My colleagues in Category Management recently collaborated for the cover story on ISM (Institute for Supply Management). Their article outlined the 5 Best Practices for Category Management and gave some great advice that companies either already follow or should. The fifth and final tip - coping with globalization & the total cost of ownership - highlights some of the pitfalls many companies face when dealing with Category Management on a global scale.

Instinctively, most sourcing/procurement operations will tell you they have the category expertise they need. It reminds me a bit of a man’s insistence on not stopping to ask for directions…a parallel that’s even more relevant now with technological advances (GPS for drivers and the internet, tools & consultants for sourcing). But it’s still not easy keeping up with all the data, trends, vendors and other variables in the global marketplace and that challenge is often even more pronounced in an IPO (International Purchasing Office).

For IPOs, the problems often start with a misunderstanding of costs. When many people, often including those in senior management positions, think of low-cost countries where IPOs are located, they assume the operations will be low-cost as well. They expect an IPO to be largely self-sufficient in terms of IT, HR, logistics and category management, all on a shoe-string budget. Not so. In fact, salaries for highly skilled category managers across the globe are usually pretty comparable. And if the salary requirements you’re getting from applicants for those positions aren’t that high…you’ll likely end up getting what you paid for in terms of performance. Skilled people who understand the culture and relevant players in a low-cost country are hard to come by BUT they’re also worth their weight in gold savings.

So where do you turn to either augment the existing CM team’s skills or expand into new areas (geographic or category) without adding expensive headcount? The answer for many companies is a hybrid model, where they handle a great deal of the workload themselves, but seek outside help to either get their IPO up to speed or to supplement when needed in terms of knowledge.

For example, I recently worked with a manufacturer that has extensive, well equipped IPOs in Asia. However, when they had trouble finding suitable candidates to fill some critical CM positions, they instead relied on expertise from the “home office” and a 3rd party. They realized that building the perfect IPO category management team was beyond their immediate grasp, but turning elsewhere for help enabled them to meet their sourcing/procurement goals quickly and on budget.

The goal over time is to gain category expertise through experience. While changing demands may constantly move that goal post, the IPO category management team can take on more responsibility and drive more savings.

Katie Siegle is a Senior Consultant in Ariba’s Spend Management Services group. Katie works with global manufacturers on international sourcing and procurement projects.

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