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AssignmentMaster of Bussiness Administration-MBA Semester 4

SC0007- Category Management in Purchasing

Q1.

Ans....The pillars are based upon what is essential to drive insight and success within category managementand the four pillars are:

Breakthrough thinking

Customer focus

Cross-functional teams

Facts and data

Four Pillars of Category Managemen

1.Breakthrough thinkingCategory management is a process of marketing the management of a group of related products in away such that the sales of all the products can be increased. Category management performs varioustasks such as:

using competition to cut down prices.

varying the internal processes.

employing suppliers to change the value of your products.

eliminating requirements.

Category management is mainly about delivering a better value to the organisation and thisbreakthrough thinking fosters the business growth by making it more efficient and competitive. Thus, it

multiplies the return on Category Management effort. Breakthrough is a step-change progress inperformance in comparison with current performance. It helps category manger to manage more itemsand programs and to cope up with complexity and sophistication. Breakthrough thinking is thedevelopment of ideas that challenge the current practices of purchasing with the purpose ofremarkable improvement in performance. In purchasing, constant improvement may usually representa series of strategic negotiations with a supplier attempting to keep prices as competitive as possible.The step change may represent a basic change in the organisation and a shift from current state tonew state. The shift from current state to new state more often requires a short span of time eventhough some breakthroughs may take more time. It is common for a dip in performance before thechange happens as heavy resource is directed towards preparing for and making the change. A

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breakthrough improvement does not simply take place. It must be hunted down with determination andmotivation to challenge. Spotting breakthroughs need an open mind and interest in every possiblepiece of knowledge about the category. When breakthroughs are spotted, the struggle to overcomeresistance to change will most probably start and may stand in the way of realising them.2 Customer focusCustomer focus refers to understanding who your customers are and engaging with them tounderstand and respond to their requirements and desires. There are both internal and external

customers present in procurement process. In category management, customer focus needsengagement with customers to know their requirements, desires, concerns and problems and respondwith a sourcing strategy. Consider a department of purchasing that negotiates a better price but thisprice involves switching suppliers or varying specifications. If the negotiation is performed in isolation,there will most probably be rebellion by the internal customers and the customers who have not beenconsulted. Resistance to change will result in customers finding every reason to show that change isnot working. However, if the internal customers are actively involved in the process of change from thebeginning, they will own it. Thus, any negotiations or complications needed to secure the resultsgained will be approved and accepted by all.If the category worked on is temporary labour then customer focus raises many questions such as:

who uses the temporary labour?

who are the people involved in temporary labour?

who controls and pays for the temporary labour?

Understanding the business requirements is a basis for sourcing strategically and the requirementsare expressed through internal customers. It is good to have a lower hourly rate for temporary labourbut if it does not comply with the regulatory requirements of human resources and involves more workfor functional staff then the savings are immediately lost. In case of external customers, it is veryunusual and often improper for purchasing departments to begin talking directly with the endcustomer. Certainly, the marketing and sales operations that usually interact with the end customerwould most probably have issues about talking directly with the end customer. External customerfocus in category management is all about operating internally with the people who interface with thecustomer, usually sales and marketing to understand the customers requirements.Category management strategy is unlikely to fulfil all expressed desires of internal customer. Differentcustomers have different requirements and these requirements often conflict whereas somecustomers struggle to express their requirements. The aim of creating sourcing solution is tounderstand the internal customers and involve them in the sourcing process and compromising toensure that requirements are balanced with working solutions. Customer focus is mainly aboutunderstanding and responding to internal and external customers requirements3.Cross-functional team that works

A major portion of category management is based on teamwork across the business. Categorymanagement will definitely fail if it is only a purchasing initiative. If one person from purchasingattempts to drive change, the organisation will most likely have little desire for it and it is unlikely tohave support for hard change. Hence, cross-functional teams are the representatives from thepertinent functions across the organisation. The cross-functional team also includes a team leader

who is most likely the purchasing category manager. Based on the experience in some organisations,it is noted that for category management to be a successful process you must prevent using wordsthat may indicate purchasing is a leading initiative as this can have a negative impact. This negativeimpact is mainly seen if purchasing is still recognised as a strategic support function which must stillprove itself in any other form.Normally, cross-functional teams start their work with little interest, compete with each other, performthe work deficiently, and generally bring back problems. However, as the team settles, they will start tounderstand the power of the project, work together and discover the data that is required. The peoplein cross-functional teams will have the best breakthrough ideas and most significantly they will supportand drive the implementation. These ideas will be shared with other departments within the

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organisation. If the implementation of ideas takes more time then the people in cross-functional teamwill become a major source of resistance for change. Therefore, the category manager shouldunderstand and should be capable enough to focus on the human side of team creation anddevelopment. The size of the cross-functional team is crucial. If the team size is too small, theorganisation will not be completely represented or there may be inadequate resources to work throughthe process. If the team size is too big then the team becomes unwieldy and the team will be unable tomake good progress or take decisions. The ideal number of people who must be involved in a cross-

functional team in category management is between three and eight. If the project is massive or itincludes a wide category or geographical location that requires number of people then the team mustbe organised into sub-teams working on specific and well-defined activities. It is also important tocarefully select the cross-functional team members.Success of category management depends on the organisational ability to make the right resourcesavailable to perform the task. Cross-functional team members must ideally:

have adequate understanding of the goods or services within the category and how they areapplied within the organisation.

be able to commit to spend enough time in supporting the category management project.

have the support of their management team or senior teams.

be able to act as representatives for the rest of their department, actively interacting between thecategory team and the wider business.

be capable enough to challenge the function they are representing when they are ensured that abreakthrough opportunity is worth implementing.

The team members of category management projects must have a great commitment. In case of alarge international or regional category project with duration of twelve months, team members workingon the project must be committed for an average of around half a day a week to the project. Thisduration may usually involve:

participation in workshops and seminars during the initial phases of the project (each one may be a

day in duration).

support to collect internal, market and supplier data.

development of quick-win opportunities.

internal communications and stakeholder commitment.

request input from members own functions to recognise present and future requirements andrequirements around the category of expenditure.It is obvious that organisations having great level of commitment and embarking on categorymanagement must secure the right cross-functional level of resource. The level of commitment fromcross-functional team members needs active, visible support and approval from senior managementteam across the business. Cross-functional category management team needs training and

development. As a concept, category management might initially appear complicated to understand.Moreover, unless you have actually performed it for real, collected the data, gained insights from theanalysis tools, etc. It is difficult to appreciate the true power of category management process.It is also very important to understand team dynamics in order to lead a cross-functional team. Thecomposition of the cross-functional team will not remain the same throughout the project. People maygo out of the project because of conflicting business needs that may demand for a change of a teammember, or there may be people who are not contributing or not fitting in the project. The projectdemands for team members who are capable of contributing at their best. At the beginning, the teamwill be more focused on collecting and analysing data, understanding the marketplace, hunting foropportunities and identifying the most appropriate sourcing strategy. The project demands for team

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members who are capable of contributing at their best in these areas. The later part of the projectincludes:

implementing the sourcing strategy

driving change in the business

developing new supply arrangements

measuring supplier performanceFinally, the team members have to get into a stable condition where the sourcing strategy isimplemented and the relationship with the suppliers moves into constant progress.4 Facts and dataIn most of the organisation, decisions are made in several ways. For example, a managementcommittee might take a vote or the CEO might say what needs to be done, etc. In some cases,decision making is completely based on individuals intuition about what needs to happen. There aremany global organisations that have become successful as a result of one individual having thecourage to initiate bold steps and then make some high-risk decisions. Making a decision preparedwith good facts and data is most likely the most influential way to remove the risk from the decision. Incategory management, facts and data assist in removing the risk from decision making. The sourcingstrategies that suggest new and earlier untested sources of supply or changes to specifications aresigned off. Prior to signing off these sourcing strategies, senior management team and stakeholderswould certainly like to know any kind of risk involved. After understanding the risks that are provenwrong, they would further want to initiate some actions to lessen those risks or provide contingency.Facts and data also help to make forceful cases for change. A senior individual within an organisationblocks a change, possibly because of some hidden factors. These hidden factors include what he/shetends to lose, past relationships or simple reluctance to change. Here, the facts and data provide anindisputable basis to support the change. There is one more major purpose why facts and data areessential to organisations and category management. The purpose is to do with the actual process ofgathering facts and data. When consultants enter into business field, they are often unpopular andthey have less knowledge about the particular situation. Their first task would be to gather plenty ofdata. The process of asking for the data and information helps to gain confidence of other individualsand also to understand different stakeholders views. The power of understanding and analysis isimproved when different elements of data are brought together. Presenting ideas on the basis of soliddata is much easier and more convincing than presenting the same ideas based on intuitions orsuspicions. Facts and data play a crucial role in three areas within category management such as:

Providing forceful business cases for change.

Providing a motive to engage with the business and major stakeholders and get them involved.

De-risking decision making.Hence, the gathering of facts and data runs through the entire category management process.

Q.2Ans...

Opportunity AnalysisOpportunity analysis is performed to identify the categories on priority that will be tackled before theprocess begins. It can be considered as a tool to identify the priorities. Opportunity analysis tool isused during the course of the project to evaluate the opportunities. The opportunity analysis isrequired at this stage to analyse the opportunities that are not clear or was not fully tested beforebeginning the project.

A well-structured category management programme involves multiple categories and category teams.These categories and teams are developed after conducting a detailed multiple-category opportunityanalysis using spend data, market knowledge and consultation with stakeholders.The initial opportunity analysis is usually carried out using external support. Organisations seek

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external support as a provider or vendor who has knowledge on various categories will be able to usethis knowledge to gauge the scale of the potential benefits in each of the marketplaces.Opportunity analysis is a tool that helps in prioritising efforts in the right area. The prioritisation is donebased on the scale of potential benefits and how difficult it will be to effect the necessary changes torealise them. Combining these two factors, it is possible to identify and understand whether it is worthmobilising a cross-functional team to dedicate a specific time for category management project.

An alternative form of opportunity analysis shown in figure 4.4 can be used to gain further insight.Figure 4depicts an alternative opportunity analysis for apparel categories

we can observe that we have plotted organisational difficulty against market difficulty. If the market isdifficult, we may be able to change it if we have significant leverage or scale. However, this is notpossible as market difficulty is constant. For example, if we have low leverage for dyes, hanger andyams in the marketplace, then the scale of the benefit will be less to the organisation. On the otherhand if it is the organisation that drives the difficulty, then it is possible to alter the organisationalprocess with the right programme and executive support. For example, although advertising brings thepotential benefits to the organisation, it needs right programme and support to drive away any

difficulties. Other categories like stationery and facilities management bring potential benefits and areeasy to implement. Thus, they are less prone to organisational or market difficulties.

Q.3Ans....Value stream analysisValue stream analysis is a tool that provides a detail of how a process is operated. Value streamanalysis is based on the notion that a firm carries out a sequence of activities, each of which is aimedat adding some value to the product or service as it moves towards the customer. This tool identifiesthe way how an end to end process delivers the value. In other words, it visualises the entire processflow that helps to:

link activities and information.

identify value added as well as non-value added activities.

identify all related documentation.

identify opportunities to improve the business performance and provide input to the business case.

determine the key decision points within the process flow.Figure depicts that using value stream analysis, flow chart can be drawn for your business

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The Flow Chart Drawn Using Value Stream Analysis

Value stream analysis includes a sequence of activities well-designed to add some value to theproduct or service that has to be delivered to the customer. Value stream analysis involves drawing upa flow chart for your business and then evaluating, at each stage including the stages betweenactivities, whether cost/waste or value is being added. This helps you to spot unnecessary space,distance travelled, processing inefficiency, etc. The key strength of value stream analysis is that itquickly determines where change is needed and throws up opportunities for change. Furthermore, thistechnique can be easily extended beyond the firm, where it can be applied into the supply chain and

the distribution network.Wishful thinking toolWishful thinking is an unstructured method to generate ideas which is usually not supported by theteam participants who believe in using practical approach. A practical approach can sometimesoverlook the better solutions to a problem. However, the wishful thinking tool redefines a problem. Thishelps in gaining new insights. The wishful thinking tool is used to:

produce some new ideas.

determine solutions to a problem.

The wishful thinking tool provides new technology to conduct meetings and conferences. The wishfulthinking is being implemented and promoted by many organisations and now new creative techniques

are being adopted and placed into a creativity continuum. Now organisations paradigm preservingtendencies are shifting to paradigm breaking tendencies.Figure depicts that paradigm preserving tendencies of the organisations are gradually shifting toparadigm breaking tendencies

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The Creativity Continuum

Customer need tableCustomer need table is a tool used to identify the ways to change the processes to reduce costs, butstill meet the customers' needs. This tool transforms the customers needs into required design. Thishelps the project team to analyse the customers expectations and meet those expectations prior tothe development of product and services. This customer need table is used to:

identify the customer needs and expectations.

transform the customer information into required design.

Here, data is collected using customer surveys, interviews, similar product data and summarised

studies.Needs analysisNeeds analysis is a tool used to determine the type of needs to be accomplished to reduce the gapbetween actual and desired performance. Here, the organisational processes, job performance andemployee needs are assessed to find potential solutions to close gap between actual and desiredperformance. Need analysis is used to:

develop solutions to reduce the performance or demand discrepancies.

analyse the business requirements.

assess the processes to determine what employees are required to perform in their jobs.

Gap analysisGap analysis is a tool used to determine the action plans to close the gaps in performance. Themethods such as benchmarking, market research and data comparisons are used while comparingthe current performance to the desired performance. Gap analysis is used to:

analyse the benchmarking differences.

provide data for organisational change.

speed up data collection process.

identify the requirements to accomplish the future goals.

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Pareto analysisThis is also called the 80:20 rule Quality expert J.M .Juran employed this principle to quality controland observed that 80% of the problems originated from 20% of the possible causes. But he alsopointed out that the numbers 80 and 20 should not be considered as absolute.In essence, you should focus on the Vital few problems and not on the trivial many to substantiallyimprove the product quality.

This is the act of separating the significant few from the comparatively unimportant many. In theUniverse of Discourse, a small segment will be responsible for most of the results, while a largesegment will be responsible for little (Poisson Curve).

The Pareto analysis is used to:identify a list of issues

identify the work that generates greater profit within the project

Q.4Ans....Sourcing strategy is considered as a roadmap for managing a category. Sourcing strategy process

is an iterative process wherein it consists of many stages. The teams associated with sourcingstrategy undergo several stages of trainings and development. They move from short term plans tolong term plans with improvised tactics and strategies. The planning depends on the nature ofcategories.For example, the categories with technical characteristics require long term plans and strategies for itsdevelopment. There are four levels of sourcing plan.Figure depicts four levels that range from: sourcing action plan, short term source plan, long termsource plan and procurement strategies.

The Four Levels of Sourcing Plan

Now, let us discuss about the sourcing strategy stages in detail.Sourcing action plans or quick win plansSourcing action plans are also called as quick win plans. They possess the following characteristics:

Quick win plans are applied to those categories that are not managed by the purchasing team.They might be projects or plans that can be completed in 4-6 months when the process of gathering

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data and facts is in progress for the long term planning.

Quick win plans include negotiations, consolidations of volumes, generally actions related to theexisting resources, slight changes with the specifications in the project or plan. They are mostly one-page

summary that is consolidated with an action plan. Quick plans may arise in the second and third phase

of the sourcing strategy process.Short/Medium term sourcing plansAfter quick win plans, the next plan will be the short term sourcing plans. They possess the followingcharacteristics:

When the first cycle of sourcing strategy is complete, a second strategy, which can be extended to12 months, is developed and the plan is called as short/medium term sourcing plan. The short termsourcing plan extends for a time period of minimum 12 months.

A short term sourcing plan is a summary of the list of suppliers who were chosen for the project orplan. The plan also comprises the information on the business share given to each of suppliers andthe plan undertaken for the improvement in cost with respect to each of the suppliers. Page limit forthis sourcing plan document is 10 pages.

In general, a typical summary sheet of short term sourcing plan will include:a simple encountered business case in the past for sponsors reference.

a source plan and a detailed version of the source plan to put it into action.

a detailed appendix of the facts and other data analysis on which the team worked.

Long term sourcing plansThe long term source plan is a plan that requires time duration of minimum 12-24 months.Organisations agree upon number of tactics in order to put back the business in the market andenable the company to:

invest in the latest sources of energy.

develop strategies for the improvement in cost by 15 to 20%.

respond to the changes in policy and the structuring of the organisation.

The characteristics of long term sourcing plan may be listed as follows:summary and a simple business case, which was encountered in the past, for sponsors reference

that focuses on the risks in particular.

Barriers to implementation planAccording to the Institute of Grocery Distribution (IGD) research (2007), the main barrier for theimplementation plan is the incompatibility of the actual implementation and the agreed plan at theretailers office. The retailers and the suppliers work hard to satisfy their customers and maintain the

customer loyalty so they gradually make changes in the plan. Due to this, there are incompatibilitiesbetween the two plans. The survey also stated that the suggestions were given by the respondents asto what measures could be taken to improvise the issue.Some of the suggestions are listed below:

Improved communication between the retailers and the suppliers.

Retailer must take the responsibility of the implementation in the right manner.

More investment for the resources by the suppliers.

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Better training and briefings given to the store staffs.

Communication must be managed by the supplier in a better manner.

Store staffs being given good incentives.

Implementation of better systems.

Suppliers must clearly understand the retail operations.

Simple procedure and conduction trials before implementing the plan in real time.

Suppliers need to work in cooperative manner with the detailed implementation plan given to them.They must try to support the retailers in different ways and help in maintaining the compatibility. Theycan collaborate and work on the budgets and cater to the needs of their customers in a better way.Now let us reconsider the caselet that was discussed in the section 10.3 related to doll manufacturingcompany.

Implementation Plan

For the correct execution of a source plan, some activities must be implemented to put the plan intoaction. Implementation is the phase involving the planning of activities for the effective execution of theplan. It mainly deals with effective planning and delivery of the plans related to various categories. Theimplementation stage determines the success or failure of a plan so it must never be neglected.The key to the success of a category management is the correct implementation of source plan. Animplementation schedule is developed specifically and tasks are assigned to each of the teammembers. The implementation plan includes all the details regarding the tasks to be done, themember responsible for the task to be completed and the time schedule given for each of the task. Ifthe implementation plan is executed appropriately, it contributes to half of the success of the plan.Therefore, it is most important link in the entire supply chain.The following are the vital components of the implementation plan:

Plan approval process

Assigning responsibilities

Scheduling

Plan approval processThe plan is approved based on whether the trading partners are able to deliver all the requirementsnecessary for the execution of the plan. The plan approval process provides the complete assurancefor success of the plan. The performance of the company and its resources and its impact on theobjectives of the plan are considered in this process. Most importantly, the strategic plan should alignwith the overall business plan of the company.Assigning responsibilitiesYou know that the implementation stage deals with the assigning of tasks to team members for

execution. The retailers distribute the tasks and assign them to the concerned individual. Tasks areassigned to both the suppliers as well as the retailers.SchedulingEach of the tasks assigned is given timelines. The task must be completed in the given time duration.To ensure quality implementation, a calendar must be developed that has detailed data on each task.It includes completion dates for each of the tasks and their reviewing dates as well.The implementation plans must always adhere to the category management plan. This degree ofadherence is termed as compliance. The category plans are agreed plans between the concernedpartners. However, more often it is seen that the discussed plans do not get executed as agreed. Themain reasons being the:

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unavailability of a detailed implementation plan among the retailer and the supplier.

incorrect execution of preceding step affects the next step which leads to improper results.

availability of detailed implementation plan but not with adherence to the agreed plans.

Implementation plan must be considered at every stage of category management process as it has

different implications at each stage. To ensure that there are no obstacles on the path of planexecution, implementation plan must be consulted. If regular consultation towards the plan is notfollowed, it may even lead to the waste of months of collaboration, analysis, financial investment andtactic settings.

Q.5Ans.....

Strategic Option GenerationStrategic option generation process is also referred as breakthrough thinking. A breakthrough is abasic step change in business or process performance. Breakthrough thinking is the capability todevelop new and innovative methods for managing commodities and processes. This results insignificant Quality, Cost, Logistics, Development and Management (QCLDM) enhancement. Someinnovative strategies to commodity management by the addition of new approaches are required to

support the improvement initiatives within procurement process. Breakthroughs offer a radicalapproach to improvement i.e. 80 to 100% progress in performance. On the other hand, constantimprovement is the continual pursuit of business expansion and it normally results in 5 to 10% profitsin process and business performanceDevelopment of option evaluation criteria1. Generation of free-flow idea

2. Identify key themes

3. Group and summarise ideas by key themes

4. Compile multi-layer themed ideas into strategic options

5. Evaluate strategic options

Step one: Development of option evaluation criteria Before you start to create strategic options,the criteria against which the options are assessed must be identified. If the evaluation criteria areformed post-option generation, there is a risk that the evaluation criteria are shaped consciously orsubconsciously to choose preferred options. There are two areas where evaluation criteria must bedeveloped and they are: Criteria depending on the business requirements -If the requirement is referred as a need,then compromising is unacceptable to use a Go/No-go evaluation strategy rather than using anumerical weighting and scoring system. If the business requirements are essential (go condition),only then evaluation criteria are developed to assess the strategic option based on the businessrequirements. If the requirement is referred as want, then every option may be evaluated depending

on the level to which the option may deliver the want. In this case, a numerical weighted scoringapproach is applicable.

Criteria depending on how capable of implementation the strategic option is -A particularstrategic option might emerge as the perfect solution when matched against the business needs.However, if that strategic option cannot be easily implemented, then it would be more expensive orwould initiate unacceptable levels of risk and such an option will be unworkable.

Step two: Generation of free-flow ideaGeneration of free-flow idea needs the existence and involvement of the cross-functional team. The

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cross-functional team must be familiar with the outputs and must have a comfortable room with nodisruptions, a flip chart and a facilitator. Initially, the group must be introduced to the process of what isgoing to happen, what is anticipated from the group and the ground rules for the brainstorming activity.The next step would be that the group simply allows the ideas to flow, every idea being captured onthe flip chart along the way. A good brainstorming strategy here is very important and brainstormingactivity must continue after all the initial ideas have begun to dry up. Then, people start to think furtherand look for more innovative and creative ideas. As a result, there are a rich, different and often a long

list of brainstormed ideas.Step three: Identify key themes This long list is completely unworkable in its existing form. You willfind that there are many ideas to be processed. You will also discover that the list will include a blendof contributions. Additionally, some ideas may be opposite to others whereas some ideas mightnaturally match with each other and may be incorporated with whatever method forward is selected.

Also, same ideas may appear number of times with slightly different wordings.To start and to make sense of the long list, the entries must be divided based on common themes orheadings that summarise the nature of the idea. In order to recognise these themes, there is a listgiven below that determines the themes into which all the ideas must be grouped. A list of themesincludes:

good ideas to add to particular strategic options.

strategic options and ways.

sourcing or externally facing ideas that you must just do anyway and that fit with any strategicoptions.

policy or process changes.

internal variations or improvements you must just do anyway and that fit with any strategic option.

Step four: Group and summarise ideas by key themesThe long list of ideas must now be arranged based on the themes that have been recognised. Initially,the group must complete the arrangement. If working on flip charts, it may be achieved using asymbol, letter, or colour system to classify each entry on the list. However, in order to protect full team

engagement and start to make sense of the new themes, the completely arranged list must berewritten with every entry appearing under its new theme. This is a very crucial step and it takes sometime to implement this step. During the implementation of this step, it will be apparent that many ideaswill be similar.Step five: Compile multi-layer themed ideas into strategic optionsFinalising the definition of a strategic option needs you to think about what is involved in the option,what is excluded and what you are going to do. It is at this stage that you combine all compatible ideasunder each theme to develop a strategic option. Creative thinking is needed in this part of the processof generating a strategic option. Even though some ideas are naturally compatible with other ideas,there also exist some areas where ideas are opposite and cannot be combined. Hence, the mainpurpose of this step is to work through each list, beginning with the highest-level ideas that are termedas strategic options and then combine the ideas that will fit together.

Step six: Evaluate strategic optionsSometimes, the strategies to decision making may not fit with category management, which is plannedaround providing a strong basis for major sourcing decisions. These major sourcing decisions aremade by the cross-functional team, which is based on facts and data. Hence, the categorymanagement strategy must provide a compelling suggestion that is difficult to overlook and theprocess must include an audit trail to demonstrate how the decision is made. The next sectionexplains the strategic option evaluation process in detail.Strategic option generation is an important activity that demands for a degree of creative thinking.

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Q6Ans....Profile the categoryYou must know everything about the category that needs to be purchased in the first step of thesourcing strategy process. This means that you must clearly define the category and commodities in it.You must also know the current quantity utilised, types and sizes. The knowledge of supplier and the

processes used is also necessary. All these data must be documented in detail.Supply market analysisYou must identify the new potential global and local suppliers. You need to study the cost componentsof the product or service and analyse the marketplace of the suppliers for the level of risk andopportunities. Analyse the key raw material prices. Other variables such as labour and transportationmust also be priced effectively. The suppliers cost elements must be calculated and verified efficiently.Develop the strategy

A well-structured sourcing strategy enables you to decide where to buy the products. It also helps tominimise the risks and costs associated with the purchasing process. The sourcing strategy dependson the alternatives available to the current suppliers, how competitive the suppliers marketplace isand significantly how open are the consumers to the new suppliers.Select the supplier process

The most common method used for selecting the supplier is through Request for Proposals (RFPs) forseeking bids. The RFP must include the specifications of product and pricing, requirements fordelivery and service, and financial and legal terms and conditions.Negotiate and select the suppliers

After selecting the valid bids from all the bids, the first round of negotiation process is conducted withthe suppliers asking for clarifications and more details about the supplies. A good sourcing strategyprocess must conduct multiple rounds of negotiations to derive a shortlist from the valid bids. Thecategory management team generally makes the final selection.Implement and integrate in purchasing processIdentify the successful suppliers and ensure that they are involved in the purchasing processimplementation. The sourcing strategys communication plan includes any improvement tospecifications and changes in delivery times, requirements and pricing.

Benchmarking and tracking resultsThis is the key element in the sourcing strategy process. It is a continuous cycle, starting withbenchmarking the current status of the category or its commodity, monitoring the results and ensuringthat full value is achieved.These seven steps of sourcing strategy help companies to effectively purchase different categories.Strategic sourcing establishes a commercial relationship with the category management and ensuresthe involvement of the category manager. Sourcing strategy can be improved further using thefollowing five keys: Key 1 -The first key used in improving the sourcing strategy is determining the scope of thedeveloped strategy and identifying the opportunity with the help of the category management team. Italso deals with identifying all the companys potential stakeholders in order to know what the companyis sourcing and to ensure that the company has a plan for engaging with them. The category

managers must engage with the supply market before making any final decision on scope andprocurement as suppliers may have valuable insights into what can be achieved using the sourcingstrategy.

Key 2 -The second key deals with the knowledge of the company and its employees regarding thecategory, which is to be procured. This means the category managers must collect the data onfollowing three things:

How much the company is spending, with whom and on what?

The supply market to know how large it is, how is it structured and what are the factors driving its

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costs.

Different suppliers in those supply marketsCategory managers must ensure that the spend data and the subsequent analysis are clearlydocumented for future verifications. Key 3 -The third key used in improving the sourcing strategy is to know different underlying issuesin the sourcing strategy and the procurement process. For efficiently analysing these underlying

issues, the category managers must clearly understand the data in key 2 and modify that data intomeaningful information.

Key 4 -The fourth key deals with the generation of as many potential strategy options as thecategory management team can. The category management team can generate strategy options byefficiently understanding all the three keys and clearly documenting them.

Key 5 -The fifth key deals with choosing the preferred option from the list of possible sourcingstrategies developed by the company. The category manager must consider the following three thingswhile evaluating each sourcing strategy option:

The companys Business Requirements Definition (BRD).

The risk involved in each sourcing strategy option.

The implementation cost versus benefit of each option.

The ChallengesAn article on Whats the future of Category Management by Stephen P. Needel states that thepresent state of category management has lot of scope for improvement. Many authors have definedthe purpose for implementing category management. They have also described the scope of categoryand the basic techniques used in category management. Fast Moving Consumer Goods (FMCG)sector includes the following three basic principles for category management:

Treating each category as an individual business unit in which the retailers are responsible forcategory profits. The retailers are authorised to make any changes that need to be done in a category.

The buyer who focuses only on getting best prices for products and the merchandiser who focusesonly on selling the products can become efficient category managers.

Treating each category as an element within the framework of the retailers strategy andencompassing the strategy to every category. For example, if the strategy is Every Day Low Price(EDLP), then the retailers store needs to apply EDLP across all of its categories. If it is a best varietystrategy, then all the categories must excel at variety.

Providing the consumers with necessary products and shopping experience so that consumersmake more purchases. This way, both manufacturers and retailers make more profits. Manufacturersand retailers should create an on-going working-together process, where the main goal is categorygrowth.

There are many challenges involved in the process of category management based on the FMCGprinciples. Some of them are:

Transition of buyer and merchandiser to category managers.

Retailer strategy.

Retailers and manufacturers playing together.Let us now discuss the above challenges in detail.Transition of buyer and merchandiser to category managersIn category management, the foremost challenge is encountered when the retailers desires to shift

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their buyers and merchandisers from being just buyers and merchandisers to category managers.Many retailer organisations have efficiently accomplished this transition. However, this transition is nota complete success because any organisational change is always linked with many challenges.When the buyers of products were just buyers, they were mainly concerned about getting the bestprice for a product. They were responsible for negotiating quantity discounts, managing costs ofinventory, ensuring savings, etc. However, when the buyers became category they were expected tobe concerned about the profitability of the business, and think in terms of marketing and

merchandising and consider the cost of goods.Category managers need to obtain maximum benefits from their category by improving andmaintaining the profit of each product and by improving customer satisfaction. Being a good categorymanager requires skills which are different from being a good buyer because category management isan information-driven system. Hence, effective training is essential for the category mangers to thinkanalytically.Until the buyers are better trained in category management they cannot become efficient categorymanagers and this challenge will continue to affect category management.Retailer strategyThe second challenge in category management occurs when the category management initiativesneed to be included in the retailers strategy. Prior to inclusion of the initiatives into the retailersstrategy we must consider whether:

the strategy is accessible.

the strategy is correct.

the strategy creates inconsistencies with a superior category management approach.Sometimes, a retailers positioning is clear to the consumer For example, the grocery buyer may notuse terms such as High/Low, EDLP or Value-Added. However, they understand which supply chainshave better collections, which have low prices, which have good deals each week and which havegreat service.This positioning of the retailer offers opportunities for a series of higher-end retailers who specialise inupscale groceries, prepared foods and lots of services. Category management needs to clearlyindicate the retailers positioning to the consumers.Sometimes, the retailers strategy may not be correct. Category management cannot help inrecovering from such bad strategies. For example, in the United States, the strategies of manyretailers were distorted when Wal-Mart introduced its strategy. Many grocers began using the lowerprices strategy to prevent the consumers from migrating to Wal-Mart. Hence, in an attempt tocompete with Wal-Mart on price, the grocers lost their position in the market and profits wereminimised. The low price strategy introduced by these grocers failed. Adopting a weak strategy makesthe category management practices irrelevant.In the absence of a clear and practical strategy from the retailer, category management fails as anorganisation endeavour. In this situation, the category manager may start searching for solutions thatmay or may not be acceptable, rather than providing guidance on the types of initiatives that must beconsidered. Also, the manufacturers would continue to produce solutions that are unrestricted, andsuggest initiatives that have less chance of implementation.Retailers and manufacturers playing together

One of the revolutionary ideas of category management was that manufacturers and retailers wouldefficiently work together. This would enable the retailer to grow categories and manufacturers to obtainpreferential treatment. But, this has its own in-built challenges. Both the parties must believe thatcooperative partnership produces better results than having an adversarial relationship. However, theworking together concept, primarily proposed by category management, has often distorted therelationship.

According to the original formulation of category management, manufacturers who are moreknowledgeable would provide consumers information to the retailer. This information illuminates thecategory problems and opportunities, which the retailer would correct and exploit, thus providingsuccess to both parties. However, in reality, this situation is changed and the cooperation level is

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