Federal Government. Each fiscal year the Federal Government is challenged CATEGORY MANAGEMENT IN THE WHAT IS CATEGORY MANAGEMENT?
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1 CATEGORY MANAGEMENT IN THE Federal Government Each fiscal year the Federal Government is challenged to accomplish strategic goals while reducing spend and operating more efficiently. In 2014, the Federal Government began moving away from its historic reliance on strategic sourcing towards a new procurement paradigm: category management. Category management in the Federal Government is intended to offer two primary benefits: 1. Enable government agencies to develop or transition to best in class acquisition vehicles to reduce spend through economies of scale, and; 2. Streamline and decrease the workflows of contracting authorities regarding repetitive purchases, thereby allowing them to focus their efforts on unique and complex acquisitions. The following document describes category management in more detail, explains its application in the Federal Government, and identifies concrete steps agencies can take to comply with this procurement strategy. purchases and prices would no longer be managed individually across thousands of procurement units. Instead, entire categories of common spend and total cost would be managed through CM. As noted in the OFPP s 2014 memorandum, CM includes strategic sourcing, but also a broader set of strategies to drive performance, including developing common standards in practices and contracts, driving greater transparency in acquisition performance, improving data analysis, and more frequently using public and private sector best practices. Category management has been used extensively in the private sector and by other countries, such as Australia and the United Kingdom. In the CM paradigm, areas of spend are first segmented into discrete groups, or categories. A cross-functional team of business operators and procurement personnel then analyze these categories as strategic units, with the objectives of maximizing savings and creating efficiencies during the acquisition process. WHAT IS CATEGORY MANAGEMENT? The Federal Government category management (CM) initiative effectively began in 2014, when the Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB) released a memorandum entitled Transforming the Marketplace: Simplifying Federal Procurement to Improve Performance, Drive Innovation, and Increase Savings. The memorandum, directed to Chief Acquisition Officers and Senior Procurement Executives, formally announced the introduction of CM as a new paradigm for purchasing. In this new paradigm, CATEGORY MANAGEMENT IN THE FEDERAL GOVERNMENT 1
2 Successful implementation of CM in the Federal government is projected to save taxpayers in excess of $18 billion by the end of FY While there are many frameworks for category management, in general the CM process has five fundamental stages: 1 1. Initiation, which kicks-off the CM process and includes requisite project planning needed for execution. 2. Insight, which is an in-depth data gathering and analysis stage that informs the sourcing strategy and identifies opportunities to maximize cost-savings. 3. Innovation, sometimes referred to as the options development stage, during which sourcing strategies are developed and evaluated. 4. Implementation, or the execution stage, which focuses on actions necessary to implement the sourcing strategy. 5. Improvement, during which acquisition vehicles are monitored for key performance indicators and data and information is collected to help improve the next iteration of the CM process. Figure 1: Category Management Initiation Insight Innovation Implementation Improvement Savings Identification Savings Realization Savings Realization CM has been a Federal Government priority for both the current and previous administrations. In April 2017, OMB published M-17-22, Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce, M affirms the current Administration s ongoing interest in the continued implementation and execution of category management. Additionally, in March of 2018 Administration officials released the President s Management Agenda, in which Category Management was identified as one of fourteen Cross-Agency Priority (CAP) goals 2. Successful implementation of CM in the Federal Government is projected to save taxpayers in excess of $18 billion by the end of FY Jonathan O Brien, Category Management in Purchasing: A Strategic Approach to Maximize Business Profitability (Kogan Page: 2015) 2 The President s Management Agenda can be found at CATEGORY MANAGEMENT IN THE FEDERAL GOVERNMENT 2
3 AN OVERVIEW OF THE FEDERAL APPROACH The Federal Government has devoted considerable resources towards providing agencies with a support structure in the implementation of CM. Governance of government-wide CM is shared by the OMB and the Category Management Leadership Council (CMLC), a council that represents agencies comprising the majority of Federal spending. One of the primary responsibilities of the CMLC is in setting the direction of government-wide CM. For example, in conjunction with OMB, the CMLC used data from the Federal Procurement Data System (FPDS) to develop a structure to support CM implementation across ten common spend categories and nine defense-centric spend categories. The segmentation of Federal agency spend data was disseminated across all Federal agencies so that acquisition authorities could identify areas for cost savings and begin consolidating contracts according to their respective categories. The process of implementing CM was initially brought into policy via a top-down approach from the OMB. Beginning in 2015, the OMB published memoranda mandating the use of government-wide acquisition vehicles for specific goods and services such as laptops, desktops, mobile devices, and software. While the requirements of the memoranda vary, the general intent is as follows: majority of acquisition funds are spent under BICs. In FY 2018, OMB has directed agencies to obligate 35% of their spend on BIC contracts. This requirement is projected to increase to 40% by FY In an effort to improve acquisition and support the principles of CM, the General Services Administration (GSA) developed and now hosts the Acquisition Gateway, a webbased portal that serves as a one-stop resource for Federal acquisition personnel to connect with tools, resources, and other acquisition personnel across government agencies. 3 The Acquisition Gateway is used as an enabler for CM as it provides information on BIC contracts and streamlines the acquisition process. To monitor and assess their progress in CM implementation, agencies are reporting their adherence to a metric known as Spend Under Management (SUM). SUM is defined as a percentage of total common spend that is actively managed, governed, and assessed by designated acquisition authorities. Actively managing spend according to the principles of CM will increase efficiency, reduce redundancies, and drive cost savings. Agency spend is evaluated by the OMB with a tiered rating scale. An award that is Tier 0, is deemed spend that is not aligned to category management principles. In contrast, an award is rated Tier 3 if it is made against BIC acquisition vehicles. The Federal goals for SUM are increasing each fiscal year, with a projection of 60% SUM by FY Agencies must consolidate existing contracts at the agency-level and transition to agency-wide vehicles in the near term (1-2 years). 2. Agencies must transition to government-wide acquisition vehicles for specific goods and services, within a long-term timeframe (2+ years). 3. An agency may abstain from using a governmentwide contract if it can demonstrate to the OMB that its contract provides more efficiencies, lower risk, and better cost savings. The Federal acquisition strategy is to support the utilization of contracts that are designated as Best In Class (BIC). A BIC contract is developed with a data-driven strategy to change buying and consumption behavior and has been deemed to follow performance and category management practices, as defined by OMB. Agencies are encouraged to consolidate their existing contracts and ensure that the The Federal government has made significant progress in recent years towards benefiting from the implementation of CM but has a long journey ahead. Agencies are struggling to fully understand the concept and implementation methodology of CM, but are making progress with the support of the OMB, CMLC, and GSA. In FY 2018, OMB has directed agencies to obligate 35% of their spend on BIC contracts. This requirement is projected to increase to 40% by FY The Acquisition Gateway is available at CATEGORY MANAGEMENT IN THE FEDERAL GOVERNMENT 3
4 A SUCCESSFUL APPROACH TO FEDERAL CATEGORY MANAGEMENT THE CALADWICH FRAMEWORK Successfully implementing CM in the Federal Government requires conducting multiple initiatives and actions concurrently, while adhering to OMB guidelines and agency policy. Caladwich Consulting, in cooperation with Federal partners, has developed the Category Management Implementation (CMI) Framework, a set of streamlined, repeatable steps that Federal agencies can consistently apply when implementing CM in their organizations. The Caladwich model takes the five stage CM theoretical approach and collapses it into four practical capability areas that federal agencies can effectively implement. The CMI Framework is designed to help Federal agencies reduce costs, decrease time spent on transactional purchases, and allow them to operate in a more efficient manner. Figure 2: Caladwich Consulting Category Management Framework Initial Assessment Develop CMI Plan Execution Manage Performance Requirements Review BIC Consolidation Plan Consolidate Existing Contracts Vendor Management Stakeholder Mapping Category Plan Market Research Support Market Research Stakeholder Interviews Cross-functional Category Team Identification Strategic Sourcing Data Sharing Procurement Data System Analysis Training Plan Training Metric Analysis Data Cleansing Communications/ Reporting Plan Communicate CM Activities Internally Iterative Planning Spend Analysis Outreach Plan Metric Reporting Contract phase-out Category Segmentation KPI Development Acquisition Support Initial Findings Execution time-line Iteration Governance Training CATEGORY MANAGEMENT IN THE FEDERAL GOVERNMENT 4
5 The CMI Framework is based on a series of phased capability areas, allowing Federal agencies at any stage in the category management lifecycle to confirm they are meeting the requirements for successful implementation. The CMI Framework is an iterative approach, building on the successes of previous projects while allowing flexibility for updated guidance and lessons learned. The CMI Framework allows a Federal agency to implement and sustain category management across four capability areas: Initial Assessment: The initial assessment identifies ideal areas for cost savings through data review, spend analysis, and category segmentation. The team also conducts project planning, stakeholder assessments, and kick-offs for follow-on phases. Endstate: Spend Visibility, Comprehensive CM Requirements, Stakeholder Integration Develop CMI Plan: The CMI Plan serves as a comprehensive set of guidelines covering training, communication, schedule, risk management, and objectives. This focuses on simultaneous development of outreach, training, and policy planning while ensuring that category management is not performed in isolation. Endstate: Comprehensive action plan for all category management activities Execution: The team will utilize the analysis and plans developed to conduct BIC contract consolidation, policy guidance, and other acquisition support activities. The team will also conduct training and outreach to the larger organization, explaining the requirements and benefits of CM for its successful adoption. The CMI Framework is an iterative approach, building on the successes of previous projects while allowing flexibility for updated guidance and lessons learned. Manage Performance: Category Management focuses on the continuous governance and oversight of the spend categories through contract management, supplier relationship management, and performance (metrics) management. This allows organizations to identify opportunities for improvement and further savings upon each iteration of category management. Endstate: Continuous improvement under BIC contracts, Maximized Cost Savings Category management is simple in theory, but difficult in execution. A successful implementation requires understanding of requirements, spend, careful planning, change management to create acceptance and adoption among the Federal agency, and detailed oversight of the process. The Caladwich CMI Framework provides a roadmap to successful execution through meeting OMB guidelines, reducing spend, and improved procurement efficiency. Endstate: Improved Spend Under Management, Utilize more BIC contracts, Consolidate existing contracts, Cost Savings CATEGORY MANAGEMENT IN THE FEDERAL GOVERNMENT 5
6 ABout caladwich Caladwich Consulting is a HUBZone SDVOSB firm that provides Supply Chain, Operations, and IT Consulting, with a focus on bringing private industry best practices, methodology, and personnel training to Federal and State clients. Capability areas cover all functional components of the supply chain, including demand and supply planning, strategic sourcing/category management/procurement, inventory management, warehousing/network management, distribution, transportation, and disposition. Contact Michael Lane Managing Director Mike.lane@caladwich.com Philip Hamilton Managing Director Philip.hamilton@caladwich.com CATEGORY MANAGEMENT IN THE FEDERAL GOVERNMENT 6
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