Guideline Web Copy Category Management

Strategic Sourcing, Government Services Group
Department of Treasury and Finance

Strategy and Policy, Government Services Group
Good Practice Guidelines
Category Management
December 202
Version Number 2.1
Release Date July 2011
Further Information Strategic Sourcing, o!ernment Ser!ices
rou", De"artment of #reasury an$ Finance
%hone
&0'( )*+ 11*))
V%, Secretariat
-mail
!g"b.$tf.!ic.go!.au
De"artment of #reasury an$ Finance
1 #reasury %lace
/elbourne Victoria '002
0ustralia
%h1 &2*1'( )*+1 +111
Fa31 &2*1'( )*+1 +2)4
5ebsite1 666."rocurement.!ic.go!.au
0uthorise$ by the Victorian o!ernment
1 #reasury %lace, /elbourne, '002
%ublishe$ July 200).
7 State of Victoria 200)
#his $raft "ublication is co"yright. No "art may be re"ro$uce$ by any "rocess e3ce"t in accor$ance 6ith the "ro!isions of the Copyright
Act 1968.
Table of Contents
!vervie".......................................................................................................... 1
1.1 %olicy conte3t............................................................................................................... 1
1.2 %ur"ose an$ sco"e of the ui$elines................................................................................. 2
1.' Structure of the ui$elines.............................................................................................. 3
1.8 5hat is category management9........................................................................................ 3
2 Governance...................................................................................................... 5
2.1 eneral...................................................................................................................... 5
2.2 :ea$ $e"artment........................................................................................................... 5
2.' ;ategory manager......................................................................................................... 6
2.8 De"artments................................................................................................................ 7
2.+ De"artmental contract managers...................................................................................... 7
2.* ;ontract users..............................................................................................................
# Planning and t$e category management plan.........................................................9
'.1 %lanning for effecti!e category management........................................................................!
'.2 ;ategory management "lan........................................................................................... 11
% Transition....................................................................................................... 14
8.1 #ransition "lanning...................................................................................................... 1"
8.2 ;ommunications......................................................................................................... 15
8.' ;ommencing contract o"erations.................................................................................... 15
& Performance and compliance monitoring............................................................16
+.1 /inimum re<uirements................................................................................................. 16
+.2 ;om"liance au$its....................................................................................................... 17
+.' ;onsum"tion beha!iour................................................................................................ 17
+.8 /ar=et changes.......................................................................................................... 1
' Continuous improvement and value for money.....................................................19
*.1 Value for money.......................................................................................................... 1!
*.2 ;ontinuous im"ro!ement.............................................................................................. 21
( Data collection, researc$ and analysis................................................................23
>.1 Data collection an$ analysis........................................................................................... 23
>.2 Research.................................................................................................................. 2"
) *enefits trac+ing............................................................................................. 25
, Communications and relations$ip management...................................................27
).1 ;ommunications "lan................................................................................................... 27
).2 Issues...................................................................................................................... 2
0 Collaborative relations$ips "it$ suppliers and buyers..........................................30
Training in category management.......................................................................31
2 -in+s to .elevant Policies, Forms, Templates and Tools........................................32
Good #ractice Guide$ines i
%ategory &anagement
!vervie"
#hese oo$ %ractice ui$elines for ;ategory /anagement 6ere $e!elo"e$ to "ro!i$e "ractical assistance to
$e"artments in achie!ing the category management re<uirements of the State %urchase ;ontracts %olicy an$
the Strategic Sourcing %olicy. ;ategory management is recommen$e$ for significant $e"artmental
"rocurement "ro?ects &ty"ically me$ium to long term contracts 6ith high com"le3ity an$@or high ris=
characteristics(.
/ Policy conte0t
#he Good Practice Guidelines for Category Management are "art of a "ac=age of "olicies, gui$elines, tools,
training an$ tem"lates,
1
Better Planning, Smarter Practices, Better Procurement utcomes, that facilitate the
im"lementation of strategic sourcing, an$ "rocurement e3cellence in general, across the Victorian
o!ernment.
Figure 1 *etter Planning, Smarter Practices, *etter Procurement !utcomes
1
T'e various documents referred to in t'ese Good #ractice Guide$ines can (e found at ))).vgp(.vic.gov.au,
un$ess ot'er)ise stated.
Good #ractice Guide$ines 1
%ategory &anagement
Victorian Government Policy (April 2005)
State Purchase Contracts
VGPB Policy (June 2006)
Strategic Sourcing
Strategic
%ontracting
%ategory
&anagement
Developing State Purchase Contract
Business Cases
Categor !anage"ent
Information Paper
Practitioners# $ui%e to Strategic Procure"ent
&non'SPCs(
)ools* )raining an% )e"plates
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Strategy and #o$icy, Government Services Group
Strategic sourcing
Strategic sourcing is a 6ell establishe$ an$ "ro!en metho$ for managing largeAscale, me$ium to longAterm
"rocurement acti!ities. It has been a$o"te$ as stan$ar$ "ractice by numerous "ublic an$ "ri!ate organisations
in 0ustralia an$ internationally. Strategic sourcing consists of t6o =ey ca"abilities1
1. Strategic contracting focuses on $e!elo"ing a $etaile$ =no6le$ge base of the mar=et an$ the category
being source$, an$ using this =no6le$ge to $e!elo" o"timal sourcing solutions.
2. Category management focuses on managing contracts to ensure that the negotiate$ contract benefits
are realise$, an$ $ri!ing continuous im"ro!ement in contract benefits year on year.
#he Strategic Sourcing Policy 6as $e!elo"e$ to "ro!i$e a benchmar= for the im"lementation of strategic
sourcing 6ithin the Victorian o!ernment.
State Purc$ase Contracts
State %urchase ;ontracts &S%;s( are 6holeAofAgo!ernment contracts for the "urchase of goo$s an$ ser!ices
by $e"artments an$ agencies sub?ect to Victorian o!ernment %urchasing ,oar$ &V%,( "rocurement
"olicies.
In 0"ril 200+, the /inister for Finance release$ the State Purchase Contracts Policy. #he S%; %olicy sets out a
frame6or= for creating a$$itional !alue in "ublic e3"en$iture through ?u$iciously aligning $e"artmental
re<uirements, an$ by aggregating "urchasing $eman$ into S%;s. #his "olicy $ra6s on the =ey "rinci"les of
strategic sourcing to $ri!e !alue for money in S%;s.
0 number of S%;s using a strategic sourcing a""roach ha!e been com"lete$ to $ate, resulting in significant
sa!ings.
/2 Purpose and scope of t$e Guidelines
#hese Good Practice Guidelines for Category Management 6ere $e!elo"e$ to "ro!i$e "ractical assistance to
$e"artments in achie!ing the category management re<uirements of the State Purchase Contracts Policy an$
the Strategic Sourcing Policy. ;ategory management is re<uire$ for all S%;s, an$ it is recommen$e$ for
significant $e"artmental "rocurement "ro?ects &ty"ically me$ium to longAterm contracts 6ith high com"le3ity
an$@or highAris= characteristics(.
#he nature of category management is that a highly s"ecifie$, one siBe fits all a""roach is not generally
transferable to all categories of goo$s an$ ser!ices. #he a$!ice "ro!i$e$ in these gui$elines is consi$ere$
goo$ "ractice an$ shoul$ be built on by $e"artments to suit the in$i!i$ual characteristics of the category being
manage$. #he gui$elines set out a frame6or= to assist $e"artments in un$erta=ing effecti!e category
management. #hey outline1
=ey "olicy re<uirements relating to category management
=ey acti!ities an$ "rocesses re<uire$ for effecti!e category management
=ey issues to be consi$ere$ as "art of a category management a""roach.
#he gui$elines $o not attem"t to re"lace other "olicy re<uirements for contract management
2
or to be o!erly
"rescri"ti!e.
2
*efer to t'e +G#,-s %ontract &anagement po$icies.
%ategory &anagement
/# Structure of t$e Guidelines
#his ui$elines $ocument has four themes, $etaile$ in the table belo6.
T$eme C$apters Purpose
1. ;ategory management1 6hat is
it an$ 6hy $o it9
1. C!er!ie6
2. o!ernance
Familiarises rea$ers 6ith "olicy re<uirements
2. ;ategory management1 6hat has
to be actione$9 &"reAten$er(
'. %lanning an$ the category
management "lan
i!es rea$ers gui$ance on the main
re<uirements of category management &"reA
ten$er(
'. ;ategory management1 6hat has
to be actione$9 &"ostAten$er(
8. #ransition
+. %erformance an$
com"liance monitoring
*. ;ontinuous im"ro!ement
an$ !alue for money
>. Data collection, research
an$ analysis
4. ,enefits trac=ing
). ;ommunications an$
relationshi" management
10. ;ollaborati!e relationshi"s
6ith su""liers an$ buyers
11. #raining in category
management
12. Reference $ocuments
i!es rea$ers gui$ance on the main
re<uirements of category management &"ostA
ten$er(
8. ;ategory management1 tools an$
tem"lates
0ttachment 0 %ro!ision of tools an$ tem"lates to assist 6ith
achie!ing re<uirements of sections 2 an$ '
/% 2$at is category management3
;ategory management recognises not only the im"ortance of ensuring that contracte$ benefits are realise$
&the focus of tra$itional contract management(, but also the im"ortance of ca"turing further !alue an$ benefits,
beyon$ those contracte$ benefits, throughout the life of the contract. It is a "roacti!e an$ interacti!e
management of the S%;.
:i=e contract management, category management is base$ on the fun$amental "remise that at contract
e3ecution, a "latform only is create$ for "otential benefits. 0ctual benefits are only realise$ &or not realise$(
$uring the contract "erio$.
%ategory &anagement
Figure 21 4alue realisation from contract activities
#he =ey elements of category management, an$ those re<uire$ by the Strategic Sourcing Policy, are outline$
an$ $escribe$ belo6.
Figure #1 Principles and tec$ni5ues re5uired for category management
In or$er to effecti!ely un$erta=e these category management acti!ities, early category management "lanning is
critical for ma=ing consi$ere$ in"ut into the ten$er "rocess an$ contract $e!elo"ment. #his 6ill ensure that
im"ortant category management initiati!es are an integral "art of, for e3am"le, the ten$er e!aluation criteria
an$ the $raft contract.
#he "rinci"les an$ techni<ues re<uire$ for category management are e3"laine$ further throughout the
ui$elines $ocument.
#he "rime aim of these gui$elines is to "ro!i$e a$!ice on the acti!ities un$erta=en for effecti!e category
management, as 6ell as $efining minimum re<uirements. It is not to "ro!i$e a Dho6 to $o itE manual. Further
"ractical a$!ice an$ gui$ance is to be ma$e a!ailable through a ne6 %0;;-R &%rocurement an$ ;ontracting
;entre for -$ucation an$ Research( course. Strategic Sourcing, D#F, can also assist in "re"aring S%;
category management $ocumentation.
Good #ractice Guide$ines "
%ategory &anagement
Categor "anage"ent

+
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%ontract
management
.o management
Time
Planning an% ten%ering Contract perio%
Potential
value
-ealise%
value
Colla.orative -elationships /ith Buers 0 Suppliers
Co""unications 0 -elationship !anage"ent
Per+or"ance 0 Co"pliance !onitoring
)ransition 1n Continuous 1"prove"ent
Data Collection* Categor -esearch 0 2nalsis
Bene+its )rac3ing
Bene+its )rac3ing
Bene+its )rac3ing
Continuous 1"prove"ent
)ransition 1n 4 5ut Per+or"ance 0 Co"pliance !onitoring
Bene+its )rac3ing
Bene+its )rac3ing
Bene+its )rac3ing
Continuous 1"prove"ent
)ransition 1n 4 5ut Per+or"ance 0 Co"pliance !onitoring
2 Governance
5ell $efine$ an$ 6ell un$erstoo$ roles an$ res"onsibilities, su""orte$ by clearly $efine$ lines of
communications an$ collaborati!e relationshi"s, are =ey success factors in category management.
2/ General
#he go!ernance arrangements for a "articular contract nee$ to be establishe$ before mar=et engagement.
/ore s"ecifically, the State Purchase Contracts Policy re<uires that1
lea$ $e"artments managing an S%; maintain effecti!e contract an$ category management "ractices, an
integral element of 6hich is e3"loring o""ortunities for continuous im"ro!ementF
lea$ $e"artments re"ort each <uarter to D#F on the im"act of the S%;, inclu$ing outlining benefits an$
significant issuesF
all category management $ecisions are base$ on !alue for money tests using measures of <uality,
<uantity, timeliness an$ cost benefit to go!ernment on a total cost of o6nershi" basis.
0 ty"ical category management structure for an S%; is "resente$ in Figure 8.
2/2 -ead department
#he lea$ $e"artment is the $e"artment res"onsible for the $e!elo"ment, establishment an$ o!erall
management of the S%;. #he category manager is to be a""ointe$ by the lea$ $e"artment. #he category
management benefit 6ill be im"ro!e$ 6hen there is a high le!el of coo"eration an$ mutual su""ort bet6een
the category manager, $e"artmental contract managers an$ $e"artmental contract users. #his coo"erati!e
relationshi" su""orts the roles an$ res"onsibilities of the =ey sta=ehol$ers in!ol!e$ in category management,
as $iscusse$ belo6.
Strategic Sourcing, D#F, has establishe$ a category management team. :ea$ $e"artments are encourage$ to
liaise 6ith the #eam to "rogress their category management frame6or=.
#he lea$ $e"artment is e3"ecte$ to re"ort to $e"artmental contract managers on the "rogress of the S%; on a
<uarterly basis $uring the contract "erio$. #his re"ort is also to be "ro!i$e$ to Strategic Sourcing, D#F, 6ho
6ill "ro$uce an o!er!ie6 re"ort on all S%; contracts for $istribution an$ $iscussion 6ith $e"artments.
oo$ %ractice ui$elines &an$ V%, "olicies( are generally 6ritten 6ith a target rea$ershi" of $e"artments
an$ other V%, agencies. Go6e!er, significant "urchasing is $one !ia S%;s by nonAV%, state agencies.
#he lea$ $e"artment shoul$ try to establish a relationshi" 6ith those agencies to ensure effecti!e category
management is enhance$ an$ not un$ermine$ by that contract s"en$.
%ategory &anagement
Figure %1 Typical category management structure for an SPC contract
2/# Category manager
#he role of the category manager is to1
"ro!i$e in"ut into the $e!elo"ment of all "reAten$er $ocumentation, inclu$ing business case&s(, ten$er
$ocumentation an$ the contents of the contract
"ro!i$e lea$ershi" in the $e!elo"ment of the category management "lan
finalise the Drules of engagementE &i.e. ho6 the S%; is to be use$ by buyers(
im"lement the category management "lan
be the formal relationshi" manager bet6een $e"artmental contract managers, buyers an$ su""lier&s(
%ategory &anagement
SPC supplier
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6ea% %epart"ent#s
categor "anager
Transition
#erformance and comp$iance
monitoring
%ontinuous improvement
/ va$ue for money
Data co$$ection, category
researc' and ana$ysis
,enefits trac0ing
%ommunications and
re$ations'ip management
%o$$a(orative re$ations'ips
)it' supp$iers and (uyers
Strategic Sourcing7 Categor "anage"ent tea"
1vervie) report on a$$ S#% contracts for distri(ution and discussion )it'
departments
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SPC Contract
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Data an% reports
$e!elo" an$ im"lement regular su""lier re!ie6s against contract ob?ecti!es an$ terms an$ con$itions
$e!elo" the communications "lan for the transition "hase
u"$ate the communications "lan follo6ing contract a6ar$ an$ im"lementation
"rogress !alue for money an$ continuous im"ro!ement o""ortunities rising from the S%; business cases.
I$entify an$ im"lement other !alue for money o""ortunities $uring the "erio$ of the contract 6ith all
sta=ehol$ers
"ro!i$e <uarterly re"orts to $e"artmental contract managers an$ Strategic Sourcing, D#F, 6ith $etails of
benefits obtaine$, o""ortunities to be actione$, an$ issues arising
"ro!i$e an annual re!ie6 to the 0%H /anagers, sta=ehol$ers an$ Strategic Sourcing, D#F.
be the =ey go!ernment contact for the su""lier.
#he category manager shoul$ also ensure that the contract is a""ro"riately re"orte$ on the ;ontract
%ublishing System.
2/% Departments
#he role of $e"artments using an S%; is to1
a""oint a contract manager to manage their interest in the S%; an$ be a con$uit of information bac= to
$e"artmental sta=ehol$ers
generally "romote the use of S%;s an$ re"ort on their usage le!el an$@or management accor$ing to
go!ernment "olicy
"ro!i$e $e"artmental "olicy an$ "rocess su""ort to the roles an$ res"onsibilities of the contract manager
establish an$ maintain the necessary recor$s systems to su""ort S%;s an$ "ro!i$e access to any
recor$s re<uire$ by the contract an$ category managers.
2/& Departmental contract managers
#he role of the $e"artmental contract manager is to1
im"lement an$ su""ort i$entifie$ !alue for money an$ continuous im"ro!ement initiati!es, ensuring
im"lementation is accor$ing to the terms of the contract
be the main "oint of contact 6ith the lea$ $e"artmentEs category manager an$ a con$uit for
communications to their $e"artment
resol!e localise$ o"erational issues raise$ by contract users an$ su""liers &i.e. issues 6ith a systemic
im"lication shoul$ be referre$ to the category manager(
communicate S%; o"erating arrangements to contract users
"ro!i$e $e"artmental fee$bac= an$ re"orts to the category manager, inclu$ing transaction $ata, so !alue
for money an$ continuous im"ro!ement o""ortunities can be i$entifie$
su""ort goo$ communications on S%; matters to $e"artmental users an$ other sta=ehol$ers
%ategory &anagement
"artici"ate in forums to "rogress !alue for money an$ continuous im"ro!ement o""ortunities
"ro!i$e <uarterly u"$ates to the category manager on S%; e3em"tions grante$ to $e"artmental users.
2/' Contract users
#he contract user shoul$1
un$erta=e all transactions un$er the contract in accor$ance 6ith the rules of engagement s"ecifie$ for the
contract
su""ort, coo"erate an$ contribute to the i$entification an$ im"lementation of continuous im"ro!ement
initiati!es
"ro!i$e $ata an$ fee$bac= in the format re<uire$ by the category manager
"artici"ate in forums an$ 6or=sho"s to re!ie6 contract "erformance an$ continuous im"ro!ement
initiati!es.
Good #ractice Guide$ines
%ategory &anagement
# Planning and t$e category management
plan
-ffecti!e "lanning for category management $uring business case $e!elo"ment enables the lea$ $e"artment
to antici"ate an$ better mitigate ris= throughout the "ro?ect lifecycle, to ensure that the "ro?ect ob?ecti!es are
$eli!ere$ an$ contract im"lementation is establishe$ in a 6ay that "ro!i$es the o""ortunity to ma3imise !alue
for money.
#/ Planning for effective category management
6ey actions
#he category manager1
$e!elo"s $etaile$ un$erstan$ing of the category an$ its relationshi" to the go!ernmentEs business nee$s
"ro!i$es category management =no6le$ge an$ e3"ertise &in the form of a category management strategy(
in $e!elo"ing the business case, ten$er $ocumentation an$ the contents of the contract
"ro!i$es rele!ant e3isting e3"en$iture an$ "erformance $ata for the category
"ro!i$es lea$ershi" in the $e!elo"ment of the category management "lan
"ro!i$es in"ut into the $e!elo"ment of the communications "lan re<uire$ in all S%; contract "rocurement
"rocesses
integrates "erformance measures, re"orting an$ continuous im"ro!ement initiati!es re<uire$ for effecti!e
category management into the ten$er "rocess an$ final contract
"ro!i$es su""ort to the S%; %ro?ect /anager as re<uire$ $uring the contracting "hases
un$erstan$s the issues that ha!e arisen $uring the ten$er "rocess an$ contract negotiations that may ha!e
an im"act on category management.
6ey outputs
;ontract "ro!isions 6ritten 6ith category management re<uirements, inclu$ing communication, I%Is an$
continuous im"ro!ement
;ategory management "lan $e!elo"e$
.is+s addressed
#he ten$er an$ contract $ocumentation a$e<uately a$$resses an$ su""orts effecti!e category
management re<uirements $uring the contract "erio$.
Good #ractice Guide$ines !
%ategory &anagement
#he Good Practice Guidelines! State Purchase Contract Business Case "ro!i$e an o!er!ie6 of the role of
category management in the "lanning an$ ten$ering of an S%; &see Figure +( an$ it shoul$ be rea$ in
con?unction 6ith these ui$elines.
Figure &1 .elations$ip bet"een category management 7 t$e procurement process
#he category manager shoul$ be a""ointe$ as early as "ossible in a "rocurement "rocess, an$ nee$s to be a
member of the ten$er e!aluation team.
#hroughout the "rocurement "lanning stage &,usiness ;ase Stages 1 an$ 2(, the category manager "ro!i$es
category management e3"ertise to ensure that the S%; ob?ecti!es can be achie!e$ o!er the contract term. 0
category management strategy shoul$ be finalise$ for in"utting into the S%; ,usiness ;ase Stage 2. #he
$eliberations at this time on the future category management frame6or= shoul$ "ro!i$e !aluable in"ut to the
re<uest for ten$er &RF#( an$ contract "re"arations. #he full category management "lan shoul$ be $e!elo"e$
before contract im"lementation, but $oes not necessarily nee$ to be "art of ,usiness ;ase Stage 2.
Category management strategy
#he =ey elements to be a$$resse$ by the category manager $uring the ,usiness ;ase "lanning stage &i.e. the
category management strategy( are co!ere$ in the Good Practice Guidelines! State Purchase Contract
Business Case" #hese, an$ other elements to consi$er, are summarise$ here1
Transition in8out1 It is im"ortant to un$erta=e "reA"lanning for the transition out "hase of the ne6 contract
to minimise future $isru"tions to business acti!ities an$ une3"ecte$ costs at contract e3"iry.
%ategory &anagement
Procure"ent process
.egotiate / fina$ise
contract
1pportunity ana$ysis
,usiness %ase Stage 2
Categor "anage"ent
Tendering
4ppoint %ategory &anagement Team
4ssist )it' p$anning, data, researc' / ana$ysis
Deve$op category management strategy
Furt'er deve$opment of too$s and processes
Transfer accounta(i$ity to category manager
for ongoing category management
,usiness %ase Stage 1
Fina$ise %ategory &anagement #$an
%ategory management activities
%ontract approva$
Communications planning1 Iey communication re<uirements 6ithin go!ernment an$ 6ith the
successful su""lier shoul$ be i$entifie$ in the ten$er $ocumentation.
Performance and compliance monitoring1 #he I%Is for the "ro?ect must be settle$ an$ metho$ology
for measurement an$ monitoring inclu$e$ in the contract $ocumentation.
Continuous improvement1 C""ortunities for continuous im"ro!ement shoul$ be i$entifie$ an$ inclu$e$
in the ten$er e!aluation criteria an$ contract "ro!isions as a""ro"riate. &Note that the S%; contract
tem"lates, "re"are$ by Strategic Sourcing, D#F, ha!e general category management "ro!isions.(
.elations$ip management1 0 =ey "rinci"le is that the "otential benefits of a category management
a""roach can only be achie!e$ 6ith coo"erati!e an$ su""orti!e relationshi"s bet6een su""liers an$
contract users. Re<uirements for contract "ro!isions an$ the ten$er e!aluation criteria nee$ to be
consi$ere$.
Data collection, category researc$ and analysis1 It is im"ortant to research category $e!elo"ments
nationally an$ internationally, an$ analyse this $ata 6ith a !ie6 to ensuring that current S%; "erformance
is best "ractice. #he ,usiness ;ase Stage 2 shoul$ gi!e assurance that this 6ill be $one.
*enefits trac+ing1 #he contract shoul$ su""ort benefits trac=ing to ensure that contracte$ outcomes are
being achie!e$, an$ that a$$itional benefits are secure$ through continuous im"ro!ement.
Collaborative relations$ips "it$ buyers and suppliers1 %ro$ucti!e an$ $ialogueA$ri!en relationshi"s
"ro!i$e a frame6or= for organisations to share information an$ issues. Such relationshi"s buil$ trust an$
lea$ to a share$ un$erstan$ing of ho6 the organisations can 6or= together to continuously im"ro!e
throughout the contract life. #his re<uirement shoul$ be consi$ere$ for the ten$er e!aluation criteria.
Category management e0pertise1 #he e3"ertise that 6ill be $ra6n together for the successful $eli!ery
of the category management frame6or= shoul$ be a$$resse$ in ,usiness ;ase Stage 2. #his 6ill gi!e
comfort to $ecisionAma=ers that the "ositi!e outcomes of the ten$ering "rocess 6ill be sustainable.
9se of tec$nology1 #he ,usiness ;ase Stage 2 can $escribe the use of any I# systems or "rograms to
be use$ to assist in the $eli!ery of the "lanne$ category management frame6or=.
;onsi$eration of the ten$er e!aluation criteria an$ the ris=s associate$ 6ith the contract "erio$ shoul$
o!erlay the thin=ing on all the abo!e elements of a category management strategy.
#he 6or= $one on the category management strategy can be integrate$ into the category management "lan.
&See the tem"late in 0ttachment 0.(
It shoul$ be stresse$ that effecti!e category management re<uires "roacti!e an$ interacti!e management
bet6een all "arties, not ?ust goo$ $ocumentation.
#/2 Category management plan
6ey actions
%ro!i$e I%Is re<uire$ for category management.
%ro!i$e su""ort to the S%; %ro?ect /anager.
6ey output
Detaile$ I%Is for ten$er $ocumentation
%ategory &anagement
0 category management strategy is "re"are$ in su""ort of ,usiness ;ase Stage 2, an$ a category
management "lan shoul$ be finalise$ before contract transition begins.
.is+s addressed
;ategory management re<uirements a$e<uately i$entifie$ an$ incor"orate$ 6ithin the ten$er
re<uirements, ten$er e!aluation criteria an$ contract frame6or=
#he category management "lan is a tool to hel" manage the contract an$ to ma3imise !alue from the
relationshi". #he category management "lan is normally finalise$ $uring the ten$ering "hase an$ is the gui$e
for ongoing management of the contract. 0s note$, a tem"late for the category management "lan has been
$e!elo"e$. &See 0ttachment 0.(
#he category management "lan $e!elo"s the category management strategy further 6ith o"erational $etails to
be im"lemente$ $uring the contract "erio$. &0$$itional $etails follo6 in subse<uent cha"ters.(
Contract and contact summary1 a section summarising the contract an$ =ey contacts
Transition1 $etails of the main e3"ecte$ im"act of the contracte$ ser!ice on sta=ehol$ers an$ the =ey
e!ents in managing this contract an$ timingF re<uirements for contracts "ublishing system, transition out
&of e3isting an$ e3"iring contracts(, $etails of a $etaile$ transition in "lan &if a""ro"riate( an$
communication &inclu$ing any "ro"ose$ contract launch(
Communication and relations$ips management1 =ey metho$s to be use$ for liaison, re"orting an$
signalling "roblems i$entifie$ an$ contract "ro!isions e3"laine$. #his shoul$ $etail a category
management relationshi" ma".
Performance and compliance monitoring1 Describe ho6 the follo6ing 6ill be achie!e$1
A sa!ings trac=ing
A utilisation monitoring
A =ey "erformance in$icator trac=ing
A gathering su""ly in$ustry benchmar= $ata &refer to section >.2(
A consum"tion "attern analysis
A $eman$ monitoring an$ e!aluation
A monitoring an$ re$ucing e3"en$iture ma$e outsi$e the contract.
Contingencies1 "ro"ose$ a""roach to $eal 6ith a$!erse $e!elo"ments or un$er "erformance. #his
inclu$es1
A #isputes! Re!ie6 the rele!ance of $is"ute resolution "rocess an$ $etail ho6 this 6ill be manage$ in
"ractice.
A $ariations! Re!ie6 the rele!ance of !ariations "rocess in contract an$ consi$er ho6 this 6ill be
manage$ in "ractice. &Refer also to the V%, "olicy for Variation %rocess 0""ro!al.(
A Compliance! Re!ie6 the rele!ance of com"liance "ro!isions in contract an$ consi$er ho6 this 6ill be
manage$ in "ractice.
.is+ management strategies1 0 ris= management "lan shoul$ ha!e been $e!elo"e$ as "art of the
"lanning for the "rocurement "ro?ect. &Refer to the Good Practice Guidelines! #e%eloping a State
Purchase Contract Business Case, 200*, 0""en$i3 D1 Ris= management.(
Continuous improvement and value for money1 Describe strategies for achie!ing1
A "ro$ucti!ity gains
A im"ro!e$ <uality
A im"ro!e$ functionality an$@or s"ecifications rationalisation
A inno!ation@consumer !alue.
A su""lier "erformance an$ sa!ings trac=ing mechanisms
%ategory &anagement
A I%Is an$ critical s"ecification re<uirements
A benchmar=ing su""ly in$ustry
A analysing consum"tion "atterns
A eliminating Dma!eric=E buying.
Data collection, researc$ and analysis1 Describe 6hat $ata 6ill be collecte$, the metho$ for collecting
it, 6here it 6ill be store$ an$ in 6hat format. 0nalysis of this collecte$ $ata to $ra6 contract "erformance
insights an$ to inform $ecision ma=ing is im"ortant. Researching category $e!elo"ments nationally an$
internationally 6ith a !ie6 to ensuring that current S%; "erformance is best "ractice is also !ital. &0n
assessment on 6hether the S%; is trac=ing in$ustry best "ractice is im"ortant 6hen consi$ering 6hether
to e3ercise any a!ailable contract o"tions.(
*enefits trac+ing1 Define the baseline against 6hich benefits 6ill be measure$ an$ ho6 "rogress of
!alue for money an$ continuous im"ro!ement o""ortunities 6ill be re!ie6e$ an$ re"orte$. /etho$s for
analysing benefits i$entifie$ at contract start for ongoing !ali$ity o!er the life of the contract.
Cther sections to the category management "lan that the category manager shoul$ consi$er are in$icate$ in
0ttachment 0.
%ategory &anagement
% Transition
#he transition in "hase in!ol!es intro$ucing su""liers an$ buyers to each other an$ im"lementing an action
"lan for an efficient an$ effecti!e transition into the ne6 contract an$ out of any e3isting contract.
#ransitioning a contract in effecti!ely ensures that all "ro?ect ob?ecti!es an$ contract re<uirements are
un$erstoo$ by all sta=ehol$ers, an$ that any $isru"tion to business continuity is =e"t to a minimum. -ffecti!e
transitioning in also re<uires "reA"lanning the transitioning out of e3isting contract arrangements.
6ey actions
Gan$o!er from the contracting team to the category management team, inclu$ing $ebriefs an$
$ocumentation han$o!er
Intro$ucing su""lier&s( to go!ernment sta=ehol$ers
/anaging the transfer of intellectual "ro"erty &I%( assets for incoming@outgoing su""liers
Res"on$ing to internal sta=ehol$er <ueries
-stablishing an$ normalising contract transactions
;ommunicating the benefits of the S%; to sta=ehol$ers
6ey output
Hn$erstan$ing of contract re<uirements by all sta=ehol$ers
;ommunicating to all buyers the rule of engagement
Im"lementation of the communication "lan
/inimisation of $isru"tions to business continuity
Finalising the re"orting re<uirements 6ith the su""liers
.is+s addressed
Value for money from a contract 6ill only be achie!e$ if all sta=ehol$ers =no6 their roles an$ re<uirements.
Su""lier "erformance from commencement of contract
Successful transitioning arrangements an$ actions 6ill facilitate the relationshi" to be establishe$ bet6een
su""lier&s( an$ go!ernment.
%/ Transition planning
-nsuring the smooth transitioning in of the ne6 su""lier&s(, an$ transitioning out of the e3isting su""lier&s(, is
the res"onsibility of the category manager. 5hile the S%; "ro?ect manager shoul$ "ro!i$e su""ort, this "hase
mar=s the "assage of res"onsibility from the "ro?ect manager to the category manager.
#he category manager has to im"lement the actions i$entifie$ in the category management "lan. 0 $etaile$
transition "lan may be ?ustifie$, an$, as a minimum, a $etaile$ action "lan co!ering this "hase of the contract
shoul$ be $e!elo"e$, 6hich i$entifies 6hat is to be $one, by 6hom an$ by 6hen.
%reA"lanning the transition out at contract e3"iry for incumbent su""liers is critical for successful transitioning
in. #his "lanning shoul$ ta=e "lace $uring the business case $e!elo"ment. #he transition out of a S%; is
co!ere$ in the S%; contract tem"lates, but nee$s to be s"ecifically $e!elo"e$ to be inclu$e$ in the S%;
Good #ractice Guide$ines 1"
%ategory &anagement
,usiness ;ase Stage 2 for each contract.
%/2 Communications
5hen a ne6 contract is establishe$, there is often a com"le3 list of "ublic sector sta=ehol$ers 6ho nee$ to be
intro$uce$ to the often com"le3 conce"ts an$ re<uirements "lace$ u"on them an$ on su""liers. Sta=ehol$ers
to be consi$ere$ inclu$e1
senior sta=ehol$ers
A /inisters
A V%,
A Secretary@De"uty Secretary
$e"artmental sta=ehol$ers
A $e"artmental "rocurement managers
A $e"artmental contract managers
A $e"artmental buyers
category management
A "ro?ect s"onsor
A category manager
A Strategic Sourcing, D#F.
A go!ernment agencies 6ith s"ecial "olicy interests
e3ternal sta=ehol$ers
A su""lierEs e3ecuti!e
A su""lierEs relationshi" manager
A "ublic.
It is !ital that a strategy for communicating 6ith all sta=ehol$ers is maintaine$ through the critical "hase of
transitioning in. Some techni<ues that 6ill ha!e to be consi$ere$ inclu$e1
the role of a formal contract launchF issues relating to contract launch inclu$e bu$get, location, in!itees
an$ "rocess to be follo6e$. #o"ics shoul$ inclu$e the ten$er outcomes 6ith res"ect to the ,usiness ;ase
targets, the rules of engagement etc.
faceAtoAface forums, inclu$ing roa$ sho6s an$ "rogramme$ meetings &to 6hich su""liers are fre<uently
in!ite$(F
6or=sho" forums.
%/# Commencing contract operations
#he commencement "erio$ of the S%; is a "erio$ of high acti!ity. In some cases the su""lier&s( 6ill nee$ to be
ram"ing u" acti!ities, for e3am"le, hiring or reA$e"loying account managers, or learning the buying beha!iours
of !arious $e"artments an$ agencies.
#here are benefits from a collaborati!e, goo$ faith a""roach $uring this time, 6ith unnecessary com"le3ity
remo!e$ by buyers as it becomes e!i$ent in transactional "roce$ures, an$ su""liers a$e<uately resource$ to
meet their "erformance commitments $uring the ram"Au" "erio$.
%ategory &anagement
+ %erformance an$ com"liance monitoring
-ffecti!e "erformance an$ com"liance monitoring in a contract "ro!i$e access to rele!ant information an$
$e!elo"e$ insights. #hese are a basis for DcontrolE actions inten$e$ to mitigate any ris=s that are materialising
an$ to monitor achie!ement of contract ob?ecti!es.
6ey actions
Re!ie6 su""lier $eli!erables against contractual obligations.
Formal measurement of I%Is
Re!ie6 buyer consum"tion &contract users( 6ith res"ect to contract re<uirements an$ gui$elines
"ublishe$ by the lea$ $e"artment.
6ey outputs
0ssessments of e3"en$iture ma$e outsi$e the contract
%erio$ical re"orting of "erformance &both <uantitati!e an$ <ualitati!e measures( against contract
I$entification of !alue for money an$ continuous im"ro!ement o""ortunities
.is+s addressed
-ffecti!e "erformance an$ com"liance monitoring "ro!i$es a soun$ =no6le$ge base on 6hich effecti!e
management can be base$ to ensure contract "erformance $oes not $eteriorate o!er time an$ that !alue
for money is ma3imise$ through the life of the contract.
&/ Minimum re5uirements
#he category management function inclu$es the "erformance an$ com"liance monitoring role. %erformance
an$ com"liance monitoring in!ol!es e!aluating the follo6ing on a <uarterly basis1
Price trac+ing1 It is im"ortant that "rices are trac=e$ against those antici"ate$ at the time of entering the
contract &in effect, the "ricing baseline(. Cne of the fun$amental "rinci"les of strategic sourcing is to see=
!alue greater than the baseline.
6ey performance indicator trac+ing1 #he category manager has t6o "rime sources for $ata ca"ture J
internal &$e"artmental base$( an$ e3ternal &su""lier base$(. It is suggeste$ that 6here "ossible, the
category manager shoul$ "lace the res"onsibility for $ata ca"ture on the su""lier through contract
con$itions. #his is because of the com"le3ity in obtaining full $ata ca"ture across the 6hole of
go!ernment in a consistent form. #he category manager shoul$ also con$uct a s"ot analysis of
$e"artmental $ata to ensure the !ali$ity of the $ata obtaine$ from the su""lier.
Gat$ering supply industry benc$mar+ data1 #he category manager is re<uire$ to stay at the forefront
of category =no6le$ge at both a national an$ international le!el. #his inclu$es gathering in$ustry
benchmar= $ata an$ com"arisons 6ith the contract being manage$. &See ;ha"ter > for a further
$iscussion of this.(
9tilisation monitoring and consumption pattern analysis1 #he structure of the contract an$ the
antici"ate$ !alue for money 6ill be base$ on e3"ecte$ consum"tion "atterns an$ contract utilisation. #he
category manager has to $e!elo" "rocesses for trac=ing utilisation an$ consum"tion "atterns an$ is
re<uire$ to "ro!i$e "roacti!e strategies to $eal 6ith change. #his is e3"an$e$ on in section +.'.
%ategory &anagement
Monitoring and reducing e0penditure made outside t$e contract1 &i.e. managing Dma!eric= s"en$E(.
%erformance an$ com"liance monitoring also in!ol!es on a more regular basis1
"rice monitoring an$ contract com"liance
effecti!e chec=ing of in!oice $etails
structure$ re"orting
com"liance au$iting.
0s "art of the communication "lan &see ;ha"ter )(, the category manager shoul$ formalise <uarterly meetings
&or at another inter!al to suit circumstances( 6ith su""liers. #his is to facilitate1
collection of necessary $ata from the su""lierEs $ata base &#his can also be se"arately matche$ to $ata
from $e"artmental systems.(
$iscussion of "erformance against I%Is
i$entifying o""ortunities for im"ro!ement
ta=ing correcti!e action if necessary
$ocumenting $iscussions an$ agree$ outcomes
follo6ing u" on agree$ outcomes &an$ u"$ating sta=ehol$ers(.
&/2 Compliance audits
0 com"liance au$it, see=ing to ensure that $ata being obtaine$ is re"resentati!e of the actual circumstances,
may be of benefit in circumstances 6here a large number of transactions occur, an$ a com"le3 "ricing
metho$ology is use$. 0n e3am"le 6oul$ be a fuel su""ly contract, 6here the "ricing is e3tremely !ariable an$
geogra"hically inconsistent. 0 "ricing com"liance au$it may be 6arrante$ to ensure transactional accounting
errors are i$entifie$ an$ actione$ in a timely 6ay. #he fre<uency of com"liance au$its shoul$ be ?u$ge$ by the
category manager, an$ the S%; contract tem"lates "ro!i$e certain au$it rights for the lea$ $e"artment.
0 com"liance au$it may inclu$e !erifying that "ricing charges are at the contractual "ricing rate an$ that
ser!ice le!els re"orte$ on 6ere accurate. #he category manager may 6ish to engage thir$ "arties, 6ho
s"ecialise in certain categories, to "erform this acti!ity 6here a""ro"riate.
&/# Consumption be$aviour
;onsum"tion beha!iour is the 6ay an$ the e3tent to 6hich contract users are accessing the contract. #he role
of the category manager is to $etermine 6hether1
t$e transactions conducted are in accordance "it$ t$e guidelines specified at t$e planning p$ase,
t$e business case and t$e contract1 #hese shoul$ be summarise$ by the category manager in the
Drules for engagementE for the contract users. #hese shoul$ su""ort the contractual obligations of contract
users, as 6ell as "romoting the !alue for money an$ continuous im"ro!ement o""ortunities. #hese
gui$elines shoul$ be "romulgate$ 6ith the su""ort of the contract managers.
If transactions are not con$ucte$ accor$ing to the rules of use, the category manager shoul$ see= to
$etermine the causes for nonAcom"liance. Issues associate$ 6ith nonAcom"liance range from insufficient
clarity in the rules to the contract not "ro!i$ing the user 6ith the o"timal !alue for money outcome. #he
category manager a""roaches such circumstances 6ith a !ie6 to im"ro!ing the situation in a
%ategory &anagement
collaborati!e 6ay.
5here the groun$s for nonAcom"liance are not seen to be ?ustifiable, the category manager shoul$
engage 6ith the $e"artment to ensure "rocess com"liance.
t$e consumption pattern provides details on t$e category spend, t$e e0penditure and t$e profile of
t$e supply1 In re!ie6ing the consum"tion "attern, the category manager shoul$ focus on o""ortunities
for continuous im"ro!ement. #hese may "resent themsel!es in !arious 6ays such as through aggregation
of similar goo$s or ser!ices into a smaller range, 6hich still "ro!i$es a Dfit for "ur"oseE outcome, or through
"ro$uct or goo$s substitutions, 6ith more costAeffecti!e alternati!es.
If the use of the S%; by $e"artments e3cee$s the initially forecast contract s"en$, the lea$ $e"artment
may nee$ to get a""ro!al &from the a""ro"riate financial $elegate(.for a !ariation to any initial signAoff to a
contract !alue.
&/% Mar+et c$anges
0s mentione$ earlier, the category manager shoul$ be cognisant that mar=et con$itions are $ynamic, an$ that
o""ortunities may "resent themsel!es as a result of e3Acontract con$itions &e.g. mar=etA6i$e inno!ations that
change the !alue for money "ro"osition in su""ly contracts(. 0n assessment of 6hether the S%; is trac=ing
in$ustry best "ractice is an im"ortant consi$eration in 6hether to e3ercise any a!ailable contract o"tions.
Further mar=et changes may re<uire a change to the category management "lan.
%ategory &anagement
' Continuous improvement and value for
money
Strategic sourcing an$ category management aim at $eli!ering yearAonAyear continuous im"ro!ement on the
!alue for money "ro"osition negotiate$ at contract close.
6ey actions
Document !alue for money initiati!es.
Hn$erta=e baseline "ricing an$ <uality@"erformance at commencement of contract.
-ngage contract users, contract managers an$ su""lier.
#rac= "rogress.
6ey outputs
,aseline "ricing an$ <uality@"erformance achie!e$
;ontinuous $e!elo"ment of initiati!es lea$ing to !alue for money enhancements
Re"ort on continuous im"ro!ement initiati!es un$erta=en
Re"ort on !alue for money i$entifie$, but not im"lemente$
.is+s addressed
If "roacti!e an$ continuous management is not achie!e$, then the contractEs baseline !alue for money
"ro"osition is li=ely to ero$e o!er time.
'/ 4alue for money
Value for money $enotes, broa$ly, a balance$ benefit measure co!ering <uality le!els, "erformance stan$ar$s,
ris= e3"osure, other "olicy or s"ecial interest measures &e.g. en!ironmental im"acts(, as 6ell as "rice.
enerally, !alue for money is assesse$ on a D6hole of lifeE or Dtotal cost of o6nershi"E basis.
#he conce"t of continuous im"ro!ement su""orts the !ie6 that the !alue for money "ro"osition negotiate$ in
the "ast at contract close may not "ro!i$e the o"timal !alue for money in the "resent. #he commercial
en!ironment is not static an$ category management is base$ on continuous im"ro!ement in the !alue
"ro"osition. 0 continual "rocess of analysis of all of the elements 6hich im"act on an$ o"timise !alue for
money is re<uire$.
#he category manager 6ill lea$ !alue for money initiati!es by engaging 6ith the su""lier, $e"artmental contract
managers an$ users in i$entifying 6ays to im"ro!e the "erformance of the contract. #his can inclu$e hel"ing
the su""lier to become more efficient in ser!ing buyers. #his lea$s to $ecreasing costs, $ri!ing further use of
the contract to increase rebates or $iscounts, an$ im"ro!ing the le!el of ser!ice the su""lier offers to internal
customers.
Value for money initiati!es 6ill inclu$e but 6ill not be limite$ to1
"ro$ucti!ity gains
Good #ractice Guide$ines 1!
%ategory &anagement
im"ro!e$ <uality
im"ro!e$ functionality an$@or s"ecification rationalisation
inno!ation@consumer !alue.
#he !alue for money im"ro!ement "rocess un$erta=en by the category manager must ensure that1
sta=ehol$er buyAin is achie!e$ for these acti!ities
sa!ings are note$ an$ ca"ture$
each in$i!i$ual initiati!e 6ill be run as a "ro?ect
the a""ro"riate "ro?ects are chosen to ma3imise the benefit of the in!estment in time an$ other resources
to im"lement the i$entifie$ initiati!e.
0 frame6or= to "romote !alue for money im"ro!ement is sho6n belo6.
#his frame6or= 6ill maintain full category =no6le$ge, an$ "ro!i$e o""ortunities for action 6hen circumstances
change, or 6ith contract reAten$ering, as re<uire$.
%ategory &anagement
4alue for money frame"or+
1. Document all !alue for money initiati!es1
a. Document if any !alue for money initiati!es i$entifie$ cannot be "rogresse$ an$ 6hy.
b. De!elo" a !alue for money initiati!es timeline an$ "ro?ect "lan against1
i. time to im"lement
ii. !alue to the contract users.
c. %ublish "ro?ect "lan to sta=ehol$ers.
2. ,aseline current acti!ities to measure im"ro!ements of !alue for money acti!ities.
a. /easure current costs through accounts "ayable $ata an$ su""lier $ata.
b. 0gree 6ith =ey sta=ehol$ers on baseline.
'. -ngage 6ith su""liers to un$erta=e !alue for money initiati!es to ensure1
a. feasibility of initiati!es
b. accuracy of timelines.
8. Re!ie6 !alue for money initiati!es 6ith sta=ehol$ers.
+. Cngoing communications 6ith sta=ehol$ers
a. Deci$e on format for u"$ates on !alue for money initiati!es, 6hether meetings an$@or email
u"$ates.
b. Deci$e on fre<uency of communications for !alue for money initiati!es &monthly or <uarterly(.
c. De"artmental contract managers meeting.
$. /eeting 6ith the user grou".
*. Sa!ings trac=ing an$ re"orting
a. /onthly re"orting on the !alue for money initiati!e "ro?ect against the "ro?ect "lan.
b. ;ategory manager to re"ort !alue for money initiati!es success at the <uarterly meeting.
'/2 Continuous improvement
Deli!ering yearAonAyear continuous !alue for money im"ro!ement 6ill re<uire the category manager to
cham"ion the "rocess of i$entifying initiati!es to im"ro!e the benefit in the contract. #his can inclu$e1
hel"ing the su""lier an$ contract users to become more efficient, thereby $ecreasing costsF
$ri!ing further use of the contract to increase sa!ingsF
im"ro!ing the le!el of ser!ice the su""lier offers to internal customers.
#he category manager establishes a frame6or= for a continuous im"ro!ement en!ironment by1
"ro!i$ing in"ut into the business case $e!elo"ment "hase on ho6 best to a$$ress the mar=et
characteristics an$ !alue $ri!ers for that s"ecific categoryF this le!erages the o"timal relationshi"
management an$ !alue for money outcomes $uring the contractual an$ transition "hasesF
ma=ing the <uality of the contractual relationshi" a =ey ten$er e!aluation criterion 6ith an assessment of
trac= recor$ in continuous !alue for money im"ro!ementF
ensuring that cost effecti!e a$ministrati!e "rocesses are in "lace &as a significant "ro"ortion of benefits
6ill be $eri!e$ from management of internal "rocesses(F
setting u" a""ro"riate re"orting an$ information sharing forums bet6een the su""lier, buyers an$ the
category manager to i$entify an$ "ursue !alue for money o""ortunities an$ inno!ations &e.g. arising from
"ro$uct substitutions, changes in buyer beha!iour etc.(.
%ategory &anagement
0 frame6or= to "romote continuous im"ro!ement is1
Continuous improvement frame"or+
1. Ga!e all su""lier "erformance, "ricing an$ non "ricing benefits trac=ing mechanisms in "lace.
a. I$entify the metho$ of calculating the im"ro!ements in the category management "lan.
b. Sta=ehol$ers are to be a$!ise$ on the mechanisms agree$ if $ata is re<uire$ for re"orting
"ur"oses
2. I$entify I%Is an$ critical in"ut s"ecifications.
a. I%Is are to be i$entifie$ $uring the business case "hase.
b. I%IEs are to be measurable an$ su""orte$ by the $ata that is su""lie$ monthly@<uarterly from
the su""lier.
'. ,enchmar= in$ustry best "ractice.
a. #he mar=et for a "articular category shoul$ be continually assesse$.
b. %ricing $ata against li=eAsiBe$ buyers shoul$ be gathere$ an$ best "ractice initiati!es shoul$ be
i$entifie$.
c. 0n assessment on 6hether the S%; is trac=ing in$ustry best "ractice through research 6ill be
an im"ortant consi$eration in 6hether to e3ercise any a!ailable contract o"tions.
8. /onitor the contract continually.
a. #he category manager is res"onsible for collecting $ata for monitoring s"en$, $e"artment usage
an$ ser!ice le!els.
b. #he category manager is also to manage crossA$e"artmental issues, an$ as re<uire$ minor
local $e"artmental issues.
+. 0nalyse consum"tion "atterns.
;onsum"tion across $e"artments is to be e!aluate$ an$ monitore$ "erio$icallyF analysis an$
recommen$ations on ho6 to affect consum"tion "atterns can become !alue for money
im"ro!ement initiati!es.
*. /onitor an$ e!aluate $eman$.
If $eman$ changes consi$erably, this shoul$ be analyse$ an$ the reasons assesse$ for further
action or e3"lanation.
>. 0$$ress lea=age.
a. %urchasing that occurs outsi$e of the S%; nee$s to be i$entifie$ <uarterly.
b. 0nalysis as to 6hy $e"artments are not buying from the S%;s nee$s to be un$erta=en an$ the
reasons un$erstoo$.
c. #he category manager shoul$ im"lement a""licable measures 6hich ensure the o"timal
outcome for the contract as a 6hole.
$. #he category manager 6ill see= s"en$ information from the su""liers an$ the sta=ehol$ers
6ithin a reasonable timeframe.
e. It is the res"onsibility of the sta=ehol$ers to res"on$ to that re<uest in a timely 6ay.
f. ;on$uct buyer 6or=sho"s to e3"lain the rules of engagement.
%ategory &anagement
( Data collection, researc$ and analysis
Data collection, research an$ analysis are =ey elements of effecti!e category management an$ must continue
throughout the life of the contract. It is im"ortant to analyse the collecte$ $ata to $ra6 strategic insights on S%;
"erformance, as 6ell as researching category $e!elo"ments nationally an$ internationally 6ith a !ie6 to
ensuring that current S%; "erformance is best "ractice.
6ey actions
Strategic re!ie6 of consum"tion "atterns, I%Is an$ contract "erformance "atterns
%erform benchmar= re!ie6s an$ research.
#rac= contract im"ro!ement "atterns.
6ey outputs
0ssess the success of im"lementing !alue for money an$ continuous im"ro!ement o""ortunities.
Re!ise category management strategies an$ ob?ecti!es
Recommen$ation to e3ercise contract o"tions or to reAten$er
.is+s addressed
;ontinuous $ata collection an$ analysis allo6s informe$ $ecision ma=ing1
A to "re!ent !alue erosion throughout the contract
A to $eci$e actions on contract milestones.
(/ Data collection and analysis
It is necessary to gather an$ collect s"en$ $ata across $e"artments an$ from the su""lier to ensure effecti!e
"erformance an$ com"liance monitoring as set out in ;ha"ter +. Go6e!er, it is also necessary to strategically
re!ie6 this $ata to1
$e!elo" insights as to ho6 the contract can be enhance$ by i$entifying !alue for money an$ continuous
im"ro!ement o""ortunities
i$entify 6hether the contract is $eli!ering the re<uire$ "erformance, by i$entifying contract user
consum"tion beha!iour, inclu$ing offAcontract s"en$.
In "erforming a rigorous analysis, the category manager 6ill be able to re!ise the strategy of the category
management "lan to1
i$entify continuous im"ro!ement an$ !alue for money o""ortunities, by focussing on ga" analysisF the ga"
analysis see=s to i$entify the current state, an$ com"ares that to the o"timal stateF
i$entify 6hether the contract shoul$ be e3ten$e$ &!ia e3ercise of e3tension o"tions(, or 6hether the
contract shoul$ be reAten$ere$.
#o su""ort the $ata analysis, the category manager s"ecifies, in the contract con$itions an$ in the category
management "lan, the ty"es of information that 6ill be nee$e$ from the su""liers an$ $e"artmental
sta=ehol$ers. #he category manager 6ill1
%ategory &anagement
s"ecify $uring the sourcing "hase the re"orting re<uirements from the su""lier so the $ata can be
ca"ture$ an$ use$ for ongoing monitoring
use internal systems or the su""lier systems, to un$erstan$ the s"ecifications being or$ere$.
(/2 .esearc$
#he category manager shoul$ un$erta=e research 6hich 6ill ensure that category intelligence is obtaine$ an$
maintaine$. #he information shoul$ "ro!i$e insights on $e!elo"ments at a Victorian, national an$ international
le!el &"ri!ate an$ "ublic sectors(. %rice monitoring an$ sur!eillance is a =ey com"onent in category
intelligence, as it "ro!i$es the category manager 6ith insights on ho6 similar siBe$ organisations are treate$ in
the mar=et. #his assessment, 6ith an e3ternal focus on 6hether the S%; is meeting in$ustry best "ractice
stan$ar$s is an im"ortant consi$eration in 6hether to e3ercise any a!ailable contract o"tions or reAten$er.
o!ernment contracts attem"t to obtain com"etiti!e an$ most fa!oure$ "ricing. %rice monitoring an$
benchmar=ing against similar organisations enables the category manager to i$entify o""ortunities for
negotiation 6ith the su""lier to ensure the contract is "ro!i$ing im"ro!e$ benefit o!er time.
Sources of information inclu$e interAgo!ernment su""orte$ forums, s"ecialist su""liers "ro!i$ing category
trac=ing ser!ices, in$ustry literature an$ go!ernment in$ustry re"orts. It is e3"ecte$ that the category manager
6ill see= out reliable sources of information to ensure that the contract "rices re"resent a""ro"riate
e3"en$iture of "ublic fun$s.
%ategory &anagement
) *enefits trac+ing
Define the baseline against 6hich contract benefits 6ill be measure$. -ffecti!e benefits trac=ing throughout the
life of the contract ensures that contracte$ outcomes are being achie!e$, an$ that a$$itional benefits are
secure$ through continuous im"ro!ement.
6ey actions
Define the baseline against 6hich contract ob?ecti!es an$ benefits 6ill be measure$.
Re!ie6 "rogress of continuous im"ro!ement o""ortunities im"lemente$ an$ re"ort on the results.
Re!ie6 the ob?ecti!es, I%Is an$ benefits i$entifie$ at contract start, an$ analyse their ongoing !ali$ity
o!er the life of the contract.
6ey outputs
#rac= e3"en$iture an$ sa!ings against antici"ate$ estimates.
Re"ort on incremental changes to the contract baseline of "ricing an$ nonA"rice benefits.
/anagement information re"orts issue$.
.is+s addressed
,enefits trac=ing hel"s manage the ris= of unnotice$ !alue erosion that can arise from tra$itional contract
management or nonAmanagement.
During the "lanning "hases &,usiness ;ase Stage 1 an$ Stage 2 for a S%;(, the category manager shoul$
ha!e contribute$ to the $efinition of ho6 the contract ob?ecti!es 6oul$ be assesse$ an$ measure$ in res"ect of
their contribution to !alue for money outcomes. #he trac=ing of benefits shoul$ use the same metho$ology
consistently o!er the life of the contract. 0ll benefits, both <uantitati!e &e.g. "rices, transaction costs, res"onse
times( an$ <ualitati!e &e.g. nonAfinancial I%Is(, shoul$ be re"orte$, as !alue for money an$ continuous
im"ro!ement im"ro!ements are not limite$ to financial outcomes.
0s <ualitati!e benefits cannot al6ays be e3"resse$ using a $efiniti!e measure, fee$bac= from contract users
an$ contract managers is useful.
,enefits trac=ing &"rice monitoring an$ com"ilation of other <uantitati!e an$ <ualitati!e $ata( shoul$ ta=e "lace
each <uarter, using the follo6ing frame6or= $e!elo"e$ an$ manage$ by the category manager1
1 S"ecify the metho$ by 6hich benefits trac=ing 6ill ta=e "lace. &#his shoul$ be consistent 6ith the
category management "lanning $one $uring the ,usiness ;ase Stage 2 "re"aration.(
2 ;ommunicate the contract baseline for "rice an$ nonA"rice benefits an$ ho6 incremental changes
6ill be measure$.
a. S"ecify ho6 sa!ings against the contract "ricing baseline 6ill be calculate$
b. S"ecify ho6 incremental changes against the contract nonA"rice baseline of benefits 6ill be
calculate$.
c. S"ecify fre<uency &usually <uarterly(.
$. Define the res"onsibilities of contract sta=ehol$ers &i.e. category manager, $e"artmental contract
managers, su""lier( in collecting an$ re"orting $ata.
3 ;ommunicate 6ith su""lier the $etails of the benefits trac=ing "rocess. &#his ste" 6oul$ ha!e been
antici"ate$ in the contract an$ ten$er $ocumentation.(
%ategory &anagement
a. Finalise an$ s"ecify the metho$ by 6hich sa!ings against the contract "ricing baseline 6ill be
calculate$ 6ith the su""lier
b. Finalise an$ s"ecify the metho$ by 6hich incremental changes against the contract nonA"rice
baseline of benefits 6ill be calculate$ 6ith the su""lier.
c. S"ecify 6hat $ata an$ format is necessary <uarterly.
$. S"ecify timing for re"orting re<uirements &e.g. t6o 6ee=s after en$ of <uarter(.
" ;ollect $ata from su""lier an$ $e"artmental contract managers.
5 Verify $ata an$ con$uct an analysis.
6 %ro!i$e a <uarterly re"ort to $e"artmental contract users an$ Strategic Sourcing, D#F.
%ategory &anagement
, Communications and relations$ip
management
-ffecti!e communications an$ relationshi" management in a contract create structure$ an$ o"en lines of
communication an$ re"orting, 6ith a focus on $e!elo"ing su""orti!e an$ collaborati!e relationshi"s 6ith the
main "arties associate$ 6ith the contract.
6ey actions
;ategory manager to lea$ communications amongst $i!erse sta=ehol$ers
Re!ie6, u"$ate an$ im"lement the communications "lan $e!elo"e$ $uring the "rocurement "lanning
"rocess.
6ey outputs
H"AtoA$ate communications "lan
;learly $efine$ an$ un$erstoo$ "rocess for $ealing 6ith contract issues
.is+s addressed
-ffecti!e relationshi"s bet6een all sta=ehol$ers ma3imise o""ortunities for increasing !alue for money an$
re$ucing the im"act of a$!erse ris=s an$ issues.
,/ Communications plan
0 =ey criterion in "rogressing !alue for money an$ continuous im"ro!ement is the establishment an$
maintenance of strong relationshi"s bet6een the category manager an$ su""liers an$ contract managers. 0
category manager shoul$ ensure that careful consi$eration is gi!en to a communications "lan 6hich "romotes1
un$erstan$ing of the contract an$ category management ob?ecti!es
o"en communication on matters that can "otentially im"act on contract "erformance
un$erstan$ing of a""ro"riate an$ clear roles an$ res"onsibilities
mutual benefit among all "arties through a""ro"riate information sharing.
#he category manager 6ill nee$ to "romote this "lan ta=ing account of both informal an$ formal
communications.
0 structure$ communications "lan for S%;s 6ill ensure the contracts are use$ a""ro"riately an$ that crossA
$e"artmental issues are raise$ an$ resol!e$ <uic=ly. It is !ital that the category manager starts "re"aring this
"lan $uring the S%; "lanning "hase &,usiness ;ase Stages 1 an$ 2(, rea$y for the transition in "hase, an$
u"$ates an$ im"lements the communication "lan throughout the life of the contract.
%ategory &anagement
,/2 :ssues
Issues nee$ to be effecti!ely resol!e$, in a timely 6ay, to ensure contract user satisfaction. #he category
manager must ma=e sure that the "rocess for i$entifying an$ resol!ing issues is 6ell un$erstoo$. 0n issues
register, that 6oul$ be structurally "art of the ris= management "lan, ensures "roblems that occur fre<uently
an$ across multi"le $e"artments are trac=e$ an$ a$$resse$ collecti!ely by the category manager an$ others.
0 suggeste$ issues "rocess is "ro!i$e$ belo6.
:ssues management frame"or+
/ :ssues captured on a continual basis
a. Recor$ issues in an issues register &ris= management "lan(.
b. #he category manager to $e!elo" the format of the register that inclu$es $etails on the issue,
contacts, $ates an$ times.
c. ;lassification of issues to better un$erstan$ 6here effecti!e resolution lies.
2/ ;scalation process <if t$e issue is local and operational=
a. Initiate J the contract user shoul$ recor$ the issue in the issues register format an$ a$!ise the
su""lier gi!ing $etails of the issue.
b. First tier J the su""lier shoul$ res"on$ to the contract user an$ "ro!i$e a resolution "lan that
inclu$es an agree$ timeframe an$ ne3t ste"s.
c. Secon$ tier J If unresol!e$ at the first tier the contract, the user 6ill nee$ to escalate the issue to
their contract manager.
$. #hir$ tier J If the issue is not resol!e$ at the secon$ tier, the issue shoul$ be escalate$ to the
category manager.
#/ Severity considerations
#he se!erity of the issue shoul$ be consi$ere$ 6hen follo6ing the issue escalation "rocess. If issues
are minor or me$ium in nature, then the "rocess $escribe$ abo!e is a""ro"riate. For a high se!erity
rating, or a "otential $isaster, the issue shoul$ imme$iately be raise$ 6ith the category manager.
Illustrations of se!erity follo6.
a. /inor A in!oices are late, cre$its ha!e not been a""lie$ a""ro"riately.
b. /e$ium A Su""lier is not meeting agree$ $eli!ery or turnaroun$ times re"eate$ly.
c. Gigh A Gighly sensiti!e issues that coul$ cause "olitical "roblems, ma?or $isru"tion to su""ly that
6ill ha!e an o"erational im"act, "robity "roblems, anything that coul$ result in a la6suit or "ublic
interest in the issue.
If the issue emerges as of a systemic significance, it nee$s to be escalate$ $irectly to the category
manager.
8. Disputes of a serious nature that are more $ifficult to resol!e re<uire the category manager to1
a. I$entify an$ clearly $escribe the issue of contention an$ the =ey su""lier contacts an$
sta=ehol$ers in!ol!e$.
b. -stablish communication bet6een the =ey su""lier contacts an$ sta=ehol$ers to assess their
concerns.
c. Document the matters raise$ 6ith o"tions for solutions.
$. Facilitate agreement bet6een the sta=ehol$ers an$ su""liers on correcti!e action an$ im"lement
as <uic=ly as "ossible.
e. Follo6 u" in a timely manner to ensure the correcti!e action 6as successful.
f. If none of the abo!e results in an acce"table resolution of the issue, then the other ste"s of
$is"ute resolution mechanism set out in the contract are triggere$.
#he issues management frame6or= also nee$s to be un$er regular re!ie6 for continuous im"ro!ement to
ensure o"timal resolution or "roblem sol!ing "ractices.
%ategory &anagement
It is the res"onsibility of the contract user to follo6 the issue escalation "rocess an$ for the contract manager to
a$!ise contract users regar$ing the issue "rocess, as "ro!i$e$ by the category manager. In $e!elo"ing the
issue resolution "rocess, the category manager shoul$ refer to the contract, 6hich $efines the obligations of
the o!ernment an$ the su""lier, an$ the relationshi" structure for the escalation "rocess.
It shoul$ be note$ that triggering formal "rocesses is unli=ely &of itself( to im"ro!e ser!ice $eli!ery an$ they are
not $esigne$ to resol!e $ayAtoA$ay issues. It is im"ortant that 6here there is a $is"ute, the category manager
an$ the su""lier continue to meet all obligations un$er the contractF an$ that ser!ices from the su""lier are not
$isru"te$ 6hile resol!ing issues collaborati!ely.
Good #ractice Guide$ines 2!
%ategory &anagement
0 Collaborative relations$ips "it$
suppliers and buyers
#he full "otential benefits of a category management a""roach can only be achie!e$ 6ith a s"irit of
coo"eration an$ su""ort from su""liers an$ contract users.
6ey actions
Foster a collaborati!e relationshi" 6ith su""liers an$ buyers through all contract $ealings.
6ey outputs
;ollaborati!e an$ commercial relationshi"
.is+s addressed
;ollaborati!e relationshi"s lea$ to early i$entification an$ resolution of ris=.
Relationshi" brea=$o6n lea$s to contract $is"utes, nonAcommercial 6or= "ractices an$ re$uction of !alue.
#he intangible nature of the relationshi" en!ironment is a =ey as"ect of category management. 0n effecti!e
longAterm commercial relationshi", such as is normally seen bet6een buyers an$ su""liers in S%;s, re<uires a
mutual un$erstan$ing an$ res"ect of the cor"orate !ision, ob?ecti!es an$ culture of the contract "arties. If
mutual res"ect is not "ossible, then the 6is$om of the selection "rocess of the ten$er is brought into <uestion.
#he go!ernment sta=ehol$ers nee$ to a""reciate the commercial res"onsibilities an$ accountabilities of the
su""lier, an$ the su""lier nee$s to a""reciate the "ublic interest res"onsibilities an$ accountabilities of the
buyer, in a$$ition to the normal su""ly re<uirements to meet business nee$s. ;oming to a mutual
un$erstan$ing an$ res"ect 6ill enhance the o""ortunities for continuous im"ro!ement in the contract baseline.
0 "ositi!e relationshi" 6ill also enable the res"ecti!e "arties to antici"ate ris= e!ents more effecti!ely before
they occur, an$ $eal 6ith any ris=s, issues an$ $is"utes that $o materialise constructi!ely an$ in a timely 6ay.
Su""liers, the category manager, $e"artmental contract managers an$ contract users shoul$, in a s"irit of
coo"eration an$ goo$ faith1
un$erta=e all transactions un$er the contract accor$ing to the business rules s"ecifie$ for the contractF
su""ort, coo"erate 6ith an$ contribute to "rocesses to i$entify an$ im"lement continuous im"ro!ement
initiati!esF
"ro!i$e $ata an$ fee$bac= 6hen re<uire$ by the category manager, in the re<uire$ formatF an$
"artici"ate constructi!ely in forums an$ 6or=sho"s to re!ie6 contract "erformance an$ continuous
im"ro!ement initiati!es.
%ategory &anagement
Training in category management
Strategic Sourcing, D#F, is establishing a %0;;-R course for category management. #raining 6ill be
man$atory for some go!ernment "rocurement officers ta=ing a lea$, or inten$ing to lea$, in "lanning,
establishing an$@or managing S%;s.
#he SPC Policy states that 6here a $e"artment is res"onsible for lea$ing the establishment of a S%;, the
team lea$er for that "ro?ect must either atten$ an a""ro"riate "rocurement course, or satisfy his@her 0%H that
they ha!e e3isting s=ills an$ obtain an e3em"tion from the training re<uirement from the 0%H.
%0;;-R courses for "ublic officials in!ol!e$ in "rocurement acti!ities are one of the most effecti!e 6ays of
ensuring an effecti!e "rocess that $oes not com"romise the re<uirements of the SPC Policy.
-nsuring the highest stan$ar$s of con$uct in "rocurement re<uires =no6le$ge, e3"ertise an$ mar=et
a6areness of strategic sourcing techni<ues, as 6ell as an un$erstan$ing of "rocurement "olicy an$ the
"rocess gui$elines $etaile$ in this $ocument. Strategic Sourcing, D#F, 6ill $e!elo" an$ organise a""ro"riate
training for "rocurement officers an$ category managers.
%ategory &anagement
2 -in+s to .elevant Templates, Forms
and Tools
0 number of other tem"lates an$ tools may assist 6ith "rocurement "rocesses. #hese reference $ocuments
are inten$e$ to "ro!i$e a 6or=ing resource to $e"artments to assist 6ith "rocurement generally an$ 6ith
strategic sourcing.
;ategory /anagement %lan &S%;(
;ategory /anagement J Kuarterly Re!ie6
;ategory /anagement J 0nnual Re!ie6
;ategory /anagement J Kuarterly /eeting 0gen$a an$ Recor$ %erforma
;ategory /anagement J eneral %erio$ic /eeting 0gen$a an$ Recor$ %erforma
;ategory /anagement J Issues Register
#hese tem"lates an$ tools can be foun$ on the %rocurement %ortal un$er #em"lates an$ #ools

%ategory &anagement
.elated Policies and Documents to
consider "$en updating Guideline
&#his information is not to be u"loa$e$ onto the 6ebsite(
State %urchase ;ontracts %olicy
Strategic Sourcing %olicy
;ategory /anagement %lan A S%;
;ategory /anagement J Kuarterly Re!ie6
;ategory /anagement J 0nnual Re!ie6
;ategory /anagement J Kuarterly /eeting 0gen$a an$ Recor$ %erforma
;ategory /anagement J eneral %erio$ic /eeting 0gen$a an$ Recor$ %erforma
;ategory /anagement J Issues Register
Docu"ent 8istor
&#his information is not to be u"loa$e$ onto the 6ebsite(
Document :dentifier oo$ %ractice ui$elines ;ategory /anagement
T.:M File Pat$ #RI/ D0)@8+'0+
#RI/ D0)@+412> &5-, ;C%L(
.elease Version1 2.1
Date1 Se"tember 200)
>ut$orities 0uthor1 Hn=no6n
C6ner1 /ichael Ioney
:ssue -og .elease Date1 Details1
Version 1 January 200) Criginal %ublication
Version 2 June 200) Formatting changes an$ insertion of $ocument history
Re!ision 1 Se"tember 200) ;hange$ DVictorian o!ernment %rocurement rou"E
&V% rou"( to DStrategic Sourcing, D#FE throughout
%ategory &anagement
$ocument.
Version 2.1 July 2011 ;hange of o!t logoF $ictoria Place to Be remo!e$ an$
re"lace$ by State Go%ernment $ictoria
Document Gistory transferre$ to 5-,;C%L.
/aster co"y to be $ecommissione$.
%ategory &anagement

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