Unleashing the Value of Category Management: Where to Start?

On March 20, 2019, OMB released its long-awaited guidance memo providing a revised set of goals for its multi-year category management strategy. OMB kicked off its strategy with a series of memos released in the last years of the Obama administration. In the past year, the President’s Management Agenda established Category Management as the overall acquisition strategy of the Federal government, and OMB instructed each agency to designate a Senior Accountable Official (SAO) to lead its Category Management activities.

Now, in its most recent memo, M-19-13, OMB has established five actions that all executive agencies and departments must take:

1. Annually establish plans to reduce unaligned spend and increase the use of BIC solutions for common goods and services, consistent with small business and other statutory socioeconomic responsibilities.
2. Develop effective vendor management strategies to improve communications with contractors, especially those that support mission-critical functions.
3. Implement demand management strategies to eliminate inefficient purchasing and consumption behaviors.
4. Share data across the Federal Government to differentiate the quality and value of products and services in making buying decisions.
5. Train and develop the workforce in category management principles and practices.

Based on conversations with our clients, we know that most agencies are planning to invest significant time and resources to comply with the memo. In fact, many agencies are excited by the memo as they have already seen savings from their initial category management efforts. However, the memo has raised many questions about where agencies should start. Based on our experience implementing category management programs across the government, we recommend that agencies take the following first steps for each action:

Annually establish plans to reduce unaligned spend and increase the use of BIC solutions for common goods and services, consistent with small business and other statutory socioeconomic responsibilities.

The use of “Best in Class” (BIC) and “Spend Under Management” (SUM) metrics have given agencies a consistent way to measure progress and set goals for their Category Management programs. OMB is doubling down on these metrics by increasing each agency’s BIC and SUM goals. However, most of the “low hanging fruit” has been picked, since agencies have already transitioned most of their commoditized spend (i.e., Office Supplies) to managed contracts. To meet OMB’s increased targets, we recommend that Category Management programs do the following:

• Conduct a forward-looking spend analysis to develop spend projections for the next 1-5 years.
• Identify potential opportunities for moving spend to a managed contract based on an analysis of Product Service Codes (PSC) and North American Industry Classification System (NIACS) codes and the supply market of any incumbent contractors.
• Hold proactive discussions with the requirements owners for the identified opportunities. By engaging programs several months (or even years) before a solicitation is due to be released, the Category Management office will have time to collaboratively craft a strategy that both aligns with OMB’s guidance and ensures that the program’s needs are met.

Develop effective vendor management strategies to improve communications with contractors, especially those that support mission-critical functions.

Vendor management, also called Supplier Relationship Management (SRM), is comprised of pre-award and post-award strategies. Most agencies use industry days, RFIs, and draft solicitations to engage with vendors pre-award.

However, the true value of vendor management is unlocked after award. When agencies establish strategies to improve the value that key suppliers provide over the course of their contracts, they see a significant and immediate return on investment. Effective vendor management requires investments and focus from both the agency and the supplier. To build an effective post-award Vendor Management strategy, we recommend that Category Management programs:

• Segment your current supply base by looking at a combination of factors including potential return on investment (what is the upside of improving the performance of the supplier?), risk (what is the impact of the supplier not performing?), and replaceability (to what degree is the agency “locked in” with the current supplier?).
• Target & prioritize suppliers who are the best candidates for SRM. The leading candidates are typically vendors who are performing large, mission-critical tasks, or who are delivering a unique and critical technical solution.
• Develop specific and measurable objectives for each prioritized supplier. For example, a potential objective for a vendor delivering mission-critical supplies may be to increase on-time delivery. Or, if a vendor is delivering on a large staff augmentation contract, a potential objective may be to reduce the time it takes the vendor to onboard a qualified employee.

Implement demand management strategies to eliminate inefficient purchasing and consumption behaviors.

Demand management strategies are amongst the most powerful levers in the Category Management toolkit. Our clients have saved millions of dollars, and significantly enhanced mission outcomes, by improving the way they develop requirements or utilize products and services. To build an effective demand management strategy, we recommend that Category Management programs:

• Identify common products or services that are bought or used in multiple offices across the agency. These common categories are the most likely candidates for effective demand management.
• Form a cross-agency team for a selected category with representation from the Category Management office, Acquisition office, key programs, and technical experts. A comprehensive team will ensure the created strategy addresses the diverse needs of all stakeholders.
• Conduct a commercial best practice analysis to identify how the private sector has addressed the category. Although most private sector demand management practices cannot be directly applied to the Federal government, we have found that the underlying strategies are often applicable.

Share data across the Federal Government to differentiate the quality and value of products and services in making and buying decisions.

Sharing pricing & vendor quality data is a key component of OMB’s overarching strategy to improve the state of Federal acquisition. However, the process of collecting and reporting this data set is often arduous for agencies. To comply with this directive, we encourage Category Management programs to:

• Select the categories for which you will collect data. Even in the best of circumstances, collecting and reporting data is challenging.  Select categories where the data will generate the most value. Data for categories where your agency is the primary buyer is less valuable to the government-wide effort than is data for more commoditized categories which are bought by many agencies.
• Choose the data elements to collect. The way pricing data is analyzed varies significantly by category. By first identifying the specific data elements necessary for the analysis, you can avoid unnecessary data collection costs.
• Incorporate requirements into vendor contracts to instruct suppliers to provide pricing & other data in a prescribed and machine-readable form. If pricing data is “stuck” in PDF invoices, it either isn’t usable or will require the government to make a large time investment to extract. By requiring vendors to submit data reports along with their invoices, you can more easily provide that data to the General Services Administration (GSA) and OMB.

Train and develop the workforce in category management principles and practices.

Category Management is still a relatively new concept in the Federal government. The full value of Category Management is only unleashed when a critical mass of acquisition and program personnel incorporate it into their day-to-day work. However, the way Category Management is implemented will be different for each agency’s unique operating environment. Therefore, we recommend Category Management programs take the following steps:

• Identify the right people to train. We have found that the most successful agencies include both acquisition and program/mission staff in their Category Management training strategy.
• Identify the specific competencies your agency needs based on how you are implementing Category Management. For example, if you have a central Category Management office that performs spend analysis for the agency, it won’t be necessary for you to conduct a broad spend analysis training.
• Evaluate using external training providers to customize training for your agency environment. Although the available government-wide training does a good job explaining the concepts behind category management, they are often high level and generic due to the breadth that they need to cover. If you conduct training specifically tailored to your operating environment, you are more likely to see personnel implement category management best practices into their day-to-day work.

OMB’s Category Management memo represents a significant opportunity for federal agencies to realize immediate savings and improve the value of their acquisition dollars. The key is to set a holistic category management strategy for your agency and to implement it through a series of small but thoughtful steps.

We’ve mapped out 5 strategies to comply with OMB’s new guidance for Category Management. Are you ready to take the next step?