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We firmly believe that Consulting Category Management can be the perfect lever for taking your consulting Procurement to the next level. In this article we elaborate on the definition, goals, success factors other key concepts associated with category management and take a look at the benefits of its application in consulting.
What is Consulting Category Management?
Category management is one of the most popular procurement methodologies, along with strategic sourcing. It strives to minimize your procurement practice’s total expenses and, more crucially, increase value generation.
The CIPS claims that category management helps procurement professionals to concentrate their efforts, undertake market research, and effectively manage their suppliers in line with company goals.
We must mention the enhanced performance of relationships with your suppliers as a few of the numerous advantages of putting category management into practice.
Lifecycle costing can constantly be improved through category management. It’s a dynamic strategy that necessitates proactive management and evolution toward peak performance, a changing aim that alters in response to market conditions.
Category management can be leveraged as a long-term strategy to track trends, market dynamics, and the supplier landscape within a particular area of expenditure. It is often updated (typically two to four times a year) to adapt to shifting business conditions. Category management is not strategic sourcing.
An essential element of category management is in-depth market information. To ensure that the procurement strategy is tailored to the market’s offers, the category lead should be thoroughly aware of their categories and keep up with recent advancements.
External market research, professional associations, trade publications, and internet news searches can be used to get this knowledge. You should be aware of shifting dynamics in a specific sector or supplier group by doing something as basic as putting up a desktop alert based on exact keywords.
Stakeholders frequently believe that category managers are attempting to replace them in the procurement process, which is one of the largest misconceptions among stakeholders.
Category managers collaborate with stakeholders to provide crucial insights into Demand and Forecast, Finance, Operational Requirements, and Quality to ensure those category strategies are tightly linked with company requirements and goals. These are typical results of this process:
- A common understanding of what quality is, how to provide it, and what it should look like.
- Analysis of historical buying trends
- Knowledge of cost structure and key strategies.
- Alignment with stakeholders on key features and requirements.
Consulting Category Management Objectives
Category Management is a process-based approach aimed at segmenting the expenses into categories according to the function and, most importantly, the supplier base. Organizations divide their spending into categories that include related or overlapping items. It makes it possible to concentrate more on areas where there are chances for efficiency and consolidation.
Through effective supplier relationship management, the lowest total cost of ownership (TCO), and the highest possible return on investment, a strong and strategic supply chain aids organizations in creating value (ROI).
Moreover, good category management is one of the most important – and valuable – elements in creating an optimized supply chain.
Companies that have adopted a category management system have reported increases in supplier performance, internal client satisfaction, supplier relationships, and expenditure visibility besides making ground-breaking savings (10–30%).
Category Management should always be looked at with at least two objectives in mind: generating savings for sure but more importantly, maximizing value creation.
With these two goals in mind, (generating savings & creating value) let’s discuss how Category Management can be beneficial for consulting Procurement.
What are the Benefits of Consulting Category Management?
The benefits are many, but some of the most notable ones include:
Maintaining a supplier for a single category is simple
It’s common for firms to feel confused when dealing with providers of particular goods. Managing a collection of things becomes a lot more comfortable and simpler when category management is applied, and supplier management is also made easier.
Even bigger time and money savings
Category management makes it feasible to negotiate lower prices for buying things in bulk. Individual product purchases will not result in fruitful talks. However, the firm will save a lot of money if it purchases a group of items from the same source. It may enable time and effort savings.
Procurement process simplification
The expedited procurement process is one of category management’s top advantages. It makes the procurement process more manageable since it aids in connecting corporate objectives with the purpose. It may increase innovation across all company areas while assisting in reducing supply chain risk.
More effective purchasing control
It might be challenging to keep tabs on all expenditures. However, it is simpler to regulate what is bought and when once category management is in place. One advantage of category management in procurement is this. Lower expenses and more control for organizations result from better expenditure management.
More reliability in terms of timeliness and quality
When a business deals with a certain supplier, that provider will collaborate by making sure the customer receives what they requested. This indicates that there will be a greater emphasis on the items’ quality and the timing of their delivery to the customer. As a result, consistency is ensured via category management.
Enhanced collaboration between the buyer and the provider
The connection between the supplier and the customer improves when a category management plan is in place that works. This is because the buyer and supplier will have a protracted business relationship. Better cooperation and teamwork will result from this.
Category management allows, a company to avoid making the same purchase over and over again. A company can save a significant amount by buying in bulk, instead. Time is saved as a result of the process being less repetitious, thanks to the reduction in duplication.
Is Category Management Applicable to Consulting?
As mentioned above, category management is a process that helps companies to optimize their purchasing, sourcing, and marketing of products in a particular category.
In the past, this process has primarily been used by retailers, but it is increasingly being adopted by companies in other industries as well. Consulting is one industry where category management can be particularly beneficial.
Rarely is consulting managed as a separate category; rather, it is included in indirect procurement along with travel and insurance. Consulting is sometimes included in the professional services bracket.
The functions and supplier bases for Legal, Engineering, Executive Search, and Real Estate Services, which are all included in Professional Services, are completely distinct from those of Consulting Services.
Recognizing consulting as a strategic category is the first step in optimizing consulting spend. In fact, it is a crucial facilitator of the Strategy due to the scale of the expenditure (0.5 percent to 3 percent of revenues) as well as the potential considerable influence on the Business.
No insult meant to Travel Management, however despite the possibility of large savings, neither the share price nor the enterprise value are frequently affected.
Explaining why Consulting is a Standalone Category?
Jon O’Brien, in his book, has defined why consulting is a standalone category.
It’s a discrete marketplace, consulting is often part of the internal procurement with travel insurance. Some companies have created a professional services category where you find, of course, consulting but also legal, engineering, executive search, and Real estate services.
But the problem is that the function and the supply bases for these services are entirely different from consulting services.
And it is small enough to work on and large enough to find opportunities.
The consulting market is global and extremely diverse, but most consulting firms use the same delivery models and fee structure. Consulting is small enough to work on small projects but also has the capability to work on large projects.
Consulting can be a significant part of the indirect spend. It can be up to 0.5 percent to 3 percent of your revenues. It’s very often an important lot and largely untapped in terms of management optimization. And the good thing is that you have a limited number of suppliers in the world.
Consulting is a homogeneous marketplace.
For many reasons, the consulting market is homogeneous.
First, all clients who purchase consulting services want to grow their companies, whether it is through cost reductions, process enhancements, or other means. They, thus, share a great deal of needs and desires.
Second, any company offering advisory services is competing for the same pool of prospective customers. The consulting industry has become commoditized as a result of the fierce competition, with companies providing comparable services at comparable costs. Finally, there aren’t many obstacles for emerging consulting companies to overcome. This confluence of elements has produced a uniform market.
What are the Key Success Factors of Category Management for Consulting?
Implementing continuous monitoring of the expenditure, the market, and the performance of the suppliers to find possibilities for improvement is one of the cornerstones of category management.
The market’s knowledge, improved engagement with business lines, and alignment between consulting expenditure and corporate strategy are, in reality, the primary success elements for category management and, ultimately, effective consulting sourcing. The efficacy of category management depends on the following:
1. Spend Analysis
Spend analysis is the process of identifying, gathering, cleansing, grouping, categorizing and analyzing your spend data with a goal of decreasing procurement costs and improving efficiencies. Using real-time data and analytics will give you the insight you need to save money and increase efficiency.
The first stage in aligning the Consulting Procurement Strategy with the overall strategy of your organization often involves performing a spend analysis. You must combine the consulting expenses across all organizational divisions in order to examine all the projects that were outsourced and make future projections.
The goal of the spend analysis is to generate a completely documented picture of the organization’s past and projected spending on consulting services, broken down by users and suppliers.
By understanding where an organization is spending its money, businesses can make informed decisions about where to cut costs and how to negotiate better deals with suppliers.
Spend analysis can prove to be an important tool for any business that wants to save money and improve its bottom line.
However, it is also important to consult with experts in order to ensure that the process is conducted effectively. There are many firms that specialize in spend analysis, and they can help organizations to pinpoint areas of waste and optimize their spending.
When done correctly, spend analysis can be a powerful tool for improving an organization’s financial health.
2. Market Analysis
To purchase consulting services, it is essential to understand the consulting market. You may examine the consulting market for the key competencies of your organization by using your current consulting spending.
The second, and sometimes more difficult stage entails searching the market for the services you intend to leverage to further your company goals and add more value. This is generally more difficult due to the lack of experience with the topic.
The consulting market analysis should provide you with a deeper understanding of the supplier market and your position within it. You can assess your worth as a customer and find yourself in a position to identify possible suppliers.
You cannot, however, restrict your supplier analysis to only the top companies, unlike in other categories. It is vital to go further into the consulting industry due to the market’s complexity, the variety of offers, and the specificity of your future demands
Top companies are often one-stop-shops (they offer all capabilities in all industries). And it can be attractive on paper. But the truth is that you might not find the same depth of expertise that of smaller consulting firms.
A wise panel management requires two things:
1/ Understand what is the right level of granularity in the taxonomy (the segmentation of the category in different services lines, that can be a sub-capability, a capability or a group of capability)
2/ Sourcing several profiles within a given segment to optimize the “coverage” based on the anticipated needs.
3. Supplier Performance Evaluation
A supplier performance evaluation is a process used by businesses to assess the quality of goods or services provided by their suppliers. This can be done through a number of methods, such as on-site inspections, questionnaires, or third-party audits. The goal of a supplier performance evaluation is to identify any areas where the supplier could improve their performance in order to maintain or improve the quality of their products or services.
Your consulting providers’ performance should be comprehensively analyzed and broken down by capability, organizational division, and project in the supplier performance analysis. It frequently relies on indicators of observable success, such as timely delivery, adherence to the original budget, and the caliber of the outputs.
In many cases, a supplier performance evaluation will include a review of the supplier’s quality management system (QMS). This will involve assessing how well the supplier’s QMS is designed and implemented, and whether it is effective in preventing or addressing quality issues. The QMS should also be reviewed for compliance with relevant industry standards.
Once the supplier performance evaluation is complete, the business will provide feedback to the supplier on their findings. This feedback can be used by the supplier to make improvements to their products, services, or management system. Ultimately, the goal of a supplier performance evaluation is to ensure that businesses are receiving high-quality goods and services from their suppliers.
4. The Human Factor Relation
Consulting services naturally have a human element that directly affects the output. Relationships and behaviors have a significant impact on the project’s outcome.
The human element in consulting services is vital to how projects turn out. Behaviors and relationships have a significant impact on the project’s outcome, which can be improved with better execution from both parties involved.
A component of the delivery is how the consultant interacts with the various stakeholders and his capacity to foster trust or impart information.
You should assess the effectiveness of consulting firms at the partner or project manager level, particularly for large companies. The idea here is that the performance or the impact of a consulting project relies heavily on the partner or the project manager. And the skillset of a company is the sum of the skillsets of the partners.
So, when you look at a company level, you might not see the nuances. Example: a given partner can be excellent at strategy but suck at operations. And another is the opposite. But if the evaluation is done at company level, you would just see averages in both segments. And then you are playing Russian roulette when you work with them, because you don’t know which partner is good at what.
In other words, people are more important than brands, and not all businesses excel in every area. Learn to recognize the areas of expertise of each of your potential providers and the partner you wish to collaborate with, based on your demands.
Finally, a consulting business may provide flawless action plans but fall short of helping you carry them out or passing along sufficient information to continue when they go. Ensure that you are prepared to take over the project when the consultant departs.
What are the Levers for an Efficient Category Management?
To develop a successful category management strategy for consulting procurement, a thorough grasp of the overall business strategy, the consulting market, and historical performance within the category are necessary. These strategies have to be exclusive for Consulting and according to the Procurement Guidelines.
Thus, the following tactics can be employed:
– Consulting Strategy
The definition of a consulting strategy is one of the underutilized levers that sits halfway between strategic planning and demand management.
In order to expedite your strategic objectives and have the largest effect, this consulting strategy tries to identify the main projects or project areas.
Your consulting strategy will direct teams not only toward the important activities but it will also highlight the areas where less effort should be expended.
– Make-or-Buy Strategy
Another crucial stage in developing the procurement strategy for the consulting category is defining a make-or-buy strategy. Demand Management and the Make-or-Buy Strategy should both be (re)evaluated because they are intertwined.
A decision-making process, frequently with a decision framework and a decision matrix, is the common outcome of the exercise. This framework enables choosing the optimum execution strategy for each project as well as which projects should be prioritized.
Think, for instance, of a significant transformation project for an insurance business to apply new development processes based on the lean startup and agile concepts throughout all of its Asian locations.
The consulting company may supply all of the project’s resources, or you might choose to set up a hybrid team made up of outside experts and your own in-house scrum masters.
This will not only help you save money, but it will also help the teams buy into the project and transmit more expertise without losing the energy and concentration on getting things done that are typically associated with initiatives backed by outside businesses.
– Master Service Agreements & List of Preferred Suppliers
Building a Preferred Supplier List is one of the strategies that, as in other categories, may be quite effective in consulting. It results from the reality that 20% of your Suppliers often provide for 80% of your demands. By considering your historical expenses as well as the strategy for the upcoming years, you may predict which Suppliers will be utilized, when, and how.
You may begin negotiating Frame contracts, also known as Master Service Agreements, with these “Preferred” Providers, including pre-agreed terms and conditions and volume discounts.
– Integration of Second- and Third-Tier Consulting Firms
Utilizing 2nd and 3rd Tier Consulting Firms (small to mid-sized) may also be interesting for lowering average expenses, meeting specialized or extremely operational demands from your company lines, and assisting you in managing the Tail Spend while maximizing ROI.
Examining your top 10 Consulting projects from the prior year is a fantastic way to see if you are effectively utilizing Consultants from this Tier. Can you name a few specialist small-scale players? Do you frequently see the same names mentioned? If you have only a handful of large consulting firms, this could be an efficient lever to optimize your consulting spend.
Improve your Process to Better Manage Your Category
Understanding your company’s procurement process is more than just picking a few suppliers. It requires understanding how you make decisions and what makes an effective consultant for this task, which will ultimately lead to better service delivery across the board! Having a process to procure consulting services is quite important. And it should cover topics such as demand management, decision-making, and make-or-buy.
Formalize your process
For this section, we might have read “Request Process,” but the fact is that you should always prepare an RFP, even a simple one, when it comes to consulting services. Why, do you inquire? as it establishes parameters like the scope and deliverables. Writing a strong RFP in that particular situation will improve the project’s chances of success as well as procurement performance.
Additionally, you could wish to divide the projects into other categories depending on their size, strategic relevance, prospective impact, complexity, and/or effect to determine whether or not an RFI, a streamlined RFP, a competition, or procurement support would be used.Most companies implement a threshold over which all projects have to go through Procurement and various validations, other projects being left at the discretion of the business lines.
Integrating a few control points into the process to create a new buy order is an intriguing method to guarantee light control (for instance, ask for the quotes of the losing parties to make sure a competition was organized).
Organize competitions whenever you can
Similar to the size of the competitive panel invite, the size of an RFP might vary from project to project. A broader pool of applicants maybe required for larger or more difficult projects, whereas sequels and minor ventures may not necessarily benefit from a competition.
However, your goal in this situation shouldn’t just be to tick the box labeled “competition” even when the incumbent or the preferred candidate isn’t actually in it. You must include respectable rivals if you want to fully gain from creating competition.
Here are some pointers:
- Create a strong RFP that allows the consulting firm to provide fresh concepts and methods.
- Clearly state your expectations and the assessment standards in the RFP to assist bidders in creating the best proposal.
- Distribute the briefing Q&A to all consulting firms to ensure that all bidders have access to the same material and can submit strong offers.
- Allow the consulting firm to present their plan so they may explain it to you in more detail and offer to fill in any gaps.
- Be objective when assessing the various proposals.
You may pick based on abilities and fit rather than price by creating appropriate competition, which will eventually increase the likelihood that your initiatives will succeed while lowering the risks and the cost.
Remember to codify the agreed-upon expected deliverables, terms, and conditions in a separate Statement of Work once you have chosen your consulting firm of choice (SoW). It goes without saying, but we strongly advise it in order to maintain your advantage, to complete the SoW negotiation before disclosing the results of the RFP to other companies.
Manage the relationships with your suppliers
Supplier Relationship Management (SRM) is a Big Topic for Consulting Services, just like it is for any other area. The method Procurement manages Consulting Providers should be compatible with the Company’s overall SRM procedures.
Qualify your Suppliers
Suppliers, even for Consulting Services, need to be qualified. These suppliers’ requirements are mainly based on former clients testimonies, case studies, and relevant thought leadership.
Two points of attention:
- The references must be relevant to the scope of your qualification. For instance, if you want to qualify John Doe Consulting for Innovation Management projects, they need to give you references for the Innovation Management capability, or at least the Innovation capability.
- Don’t forget that Consulting has an enormous human component. The partners or project managers have a significant impact on a project, but that impact, mostly intra personal skills and expertise, are not transferable. Frequently, the partner who is initiating the relationship will be the owner of the account and will be in charge of most projects. Ask for references of projects s/he led personally.
When you are inviting a Consulting Firm on a new capability, don’t hesitate to ask for further relevant references. If references are with your competitors, do not hesitate to ask a third party to help you with the process.
Identify your Strategic Suppliers
The principles for segmenting the entire supply base for Consulting Services should be the same for other categories as well. Because they account for the majority of their spending, businesses frequently select the biggest consulting firms as key suppliers.
However, the amount spent should not be the sole factor. A strategic supplier might be a supplier with a special strategic expertise, a supplier working on strategic projects, or a supplier working on projects that have a substantial influence on the organization, if we refer back to the criteria we outlined in the Demand Management for the Strategic Value.
Measure their Performance
Very few Companies measure the Performance of their Consulting Suppliers. Mainly because Consulting is an intangible service, and they are not comfortable evaluating the content of a project.
We will get back to how to implement a Performance Measurement System in details, but here is a sneak peek.
The system should be based on what makes a Consulting Project successful. Top of the mind, you will find quality of delivery with the time/quality/cost aspects. The impact of the Consulting Team on the Business, even though not measurable in numbers, can always be estimated with the satisfaction of the sponsor and the project leader on the results.
Other elements contributing to the success of the project are the talent and expertise of the team and the soft aspects (ability to build trust or transfer knowledge, for instance).
The granularity of the measurement can vary depending on the level of precision you expect. However, if you want to be able to interpret and compare results, it is recommended to be as exhaustive as possible.
Implement Supplier Improvement Plans
The relations with the Suppliers should support continuous improvement. When a problem is observed during a project with a Strategic or Preferred Supplier, very often captured through the Performance Assessment, you need to launch an improvement plan. Don’t hesitate to give the supplier a chance to provide you with some feedback on the scoping and management of a Consulting Project.
Manage the relationship
The intimacy between a Consulting Firm and its clients can facilitate and accelerate projects. When you regularly work with a Consultant, he is “plug-and-play”: he knows your Business and your industry. Put in place regular meetings with your Strategic and Preferred Suppliers to keep them in the loop and communicate their Performance Assessments results.
Implementing Category Management for the Consulting Category can drive significant savings and increase the return of investment of your Consulting projects. For all categories, it implies a close cross-functional collaboration, which can be challenging in a large organization.
Consulting Services’ nature demands an even more collaborative and flexible approach to category management since decision-making and knowledge are only in the sponsor and the project leader’s hands.
Leverage Consultants’ insights
Consulting firms get more and more familiar with your Business after spending a lot of time working on projects with you.
Nothing would make them happier than working with you on another project (unless you have been a painful client, but that is another story). Inquire about their opinions of your business and what they would do if they were in your position.
You’ll be astonished by the impact of this one query. By doing this, you will often receive candid feedback on your operations in comparison to the status of the market or the most recent thought leadership in a very short amount of time.
If you are a procurement professional, I am sure you have heard about category management. It is probably the most famous methodology in the field with strategic sourcing.
When you implement category management, you can expect to bring more valuable insight into your decision-making process and improve the performance of your suppliers and your relationship with them.
You must be thinking. “We have implemented category management in my company. But I didn’t notice benefits for consulting…” Indeed, there is a catch.
Category management is based on an intelligent segmentation of your expenses into bundles that are discrete marketplaces small enough to work with, large enough to find opportunities, and homogeneous in terms of customer preferences and regulation.
The problem is that many companies are folding consulting into a broad “professional services” or an even broader “indirect spend.” The category they use is so large that the category manager doesn’t have the time or the resources to perform details spend analysis, explore the market, evaluate the performance finely or manage the human factor.
And they can only scratch the surface and stay at a rather high level. Unfortunately, that also means leaving on the table most of the benefits of well-rounded category management. But, little padawan, there is hope.
If you consider consulting as a standalone category and manage it as such, you can reap the full benefits of the methodology.
And in the meantime, may the force of consulting sourcing be with you!