from the greater knowledge of suppliers and their markets. Procurement would possibly even be able to turn the tables on suppliers, whose sales representatives often seem to know as much about the buying companies as the buyers themselves know. Additionally, procurement would see lower costs and more value from suppliers. Forbes’ statement about his experience at EP Energy validates the promise that category management will boost respect for procurement, as do the efforts of the other procurement executives at the roundtable.

They all hail from the oil and gas indus-try, and they are all either aggressively pursuing, or at least planning, category-management strategies.

But roundtable participants agreed

that there are issues to resolve in the implementation of category management. Among those issues are the matters of attracting and retaining the right kind of talent to manage category groups; institutionalising the knowledge of markets and suppliers that procurement gathers so that it’s available to all and helps drive corporate strategy; and moving from an understanding of category history to the ability to predict changes in markets.

Reaching maturityTogether, these issues are central to the next generation of category management: category knowledge management. That emerging concept was the topic of the Houston roundtable, and as the

“Category management and strategic sourcing have helped to elevate procurement to a seat at the table in our company.” That testimonial by Scott Forbes, director of supply chain management for oil and gas producer EP Energy, delivered at a recent Procurement Leaders roundtable in conjunction with Genpact in Houston, indicates that the promise of category management, first postulated some 30 years ago, is being fulfilled, at least at some companies. Pioneers of commodity management initially said it would require deep dives into suppliers’ businesses while simultaneously bringing about closer relationships with suppliers. The result, they said, would be an increase in procurement’s profile, and that corporations as a whole would benefit

New horizons for CPOsCategory management has long been acknowledged as key to strategic sourcing, but CPOs are striving to maximise its predictive capabilities which, if done well, can lead to huge benefits, writes Paul Teague

TOPICS

Category management,

Strategic sourcing

SECTOR

Energy

REGION

EuroeEENorth America

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is: how do you do it? The answer is to apply constant attention to the task, but that isn’t always easy.

Eric Beylier, VP/CPO and head of global supply chain procurement at chemicals manufacturer TETRA Technologies, said that finding the right people and the right tools for institutionalising best practices in category-knowledge management is difficult.

At his company, he said, people have a lot to do and few resources; a reality with which everyone identified.

Still, roundtable participants said they were making the effort. “We document all our processes and put them on the share drive,” said Joe Kanouff, director of sourcing and contracts at power company Calpine. John Adams, vice president of supply chain and CPO at natural-gas-infrastructure company Spectra Energy, said his team documents and shares best practices too. “We engage in lots of collaboration,” he said.

In any case, to be effective in institutionalising the best category management practices, Schlumberger’s Konovalov said: “You need software and you need money to do it.”

Of course, institutionalising and sharing best practices in category management are not ends in themselves. Instead, they run parallel to and can support that other essential of category management: detecting emerging shifts in technology, potential new suppliers, and pricing strategies, particularly in the commodity markets.

Gathering and analysing the data to perform those tasks is a crucial part of the category management process, says procurement consultant Jonathan

discussion showed, progress in that arena of strategy is neither easy nor evident.

Take the matter of talent, for example. Everyone agreed that the best category managers have some background in their particular category, and that background helps them identify opportunities as well as build credibility with the business stakeholders they serve.

In some ways, the roundtable itself was a microcosm of that ideal staffing profile. With only one exception, the participants had technical backgrounds. One had been an entrepreneur, having started two companies.

Nevertheless, finding people with the right technical background to be an effective

category manager isn’t always easy. Finding engineers for technical categories, for example, can be difficult, and keeping them after you find them can be equally difficult.

As JD Bhusri, director of global sourcing and supply chain at oilfield services company Baker Hughes, said: “Many engineers simply want to design.” Alexander Konovalov, sourcing manager for North America at oil field services provider Schlumberger Technology, added: “After a few years, some people just want a change, they want to go to some other function.”

At engineering services provider Oceaneering International, getting the necessary technical staff for category

management requires convincing stakeholders to devote one of their staff to working with procurement full time on the category, lending their technical and market expertise, said Todd Hoefler, vice president of supply chain management. The reason? “Category managers have to be technical to be successful, but don’t have to be engineers, They have to have technical knowledge that fits the category that they manage,” he said.

The technical people are in the business units, while Hoefler wants some of those staffers assigned to work for procurement. “I want the business leaders to pay for it,” he said, adding those business leaders will get

a return on their investment. “I have a list of examples of problems where I think we could have minimised the impact if we had the technical help.”

Capture and shareThe best practices that can evolve from that and other arrangements are central to efforts to institutionalising category knowledge management. Documenting them, sharing them, and continually reviewing them are part of a necessary continual-improvement process. In fact, said Konovalov of Schlumberger, capturing best practices is a matter of survival, a point on which all participants agreed. The question

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Category managers have to be technical to be successful...They have to have technical knowledge that fits the category that they manage

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O’Brien in his book, Category Management in Purchasing: A strategic approach to maximize business profitability.

But, to use category knowledge management as a tool for forecasting or predicting the future as well as analysing the past, there’s a need for analytical skills that aren’t necessarily part of the resumé of the typical procurement executive.

Forecasting failureStill, make no mistake about it: most of the roundtable participants said that, like it or not, their executive management expect them to make forecasts, especially around pricing. Forecasting is everything, said Konovalov. Yet, he added: “We at Schlumberger are good at analysing, but not at forecasting.”

That may be a typical problem. Michael Dunn, vice president and business development leader in charge of Genpact’s business in oil and gas, energy and utilities, told the panel that category managers at many companies he has seen have plenty of data, but no way to digest it and turn it into information. They have to decide whether to go outside to get that capability.

While number crunching is an important element in forecasting, equally important can be category managers’ ability to truly understand their suppliers’ markets. As Malcolm Wheatley has reported in Procurement Leaders, that understanding comes in part from regular interviews of suppliers and marketing personnel.

At the Roundtable, Forbes, of EP Energy, expressed one of the many benefits that could emanate from those types of interviews. He said that he, like the other participants, is expected to manage different categories and predict rates. “There are plenty of data points available to us,” he said, “but there’s no story to it. I therefore challenge my team to gather the data and make a story out of it. That’s the next step in category knowledge management.” Perhaps, the regular sit-downs with marketing and suppliers can help shape the story.

Tetra Technologies’ Beylier said he too is expected to forecast where his commodity markets are going. “Of course, we can’t predict what regulators will do, but my challenge is to get stakeholders to agree to a hedging philosophy.” In support of that, he explained, he holds quarterly reviews of NYMEX (New York Mercantile Exchange, a commodities futures exchange) data. “We take positions every month,” he said.

Bhusri of Baker Hughes suggested setting bases and ceilings in hedging, covering short periods of time such as one month and increasing the time incrementally

To find future roundtable discussions go to www.procurementleaders.com/events

when prices exceed certain levels.For Adams, at Spectra Energy, using

the knowledge gained from category management to make predictions is eased by the fact that the company has an analytical team to support the category managers. Likewise, Kanouff, of Calpine, has a team as well, though it is composed of people with perhaps a less-robust skill set.

“We get a lot of data from our suppliers, and we use interns from local schools to put together a market analysis,” he said. “We had lots of data, but didn’t really know why things were happening. We are getting there

There are plenty of data points available to us, but there’s no story to it. I therefore challenge my team to gather the data and make a story out of it

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Alexander KonovalovNA sourcing manager, Schlumberger Technology

Joe KanouffDirector of sourcing & contracts,Calpine Corporation

Todd HoeflerVP supply chain management, Oceaneering International

JD BhusriDirector of global sourcing and supply chain, Baker Hughes

Eric BeylierVP/CPO, global supply chain & procurement, TETRA Technologies

Michael DunnVP, oil & gas, energy & utilities, Genpact

on predictive exercises.” Getting better is a matter of necessity: top management at Calpine expects his team to make predictions and take risks. “We aren’t expected to be right,” he said, “but we are expected to put something out there.”

Those expectations, or at least the one about putting something out there, is part of the new normal for procurement – category knowledge management can help achieve it.

Scott ForbesDirector of supply chain management, EP Energy

John AdamsVP supply chain & CPO,Spectra Energy

Paul TeagueNorth American contributing editor, Procurement Leaders

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