

Rapid Pricing & Negotiation

  1. Where can the organization gain immediate price relief on current supply agreements without disrupting supply and accelerating supplier liquidity challenges
  2. How can negotiation strategies be differentiated based on supplier segmentation? If needed, are you willing to support your key suppliers through improved flexibility (let’s say in payment terms)?
  3. How can negotiation be best executed across the full supplier portfolio?

Optimize Supplier Portfolio

  1. Which suppliers are the most critical and highest risk for your organization? How does your supplier count compare with respect to leading organizations (Benchmark: Suppliers per $1B in spend – 1959 Leading and 5806 Average)
  2. What new approaches are needed to better align the capabilities and offerings of your strategic supplier with your business needs?
  3. What relationship management planning and collaboration will be required to help your strategic suppliers survive and thrive?

Insight Based Sourcing

  1. What should the organizations be paying for the material and services that it’s procuring
  2. How can the organization take advantage of commodity price adjustments?
  3. What changes E.g. Value Engineering can be made to align the cost and capabilities of suppliers to your organizational needs

Supply Chain Repositioning

  1. What regulatory changes may impact your sources of supply?
  2. What supply repositioning may be needed to enhance resiliency?
  3. As new market and demand patterns emerge, what are the best sources of supply to serve those?

Demand Management

  1. What projects and initiatives can be cancelled or delayed?
  2. Where can operational activities and demand drivers and specifications be lowered to reduced spend
  3. How can demand drivers be made more visible to the business to enable better decision making

The above actions will help the organization prepare for and adjust to the new normal.  In addition to the above guidance, Procurement should be flexible and dynamic to deal with the various unknowns that are sure to emerge in the coming times.

View this document for a more comprehensive perspective on the Insights & Actions and feel free to contact us for more information.