Platform Solutions. White Paper. Sustainable Savings through Category Approach

Transcription

1 Platform Solutios White Paper Sustaiable Savigs through Category Approach

2 About the Authors Sajit Ghati Sajit is a procuremet cosultat with TCS' Platform Solutios uit. He has over 20 years of experiece i supply chai maagemet. Sajit has over 13 years of experiece i procuremet outsourcig services. He has maaged procuremet trasformatios ad strategic sourcig projects for various cliets across idustries. He has also bee istrumetal i desigig category maagemet, sourcig ad procuremet strategies, ad operatig models for global orgaizatios. Durgaad Jha Durgaad is a member of the procuremet team ad leads the Sourcig CoE withi TCS' Platform Solutios uit. He holds a degree i Electrical Egieerig from Regioal Egieerig College, Durgapur, ad a certificate i the Basics of Supply Chai Maagemet from APICS The Associatio for Operatios Maagemet. He has over 10 years of experiece i sourcig ad category maagemet for umerous Global Fortue 1000 compaies i the area of idirect materials ad services. Durgaad has maaged IT, telecom, professioal services, office supplies, evets, marketig, maiteace, repairs ad operatios, forgig, ad capital equipmet categories.

3 Orgaizatios are evaluatig 'sustaiable cost reductio' i all possible areas to improve their competitive positio ad improve their bottom lie. I additio, the ecoomic dowtur ad chagig markets have geerated ew iterestig sustaiable savigs optios, puttig the spotlight o the procuremet fuctio. Sourcig maagers ow wat to optimize orgaizatioal sped ad deliver sustaiable savigs. Sourcig has the potetial to cotribute sigificatly towards achievig sustaiable cost reductio as savigs are directly related to a orgaizatio's purchases. The quatum of savigs achieved has a bearig o improved shareholder value ad profits. Sustaiable savigs ca be achieved through a umber of iitiatives such as the category approach, supplier egagemet, collaborative sourcig, demad maagemet, aalysis of value chai, ad optimizatio of sourcig tools ad resources. This whitepaper explores 'sustaiable cost reductio through category approach' i sourcig, which has high potetial of savigs i the maaged sped of a orgaizatio.

4 Cotets 1. Itroductio 5 2. Category Approach for Sourcig 6 3. Develop Category Strategy 8 4. Execute Sourcig ad Award Cotract Maage Cotracts ad Moitor Performace Coclusio 17

5 1. Itroductio Sourcig maagers of orgaizatios eed to strategically maage their core materials ad service categories that cotribute to their major sped. However, i may cases, orgaizatios lack a structured category approach i sourcig. No-core categories fare worse as the value or criticality of these categories may ot justify the perceived ivestmets they require. I the process, orgaizatios lose out o potetial beefits that ca be realized from a category approach to sourcig. Core categories such as raw materials, eergy, ad taxes make up 70 85% of the total purchase value i a orgaizatio. No-core categories costitute the balace 15 30%. Mature procuremet orgaizatios are kow to achieve 1 4% savigs o core categories ad 1 20% savigs o o-core categories. For sourcig maagers, this implies a sigificat savig opportuity of 1 9% of maaged sped, depedig o the sourcig maturity of their orgaizatio. Figure 1 provides the typical sped profile of a mid-sized (USD 1b reveue) maufacturig orgaizatio Category Subcategory Sped $MM Direct Materials Compoets 220 Rubber 50 Govermet Taxes 40 Core Costitutes 70 85% of aual sped Tightly cotrolled ad purchased cetrally Marketig Creative Agecy 20 Commercial Prit 10 Logistics Truckload 10 Ocea 10 Small Parcel 10 IT Products/Services Telecom 15 IT Hardware 5 Documet Output 5 Machiery Dies / Cuttig 7 Material Hadlig 5 MRO Geeral Idustrial 3 Electrical 2 Safety 2 No-Core No-core could be direct (machiery, MRO) or idirect (marketig, logistics, IT) Compaies typically do ot focus o ocore purchases (costitutes 15 30% of aual sped) Purchasig is geerally decetralized, limitig a uiform category approach Similar products are sourced from commo supply bases i ad-hoc maer, reducig efficiecy,ad cost-savigs opportuities. Travel Air 3 Hotel 3 Total 420 Figure 1: Typical sped profile of a maufacturig orgaizatio Source: TCS iteral research Orgaizatios ca tap these potetial savigs by usig a category approach for their etire sped. This approach is a structured methodology to maage a orgaizatio s sped o goods ad services across their supplier base. It focuses o the aalysis of the etire category sped ad provides a overview of how 5

6 orgaizatios use goods ad services withi the category, ad the market ad specific suppliers. It helps reduce procuremet prices, overall cost or total cost of owership, ad supply chai risk, while mitigatig price icreases i a risig market by utilizig category/market itelligece ad sourcig best practices. I the absece of a welldefied category approach, orgaizatios ted to lose out o these beefits because: a) Category strategy is ot defied b) Category approach is ot adopted c) Market data is ot aalyzed at a specific poit i time while the market dyamics are ever-chagig Robust chage maagemet is oe of the buildig blocks of category maagemet. The category approach affects procuremet operatios ad iteractios with all stakeholders icludig the suppliers. As such, process traiig educatio, category goverace, ad chage maagemet must be developed ad implemeted. To successfully maage a category ad achieve its goal, category maagers should itegrate chage maagemet ito the category strategy as part of category maagemet. A category approach is traditioally ot followed by may orgaizatios, especially for o-core categories which are relatively less importat. The purchase plaig exercise is carried out at the begiig of the fiacial year based o the busiess pla, with sourcig subsequetly carried out accordig to requiremets. Sourcig maagers rely o their sourcig expertise, egotiatio skills, ad historic prices to strike a deal with suppliers. However, suppliers may have a better uderstadig of iput cost factors tha sourcig maagers ad are i a better positio to bargai. This paper illustrates a optimum path where orgaizatios ca apply a category approach to sourcig without havig to ivest heavily usig a strategic approach, appropriate processes, ad best practices. 2. Category Approach for Sourcig Category maagemet ca be defied as a cross-orgaizatio method of classifyig, orgaizig, ad uderstadig sped to: Idetify how orgaizatios use categorized products ad services Actively challege existig approaches to procuremet Determie scope ad opportuities for improvemet Develop SMART (Specific, Measurable, Achievable, Realistic, Timely) sourcig plas to deliver improvemet Implemet sourcig plas to deliver the stated objectives Review deliverables 6

7 Accordig to the Chartered Istitute of Purchasig ad Supply (CIPS)¹ category maagemet ca be explaied as follows: A structured approach to procuremet of goods ad services It applies best-practice tools ad techiques i the developmet ad implemetatio of a itegrated category strategy aliged to orgaizatios' eeds It applies a robust, structured, strategic sourcig process to the purchase of all goods ad services It ivolves local stakeholders i the sourcig process Category maagemet is ot restricted to cost reductio but could be targeted at ay strategic procuremet objective, for example, reducig adverse evirometal impact. Category approach is ot to be practiced i isolatio. Sourcig maagers must defie their category approach i lie with their corporate priorities ad procuremet eviromet, ad implemet category maagemet i their orgaizatios. Figure 2 illustrates a simple three-step approach as a example. Category Maagemet Approach Across the Sourcig Process Strategy Strategy Maagemet Develop Category Strategy Execute Sourcig & Award Cotract Maage Cotracts Moitor Performace Aalyze Busiess Needs Coduct Opportuity Assessmet Perform Category Profilig Aalyze Supply Market Pla Sourcig Project ad Defie Strategy Maage RFx ad Auctio Evaluate, Negotiate, ad Recommed Award Draft, Negotiate, ad Award Cotracts Implemet Cotracts Implemet Supplier ad Cotract KPI s Maage ad Review Performace Amed ad Reew Cotracts Figure2: Category maagemet approach across the sourcig process Source: TCS iteral ¹CIPS, Advaced Category Maagemet South Africa Coferece (2011), accessed May 2011, 7

8 3. Develop a Category Strategy This is the first stage i the category approach. As it is a strategic approach that cuts across all spedig departmets, a corporate commitmet to adopt it is ecessary for successful implemetatio. Stakeholder owership is also ecessary for its success. Orgaizatios must develop the category strategy depedig o how they defie a category based o local, regioal, ad global requiremets ad how they use the categorized products ad services. Existig approaches to procuremet must be actively challeged. Aalyze Busiess Needs The first step i developig a category strategy is collaboratig with various stakeholders to aalyze ad uderstad the busiess eeds. Category or sourcig maagers eed to: Uderstad perspectives, requiremets, cocers, challeges, opportuities, ad risks Idetify ad prioritize the eeds Aalyze sped from previous years ad forecast future sped Review previous/curret cotracts Validate existece of formal cotracts ad determie degree of sped uder formal agreemet Orgaizatios must idetify ad egage stakeholders at this iitial stage. Coduct a Opportuity Assessmet Orgaizatios must carry out a opportuity assessmet for each category to idetify what category strategy to adopt to obtai optimum beefits, ad to phase out the sourcig process based o the iteral ad exteral eviromet. A opportuity assessmet ca also be triggered by cotract expiry, chages i busiess or legislatio, cliet eeds ad supplier relatioships, market prices, ad similar factors. A opportuity assessmet matrix, usig iputs derived through assessmet ad aalysis of sped ad market kowledge, must be developed. This matrix is based o parameters such as potetial beefits, opportuity size, market competitiveess, ad ease of implemetatio. Potetial beefits may result i savigs i the form of a reductio i price, efficiecy gais, reduced risk, or beefits from the supply chai. Ease of implemetatio depeds o how easy it is to effect the ecessary chages to realize the potetial beefits or o how smooth it is to switch suppliers. 8

9 Sped categories are plotted i the opportuity assessmet matrix to assist i the ext stage Execute Sourcig ad Award Cotract. High Opportuity Assessmet Matrix Potetial Beefits/ Opportuity Size/ Market Competitiveess Low Strategic Categories Bottleeck Categories Leverage Categories No-critical Categories Low Ease of Implemetatio High Figure3: Opportuity assessmet matrix Source: TCS iteral Suggested strategies for each of the above four quadrats are: Strategic Categories (large opportuity, high difficulty): These sped categories have certai complexities but have the potetial of beefitig through efficiet category approach. Orgaizatios must take them up i a phased maer Leverage Categories (large opportuity, low difficulty): Orgaizatios must give the highest priority to these as they provide a good opportuity to save ad are relatively easy to implemet Bottleeck Categories (low opportuity, high difficulty): These usually ivolve low-value buys sourced from highrisk, complex markets. Orgaizatios must cosider log-term cotracts ad allow tactical procuremet to maage them No-critical Categories (low opportuity, low difficulty): The difficulty level ad the risk of switchig suppliers are low here. But as the beefit expectatio is also low, orgaizatios may cosider catalogig these items rather tha takig them through the detailed process of category approach for sourcig. Oce the catalogs are i place, they must be haded over to the tactical procuremet team for maagemet. The category team ca set up a periodic review for these categories Perform Category Profilig Orgaizatios must classify their categories so that there is uiform uderstadig of these categories ad subcategories across the orgaizatio. Ay iteratioal stadards such as Uited Natios Stadard Product ad Services Code or the orgaizatio's ow classificatio codes ca be used for this. Scope ad opportuities for improvemet must be determied at this stage. It is also importat to compare existig processes with best practices for a particular category to idetify the improvemet areas. There is a eed for i-depth aalysis of the cost drivers of ay category to uderstad how the ed pricig is arrived at. This kowledge ot oly helps to uderstad the pricig but also time the purchase ad to egotiate better with suppliers. Category maagers must break dow the purchased goods or services to their iput blocks i 9

10 physical ad moetary terms. If applicable, they must explore upstream supply chai for commodity compoets. This aalysis provides a better uderstadig of the category, related supply chai factors, ad visibility of iput compoets alog with their weight i the fial price. Orgaizatios must use iteral itelligece, secodary research, ad iputs from major suppliers as sources of iformatio. Cosider the example of copier paper purchased by orgaizatios i bulk. A good uderstadig of iput cost drivers, as illustrated i Figure 4, eables sourcig maagers to egotiate better with the suppliers. Raw material (wood ad wood pulp) cost is the highest expese item i paper maufacturig costitutig 28% of the total cost. Eergy ad chemicals accout for 25% of the total cost i the maufacturig process. A4 paper (base rate) 100 Cost drivers for copier paper Packagig materials 4% Other overheads icludig profit*, 35% Typical Cost Breakdow Employee wages, 8% Chemicals 11% Wood pulp 14% Wood, 14% Eergy (coal ad electricity) 14% Cost compoets of paper maufacturig Cost compoets as % of paper maufacturig Cost impact % chage i 2013 (cosiderig WPI) A4 price for 2013 (cosiderig WPI) Wood pulp 14% % 14.1 Wood 14% % 14.7 Eergy (coal ad electricity) 14% % 15.4 Chemicals 11% % 11.5 Employee wages 8% % 8.4 Packagig materials 4% % 4.2 Other overheads icludig profit* 35% % 36.8 Total price Freight cost@5% 5.3 Total price i Figure 4: Breakig up cost ito iput cost drivers Source: TCS iteral research Ideally, orgaizatios must bechmark price agaist a market idex or price referece. Market itelligece ad price iformatio of most categories are available o a subscriptio basis from may sources such as specialized research compaies, sector associatios, ad magazies. Oce the cost driver aalysis is doe, sourcig maagers must use this kowledge to desig the RFx (Request for Iformatio/Proposal/Quotatio) template ad pricig aalysis sheets to be i a better positio to aalyze, evaluate, ad egotiate bids. 10

11 Aalyze Supply Market Category maagers must carry out real supply market aalysis for goods ad services. They eed to uderstad the complexity of the supply market i terms of supply scarcity, techology pace, alteratives, etry barriers, ad market structures specifically oligopolistic or moopolistic structures. They ca use frameworks such as Porter's Five Forces aalysis to aalyze supply market ad develop the sourcig strategy accordigly. Porter's Five Forces helps to aalyze the market through forces that determie the competitive itesity ad attractiveess of a market. Figure 5 presets a aalysis of the paper market that may help a category maager derive a sourcig strategy for this category. Key take-away Overall, the supply market aalysis idicates that there is a opportuity to ratioalize, cosolidate, ad leverage sped New Etrat Threat High-etry barrier Low ROI Scarcity of raw material (wood /pulp) Fuel scarcity (coal/gas/electricity) Bargaiig Power of Supplier Moderate Low umber of suppliers Moderate product differetiatio Difficult to exit from busiess because of high ivestmets Competitive Rivalry Moderately competitive market Players compete o brad recogitio, quality, ad delivery etwork Bargaiig Power of Buyer Low Few large suppliers Low switchig cost Duty free ewsprit Substitute Threat Outsourcig of complete pritig job icludig paper / computerizatio E-books/e-ewspapers Import of prited books Electroic media Figure5: Porter's Five Forces aalysis for paper category Source: TCS iteral research Based o these aalyses, category maagers are able to decide whether icumbet suppliers or ew suppliers are eough to geerate sustaiable savigs or if they eed to employ a ew approach. Category maagers must complemet supplier discovery with isights about the category, i terms of sources of supply, price treds, volatility, risk, ad opportuity. The strategies they develop as a result of these aalyses must be category-specific ad ot geeric. 11

12 4. Execute Sourcig ad Award Cotract This stage follows the 'Develop Category Strategy' stage explaied earlier i this paper, through which orgaizatios ca have a fair idea about the categories beig sourced, the supply market, ad the level of opportuity of each of the categories. Usig these iputs, orgaizatios must build or modify their strategic sourcig pla. These iputs help orgaizatios adapt the pla to fit their ow corporate priorities ad the eviromet i which they operate. A oesize-fits-all approach may ot be effective whe developig the sourcig strategy or creatig the sourcig pla. Orgaizatios must develop SMART (Specific, Measurable, Achievable, Realistic, Timely), well-defied sourcig plas to deliver improvemets. The various aspects of the Execute Sourcig ad Award Cotract stage are: Pla Sourcig Project ad Defie Sourcig Strategy Maage RFx ad Auctio Evaluate, Negotiate, ad Recommed Award Draft, Negotiate, ad Award Cotracts Pla Sourcig Project ad Defie Sourcig Strategy The key to ay successful executio of a sourcig project is plaig ad scopig the elemets of the project. This phase relates to both plaig activities as well as sourcig specific tasks related to the same. Project Kick-off: To officially begi the project, a kick-off meetig must be arraged ivolvig all the required stakeholders who have a key role i the sourcig project. The followig should be reviewed i this meetig: Goals, objectives, ad timelie of the sourcig project Ability ad willigess to move busiess to a ew supplier Goods ad/or services to be icluded i the project Extet of kow supply base for the commodity or service Ay uique issues, requiremets, or challeges with the commodity or service Expectatios such as savigs, supplier ratioalizatio, ad reportig ad trackig Project Timelie: A project timelie icludig project start ad ed dates, key project milestoes icludig sourcig strategy developmet, supplier idetificatio, ad sourcig evet executio must be created Commuicatio Pla: A stadard commuicatio pla for both suppliers ad iteral cliet stakeholders must be created. This will iclude stadard messages o reachig certai milestoes ad resposes to various types of iquiries 12

13 Savigs Reportig Pla: Based o the opportuity ad supply market aalysis, the target savigs ad savigs methodology must be decided Oce the sourcig project has bee iitiated, the orgaizatio must develop the sourcig strategy for the project. This step would ivolve determiig the most effective way to source ad egotiate the idetified sped category by evaluatig various criteria. These are primarily related to the value of the item beig purchased to the busiess usually measured by dollar volume or similar metrics as well as the item's sourcig complexity due to its uiqueess, supply-chai depedecies, price volatility, ad/or other cosideratios. Some methods to defie a robust ad effective sourcig strategy are: Develop multiple sourcig strategies as applicable for the project Examie iteral demad agaist supply market optios to fid the lowest total cost Challege specificatios ad usage patters to fid opportuities to stadardize specificatios or substitute availability Idetify, aalyze, select, ad egotiate with strategically advataged suppliers, ot just the oes with the lowest price today Demad Aggregatio ad Supplier Ratioalizatio (reduce, icrease, maitai, keep the size, ad chage the mix) are examples of sourcig strategies. Sourcig maagers must iclude icumbet suppliers, suppliers suggested by ed users, as well as ew suppliers discovered through a defied process for supplier discovery ad approval, before idetifyig suppliers to whom the equiries are set. Depedig o the criticality of the product ad service, appropriate field trials such as drop ad tear test for packagig are coducted before orders are placed with a ew supplier. A few orgaizatios have a policy of awardig ot more tha a certai percetage, say 20%, of a order to a ew supplier, provided they match or are lower tha the icumbet lowest quote (L1) supplier. Maage RFx ad Auctio Sourcig maagers ca cosider log-term cotracts for categories where re-egotiatig the cotract or switchig suppliers ivolve a high cost ad risk. They must cosider spot buys for low switchig cost ad risk. Orgaizatio should collaborate ad establish parterships with suppliers coverig more tha 80% of the sped base uder o-core categories. They must use sourcig levers such as volume aggregatio, formal tederig, olie dyamic egotiatios, log-term cotracts, low-cost coutry sourcig, ad local sourcig. The levers to be adopted for a particular category deped o the category isights. For example, oe could lik prices to a idex, as i the case of trasportatio costs liked to the diesel price idex. Sourcig maagers must use e-tederig/erfx tools to reduce cycle time ad costs as well as esure effective egotiatios durig a RFx process. They should structure RFx so as to reduce supplier ad buyer clarificatios ad modulate supplier resposes as desired them. This will reduce the umber of supplier resposes ot directly relevat to the buyer requiremet. 13

14 Orgaizatios must set up a guidelie based o which they ca choose the type of esourcig. A typical guidelie is provided i Figure 6. Sourcig Type-RFx selectio RFP oly RFI oly RFP+ Auctio Auctio oly Market Market competitiveess Busiess Need Not very competitive (moopoly/ collusive) Proposal with commercials Not very competitive (moopoly/collusive) Capabilities Competitive Proposal ad olie biddig Very competitive (commodity) Oly olie biddig Buyer Market Kowledge- Low to Medium Low/medium Medium to High Medium to High Buyer Supplier Partership Strategic Strategic/ Limited Limited Trasactioal Risk to switch suppliers High Medium/ High Medium Low or oe Supplier selectio criteria /complexity High High/Medium Medium Low or oe Figure 6: Guidelie to decide type of esourcig Source: TCS iteral research Supplier traiig ad had-holdig, ad cofidetiality of bids durig the erfx ad auctio process are importat aspects that orgaizatios eed to esure for the success of this process. Evaluate, Negotiate, ad Recommed Award Proposals/ Supplier resposes should be evaluated, cosiderig both qualitative ad commercial parameters. Sourcig maagers must also use properly desiged pricig templates to capture all required aspects of price, makig evaluatio easier. Oce the price is broke dow ito compoets, it helps i gettig isights ito supplier efficiecy, margis, ad icosistecies, if ay. Pricig aalysis must be performed based o Total Cost of Owership (TCO) ad ot the lowest price. For example, the purchase price is oly a part of the total cost that will be icurred durig the useful life of a durable product. Maiteace cost of a motor or eergy cost of a air-coditioig system are as importat as the equipmet's purchase price. Sourcig maagers must iclude all other relevat costs that make up the total cost for the product i the selectio criteria ad egotiatio strategy of a product. Oce the aalysis is doe, the maagers must recommed the award to the maagemet, icludig item specificatios, quatity, suppliers, price, order share, terms, cotract period, ad so o. A well-defied egotiatio strategy based o a uderstadig of a orgaizatio's buyig stregth ad the supplier's positio, leads to successful egotiatio. For example, supply market aalysis may provide a good basis to develop a egotiatio strategy. Sourcig maagers must create filters to decide the egotiatio process that best suits a particular sourcig project. While olie reverse auctios may be suitable for spot buys with three or more suppliers, a oe-to-oe egotiatio may work better i case of a facilities maiteace cotract. 14

15 Post egotiatio with suppliers, sourcig maagers must comprehesively aalyze supplier resposes cosiderig the price ad o-price elemets. Price elemets could iclude quoted price, delivery charges, volume discouts, tiered pricig, maiteace charges, fixed fee vs. time ad material (T&M) fee, etc. No-price elemets could iclude paymet terms, liquidated damages, warraty, resource profiles, ad so o. Oce suppliers cofirm their fial proposal, the complete aalysis sheet with recommedatios must be put up to a competet authority for makig a iformed award decisio. After the approval, the relevat decisio must be commuicated to the suppliers. Draft, Negotiate, ad Award Cotracts Next, sourcig maagers create master ad category-specific agreemets betwee the awarded supplier ad the orgaizatio. Oce these are accepted after egotiatios, the siged cotract is awarded to the supplier ad kept i the cotract repository for cotract executio ad admiistratio. 5. Maage Cotracts ad Moitor Performace While developig a ogoig category maagemet approach for sustaiable savigs, the procuremet departmet must esure that a cotract is properly implemeted ad moitored through its lifecycle to achieve the projected savigs ad beefits. It is also importat to review performace ad adopt corrective actio to achieve the desired objectives: Implemet Cotracts Sourcig maagers must esure that cotracts are implemeted across the iteded uits ad geographies. They must have proper systems i place to moitor cotract compliace. Iformatio o ad awareess of available cotracts ad their beefits eed to be percolated dow to ed users, who must justify i case they do ot utilize existig cotracts. Implemet Supplier ad Cotract KPIs Sourcig maagers must set up category ad supplier KPIs. It is imperative to measure the performace of categories ad suppliers agaist these set performace idicators ad take corrective actio to achieve sustaiable savigs. As the volume of data is usually high, it is advisable to use a tool to capture the compliace data ad create the ecessary reports. Maage ad Review Performace Sourcig maagers must rigorously maage supplier performace which reduces issues such as defects ad late deliveries. Orgaizatios must also focus o value-added activities such as leveragig supplier iovatio ad cotiuous improvemet. With icreased performace visibility, it is easier to moitor key relatioships. Sourcig 15

16 maagers must always keep i mid the eed to derive sustaiable beefits through buyer ad supplier surveys ad supplier meetigs. They must regularly review performace to maximize the beefits obtaied. Orgaizatios ca use 'web-based supplier performace evaluatio tools' to evaluate supplier performace². Figure 9 illustrates how Vedor (Supplier) No Coformace (VNC) is captured across a few quarters across VNC types. VNC Aalysis by Issue Category # of VNC Coditio Cotamiatio Delivery Documetatio Itake Problem Observatio Safety Specificatio Not Approved Traceability Security Amed ad Reew Cotracts Figure 7: Vedor No-Coformace (VNC) aalysis Source: TCS iteral research Idetify Reewals: Procuremet must idetify cotracts that are due to expire i the ear future. Alerts ad remiders about the ear expiry of cotracts may be built-i i the cotract repository system. Iitiate Reewals: Orgaizatios must itimate a supplier about a cotract that is about to expire ad eeds to be reewed. The orgaizatio must also idicate willigess to have a discussio o the reewal of the cotract. Re-egotiatio/Termiatio: Orgaizatios must have reewal discussios ad re-egotiatios o cotracts with suppliers based o curret coditios. Oce a agreemet is reached, orgaizatios must iitiate the cotract amedmet process. The cotract is termiated i the cotract repository system if ot reewed. Cotract Amedmets ad Addedums: I case there is a requiremet to modify ay clause i the cotract or add a addedum, they must be icorporated. The amedmets follow the approval cycle of the orgaizatio. ²Referece: Supply Maagemet, Guide to Strategic Sourcig (May 2013), accessed May 29, 2013, 16

17 Coclusio This paper highlights the ways i which category approach to sourcig ca be effectively implemeted i a orgaizatio. Strategic leadership ad commitmet ad stakeholder owership are ecessary to adopt the approach. Sourcig maagers must maitai all relevat category itelligece as well as RFx ad pricig templates i a commo locatio which ca be accessed by all sourcig users of a orgaizatio. They must subscribe to market itelligece ad price iformatio of relevat categories provided by research uits. A strategic sourcig pla must be adapted to fit a orgaizatio s corporate priorities ad procuremet eviromet. Orgaizatio-wide category itelligece coupled with market itelligece help the sourcig maagers to devise proper category strategies. This cotributes to the goal of achievig sustaiable savigs of 1 9% of maaged sped. 17

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