Often, when reviewing procurement strategies being developed in businesses, the standout feature common across many is the sheer lack of ambition. There’s often a host of reasons for this, including poor change management, limited time, bad governance, insufficient commitment or understanding, poor training / coaching / mentoring to name a few. Great strategies are often the product of both good quality individual and team thought, but also a range of supporting activities which allow the creative bit to work well.
In amongst all that, there is the need for a good level of creativity to flourish within the team addressing a particular category, and to find ways of throwing away a series of constraints. This can be hard to do from inside the bubble of a particular environment, so it can be useful to look elsewhere to see the way others have tackled issues of ‘breakthrough’.
Ryanair is a great example to think about, as it shows how a simple idea can be delivered through a host of transformation activities. The core of that simple idea is low price fares delivered through a low cost operating model; they are generally recognised as having some of the lowest price fares and the lowest cost operating model.
This simple vision then drives a whole series of approaches to get to that lowest cost operating model. As an example, Ryanair have a younger fleet than most airlines, giving fuel efficiency benefits (possibly the largest cost driver being faced until recently). They also have identical planes: all 737-800 which provides a significant benefit in negotiating position, servicing and maintenance and spare parts acquisition. They go to less popular airports and have leverage with the airport owner. Their approach to luggage and boarding times is legendary. As is food. However, the whole effect is coherent and drives a simple aim the customer can understand: get the ticket price down.
Clearly, get the price down is a very focussed target, and may not work well in all category strategies. However, finding a focus in a category can be very helpful as it really determines the general direction.
To do this well, we really need to have a strong grip on the business requirements: what are we really trying to do in this category. An absolute focus on maintaining supply (at all cost) drives a different approach to an absolute focus on price. Getting to that clarity as early as possible, and working to understand the different possibilities which will absolutely drive in that direction, gives a very potent way of getting alignment.
The challenge is usually to get the true alignment and focus on the requirements for a category of spend and make sure that is aligned to the business needs. Recent experience suggests that the clarity of business strategy can be lacking (or, worse, is perceived as meaningless management speak) which dilutes the rest of the activities which are driven from it. Where this is perceived as a problem, getting back into the detail of business direction will be time well spent.
Some categories, by their nature, will run across a broad spread of business strategies. Car fleet and property both run across environmental, image, H&S, HR strategies, so any category strategy has to work effectively across all of these. Direct categories need to take into account innovation, risk, time to market, customer requirements. There is clearly some complexity in working through how all these areas impact on a category, and the easy default is get the price down.
We need to do better than that. By exploring and challenging in detail what the category needs to do to align to the actual business requirements, we can really test if our ideas progress those requirements or not. The best category strategy drives the largest number of business requirements forward.
Mark Hubbard thinks about procurement and sales at www.Smartbrowndog.com