GOODS AND SERVICES
PROCUREMENT CATEGORY MANAGEMENT
PLANNING GUIDELINES
FOR NSW GOVERNMENT PROCUREMENT
CATEGORY MANAGEMENT WORKING GROUPS AND
LEAD AGENCY CATEGORY MANAGERS
13 December 2013
Version: 1.2
Page 1 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
CONTENTS
Page
1) Introduction
3
2) Foundations and Pillars of Category Management
4
3) Competencies Required
4
4) Procurement Category Management Plan (PCMP) Document Structure
5
5) PCMP Key Considerations
6
6) Sources of Value
7
7) Early industry engagement
8
8) Outcomes based and innovative procurement
9
9) PCMP Key Elements
9
10) Data Gathering
12
11) Approval Process
12
Appendices
14
Document Control
18
Page 2 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
1) Introduction
The purpose of this document is to provide guidance on creating a category
management plan.
As part of the NSW Government procurement reform process, procurement category
management is to occur across all agencies covering significant expenditures.
Category management takes into account the requirements, opportunities and risks of
both the supply side and buy side. It involves moving away from a contract focussed
approach, to one focussed on the category of goods and services as a whole.
Comprehensive procurement category management is reliant on the development and
implementation of a category management plan. Category management plans provide
direction, and signal the approved way in which a category of expenditure will be
managed.
The priorities within a category are clearly articulated within a category management
plan, including appropriate high-level ‘go to market’ sourcing strategies. It also
communicates an effective understanding of external and internal market environments
and involves active management of stakeholder requirements throughout the category
lifecycle. Procurement strategy, market engagement, vendor and contract
management are all subsets of category management. A ‘go to market’ strategy details
how the supply market will be engaged, the type of contracts that need to be put in
place and how the contract will be managed.
A category management plan is a dynamic document because it must constantly adapt
to changing market environments, business needs, associated strategies and
product/service evolutions.
Category management planning is integral to a procurement approach which realises
benefits from procurement activities, and continuously improves those activities
through the proactive coordination and input of key stakeholders.
Category Management Working Groups (CMWGs) have been established for nine high
priority goods and services spend categories by the NSW Procurement Board. Each
CMWG reports to the Procurement Board through the Procurement Leadership Group
(PLG). Each CMWG comprises a mix of agency business leaders, procurement
experts and subject matter experts. These groups operate at a strategic level, but
receive technical support from specialist procurement groups and other user groups in
order to test strategies. A category management plan is developed and maintained for
each priority category.
The Procurement Category Management Planning Guidelines (the Guidelines) is a
dynamic document and will be updated regularly based on feedback from the Board,
the PLG, CMWGs and to incorporate any changes in NSW Government Procurement
Policy Framework.
These Guidelines assume that the users have the required knowledge and
understanding of procurement category management approaches.
Page 3 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
2) Foundations and Pillars of Category Management
Category management is a rigorous, fact-based, approach for proactively collaborating
with stakeholders to develop and implement strategies that deliver significant value
from organisation’s external spend.
Jonathan O’Brien, a leading procurement practitioner, in his book Category
Management in Purchasing, identified some key pillars and foundations of category
management as shown in Diagram 1 below - detailed information is provided at
Appendix A.
Diagram 1: Foundations and Pillars of Category Management
Category Management is not a linear process as it is constantly taking into account the
business’ needs with respect to the sourcing and ongoing management process.
3) Competencies Required
Category management is an evolving discipline. The competencies and skill sets
required to effectively manage a category are expected to change over time.
Diagram 2 (next page) lists some of the skills and competencies required:
Page 4 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Diagram 2: Competencies and Skills Required for Category Management
4) Procurement Category Management Plans (CMPs)
CMPs are intended not only to provide direction and leadership but also to be working
documents for ongoing reference by CMWG team members. CMPs should be
reviewed, updated and approved periodically.
It is recommended that, three levels of documents are produced, as shown in Diagram
3 below:
(i) A one page leadership overview: containing the critical elements of the plan
agreed by the CMWG (further details on suggested format and content are
given at Appendix B);
(ii) A working summary of the plan: this should contain detailed analysis and be
designed to be a practical and useful document for CMWGs to apply, noting that
the working summary document:
a. is intended to focus on category leadership and direction and less on
management aspect; and
b. should contain the material required to allow for effective decision making
within the CMWG; and
(iii) Detailed category management analysis: that evidences analysis, facts and
data on which the category plan is based
Page 5 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Diagram 3: Suggested Category Management Plans structure
The three levels of documents are intended for different audiences and complement
each other.
Individual CMPs can differ in content; however each plan should follow a broadly
similar structure/format and employ similar tools and techniques.
5) CMP key considerations
A CMP should give sufficient consideration to the following issues:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Challenging the status quo;
Cutting red tape;
Acknowledging the Government’s market position, including influencing
the market, gaining supply market’s perspective and driving savings;
Enhancing agencies’ reputation as a client of choice;
Where possible, increasing access to government business for regional
and small to medium enterprises (including consultation with the Small
Business Commissioner where appropriate);
Mitigating risk (including ensuring supply);
Compliance without imposing unnecessary burden on agencies;
Appropriate market interaction, including early market engagement;
Addressing prominent challenges being faced by NSW government
purchasers in the short term (next two years), medium term (up to five
years) and longer term (beyond five years);
The Procurement Board’s approach to mandate whole of government
procurement arrangements only where value for money is demonstrated;
Page 6 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
(xi)
(xii)
Encouraging innovation in procurement; and
Other requirements under the NSW Government’s procurement reform
agenda including the NSW Procurement Board’s Strategic Directions
Statement 2013-14.
Every CMP should outline how compliance to category strategies may be achieved,
both at the agency level and across the sector.
Generally, a CMP should provide one to five year outlook to place the agency
(agencies) in a better position for the future. In some instances it will be of benefit to
go beyond this time period, owing to the:
 nature of goods and services procured within the category;
 emerging agency business needs;
 likely technological advances;
 market trends discernable in larger, international markets; and
 known Government policy commitments.
6) Sources of Value
Category Management is different from traditional procurement approaches; Not all
value creation arises through the expenditure or contractual related transactions.
When developing a CMP, consideration should be given to other (not so obvious)
potential sources of value e.g. cost avoidance, demand management, specification
change, process improvement and supplier innovation. Diagram 4 provides
suggestions on how additional value can be created by looking beyond traditional view
of focusing on tendering or contract management.
Diagram 4: Explore Other Potential Sources of Value
Page 7 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
In addition to the above tactics, A.T Kearney, in their Purchasing Chessboard®, identify
64 tactics in which value can be obtained through procurement related activity.
Broadly there are several types sourcing strategy groupings in relation to value as
shown in Diagram 5.
Diagram 5: Maturity Model for Savings and Value Delivery
From a category management perspective, value gain increases over time as the
category as the category management approach matures. Category management
focus moves from minimising disadvantage through leverage, aggregation and tender;
to creating advantage through innovation, risk management, value engineering,
demand management, low cost country sourcing, sustainability.
7) Early industry engagement
Better communication with businesses and enhanced transparency of government
procurement actions increases industry awareness and supports industry planning to
capitalise on government business opportunities.
With effective industry engagement, sourcing strategies can be better aligned with
market structure and dynamics, and provide government with knowledge about new
and innovative approaches, leading to improved procurement outcomes.
While industry engagement can and should occur at all phases of the procurement
lifecycle, there are increased opportunities for innovation if this takes place at the
earliest possible phase and prior to a specific procurement solution being requested
from the industry. Industry engagement is therefore crucial to the development of a
CMP.
Page 8 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
When developing a CMP, CMWGs need to have an understanding of the relevant
internal and external market environments. Industry engagement provides agencies
with the unique opportunity to gain a broader and deeper understanding of the
capabilities of suppliers within a market and to explore new ways to meet business
needs.
The NSW Procurement Board’s Industry Engagement Guide sets out the principles for
industry engagement and provides guidance to agencies on how to integrate industry
engagement into their procurement processes. This document can be a point of
reference for all agencies when undertaking industry engagement.
Diagram 6 illustrates how the Industry Engagement Guide fits within the governance
framework established by the NSW Procurement Board for the NSW Government’s
procurement system.
NSW Procurement Policy Framework
NSW Industry Engagement
Sets rules and gives general guidance
about engagement
Guide
Gives principles for industry
engagement & detailed guidance
Category Management Planning
Guidelines
Outlines market analysis activities at
the category management level
Cluster/Agency
level planning
Plans & undertakes industry
engagement relevant to sourcing
strategies
Diagram 6: NSW Procurement Policy Framework
8) Outcomes based and innovative procurement
In order encourage outcomes based and innovative procurement, each CMP should
identify any medium to long term issues and challenges relevant to the particular
category of goods and services. Including this type of information in the CMP, provides
a signal to the market of the future high level needs and priorities of the NSW
Government within each category.
Such signals foster innovation, because whilst there is no commitment made by the
Government, it starts suppliers within the relevant market thinking about solutions well
in advance of any procurement activity. In the event that a procurement activity
Page 9 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
eventuates, the market has had more time to think about and potentially develop
innovative solutions addressing the Government’s business need. This will ultimately
lead to increased interest in procurement activity and better tender responses.
9) CMP key elements
A CMP should contain comprehensive information about the category, such as scope,
spend, internal requirements, supply market, prioritisation, risks and issues,
communication plan and category objectives. It should also include strategy for
individual contracts. A CMP should not be confused with a contract strategy. Diagram
7 below for Travel Category provides an example of how a CMP compares with a
contract strategy:
KPIs
Diagram 7: CMP Sets Overall Direction for Contract Strategy
Given below is a list of items which may be considered for inclusion in a CMP:


Category Overview

Category vision and objectives (include a forward five year scan)

Alignment with NSW Government’s overall strategy

Category profile

Define categories and sub-categories:
o
Goods and services that are in-scope (including geographical
coverage, if applicable)
o
List current contracts with key (expiry) dates
o
Spend analysis – where relevant, historical spend by subcategories and contracts, by suppliers, by client user group
o
Current level of resourcing – including details of the team
managing the category (with roles and responsibility)

Governance - details of the CMWG members (area, name, position, role,
responsibility, interest etc.) and governance structure.
Internal Analysis
Page 10 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2




Stakeholder analysis – key stakeholders, their priorities, influence and
current satisfaction levels
Business needs – including agency corporate plans, NSW Government’s
State Plan and NSW budget objectives (reference to any government
policies relevant to category)
Current and future business needs analysis, including anticipated
medium and long term business needs.
Supply chain – what can be influenced, including internal cost drivers
When undertaking internal analysis related to a category of expenditure,
emphasis is usually given to gaining insights on:

Understanding how stakeholders view and manage spend, including an
understanding of consumption drivers, such as:

how elastic it is?

what drives forecast requirements?

Looking beyond ‘spend’ – identifying internal and total cost of operation
(TCO)

Develop performance and trend metrics.

In-depth understanding of business needs – identify the ‘must-have’
critical functional requirements versus the ‘good to have’ requirements.

Innovation - identify ‘game changing’ opportunities plus overarching
Government objectives.

Supply Market Analysis

Supply market analysis (refer Appendix C for template) – market
complexity, market size, segmentation, key players.

Balance of power (Porter’s ‘five forces analysis’) – refer Appendix D for
template.

Key cost drivers for the industry – consideration of what can be
influenced and what is not, distribution channels, upstream costs and the
supply market relationships to these.

Industry trends – including expected changes to industry cost drivers

Supplier profile – profile of current contracted suppliers

Best practice evidence

Industry engagement – testing hypothesises around the sourcing
strategies for the category.

Category Analysis

SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats)

Category portfolio analysis and maturity of category management

Strategic levers or opportunities

Supplier preferencing

Business impact analysis

Supplier Performance Analysis

Risks and Challenges (both: risk and challenges of the category, and
risks and challenges of implementing the CMP) – likelihood, impact,
mitigation, residual risk.

Change management issues

Contract Strategy
Page 11 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2










Procurement strategy – including aggregation, consolidation, unbundling,
rationalisation, process re-engineering, standardisation, reverse auctions.
Sourcing strategy – how the market will be engaged and the type of
contracts that would need to put in place.
Purchasing strategy – how agencies will buy from the contract ( i.e.
catalogue, non-catalogue)
Savings strategy - consolidated invoice, early payment, price reduction,
FX movement, commitment, purchase speed etc.
Implementation strategy – period (days), impact on stakeholders,
stakeholder involvement
Communications strategy – stakeholder analysis, frequency and channel
of communication
Innovation/continuous improvement strategy
Contract management strategy – how commercial arrangements between
the parties will be managed
Benefit realisation framework – What benefits are to gained and how will
they tracked. Benefits are to include savings, cost avoidance and process
efficiency define baseline, establish framework for capturing and reporting
benefits. Include supplier performance reporting and compliance.
Category Prioritisation: CMWGs will usually establish priority for contract
renewals based on the supply risk, complexity and value delivery for
stakeholders.
Sufficient consideration should be given to any existing program of works and
the plan to manage changes in it. A sample template that can be used to
prioritise contracts is provided at Appendix E.

Category Program of Works: It usually assists CMWGs to list the contracts
that will be reviewed over the next 24 months, with the planned timelines for
each stage (i.e. Needs, Specify, Source, Evaluate, Award, Implement, Manage,
Review / Extend). An example is provided in Diagram 8 below:
Page 12 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Diagram 8: Category Program of Works (Example)
10)
Data Gathering – Sources and Methods
Data gathering is one of the most crucial parts of the category management process. It
is the depth of understanding gained during this stage that can make the difference
between identifying a breakthrough future sourcing strategy or just a small incremental
improvement.
Given below are some key data-collection methods that can be used in developing a
CMP.
Source of Information
Category and
Internal Data
Defining business requirement
RFI (request for information)
Internet and desk-based research
Stakeholder interviews
Supplier visits
Trade shows and exhibitions
Books and publishing papers
Governmental bodies
Yes
Industry engagement
11)
Yes
Yes
Yes
Yes
Yes
Supplier Market
Data
Data
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Approval Process
Recognising that whole-of-government CMPs can have widespread impact across
agencies, the Procurement Board has established a consultative process for the
development and approval of this type of CMP.
Page 13 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Table 1 (next page) sets out the approval process for whole-of-government CMPs.
Agency/cluster-level CMPs may be made in accordance with delegations existing in
the relevant agency or cluster.
Table 1: Approval Process for Whole of Government Categories:
Stage
1
2
3
4
Task
Responsible
Output
Comments
Initial Whole of Government PCMP Approval
Establish a CMWG
CMWG
PLG
of senior officers
established
Complete a draft
CMP in
LCM
CMP completed
consultation with
CMWG
Recommend for
PLG endorsement
Submit for NSW
Procurement
Board's approval
CMWG/LCM
CMP endorsed
by the PLG
If not endorsed, CMP
returned back to the LCM
for reworking (stage 2).
PLG
CMP approved
by the NSW
Procurement
Board
If not approved, CMP
returned back to the LCM
for reworking (stage 2). The
updated version would need
to be endorsed by the PLG
again.
Post Initial Approval Process
1
CMP updated in
consultation with
CMWG
LCM
Draft of updated
CMP
2
PLG or delegate to
approve updates
CMWG/LCM
Updated version
of CMP
circulated
3
On a regular basis,
report to Board on
implementation.
PLG
Revised Board
approved CMPs
Allows for minimal
disruption to operational
continuity.
Ensures the Board has
appropriate visibility of
procurement activities and
category directions.
Page 14 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Notes:
* A PCMP is a living document, above process is applicable only for the approval of initial version.
Unless there are significant changes, subsequent versions are to be approved by the chair of the NSW
Procurement Board subject to endorsement from the PLG.
** PCMP = Procurement Category Management Plan, LCM = Lead Category Manager, CMWG =
Category Management Working Group, PLG = Procurement Leadership Group
Page 15 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Appendix A: Foundations and Pillars of Category Management
Three Foundations of Category Management
 Source Strategically – develop an overall strategy for the purchasing function
aligned with and responding to higher-level corporate strategy, combined with
individual sourcing strategies for the categories/sub-categories.
 Managing the Market – this comprises:
o Market knowledge – How markets behave and are structured? How our
business relates to the market?
o Market power – Who has the power in the market? How has it changed?
o Market boundaries – What markets are we in? What other markets do our
suppliers operate in?
o Market Design – When there is a need to create a market and or influence
how a market operates
 Drive Change – this requires:
o Active participation of cross functional category teams and buy-in of
stakeholders;
o Support from the executive;
o Shared goals and needs; and
o Deployment of sufficient resources to implement and manage the change..
Four Pillars of Category Management
 Breakthrough Thinking – changing sourcing in a radical way or a way that gives
radical improvements.
 Customer Focus – understanding who your customers are and engaging with
them to understand and respond to their needs and desires.
 Cross Functional Teams – a team comprising representatives from the relevant
functions across the organisation. The team should have solid understanding of
the goods or services, and how they are used. The members of the team are
committed to spend time supporting the project and act as ambassadors for the
rest of their departments. The team should be strong enough to challenge the
status quo.
 Facts and Data – play vital role in:
o Providing compelling business case for change
o De-risking decision making; and
o Providing a reason to engage with the business and key stakeholders and get
them involved.
Page 16 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Appendix B: CMP Document Structure - 1 Page Category Plan Overview Sample
Template (Leadership Focus)
o Present the three to five year outlook.
o Outline major objectives in key indices (e.g. moves in average ticket price,
average cost per desk-top run chart etc).
o Outline short term priorities
o Highlights key risks and challenges
Page 17 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Appendix C: Supply Market Analysis Template
Page 18 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Appendix D: Balance of Power - Competitive Dynamics (Porter’s Five Forces)
Template
Page 19 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Appendix E: Category Prioritisation (Sample Template)
Page 20 of 21
Procurement Category Management Planning Guidelines
Goods and Services
Version 1.2
Document Control
Document Approval
Name & Position
Approval
Date
Document Version Control
Version
Status
Date
Prepared By
Comments
1.0
Draft
22/02/2013
1.1
Draft
28/03/2013
1.2
Draft
13/12/2013
Procurement
Strategy, NSWP
Procurement
Strategy, NSWP
Procurement
Strategy, NSWP
Circulated to PLG for
meeting of 28/2/13
Revised draft for PLG
approval.
Includes industry
engagement and
outcomes based and
innovative
procurement.
Review Date
This document will be updated regularly to incorporate suggestions and
feedback from the Board, the Procurement Leadership Group, Category
Management Working Groups (CMWG), or changes in Government
procurement policy.
Page 21 of 21