CIPS Advanced Category Management in Procurement and Supply Chain Management


Table of Contents

Executive Summary. 3

1.0 Introduction. 5

2.0 Background of Organisation and Selected Category of a Product 6

2.1 Introduction to ADNOC. 6

2.2 Selected Category of a Product 6

2.3 Scope of the Report 7

3.0 Category Plan. 7

3.1 Kraljic Portfolio Matrix of the telecom networks for company assets. 8

Supply Positioning. 9

Supplier View of Customer Account 9

Supplier Classification. 9

3.2 Market Structure. 9

3.3 Overall Cost of Ownership Analysis. 11

3.4 Porter’s Five Forces for maintenance of company telecom network Category Plan. 13

3.5 SWOT Analysis in the Context of Business of the Product Procurement 13

3.6 Strategic Sourcing of the telecom networks for company assets Products Category. 14

4.0 Category Plan Implementation, Challenges and Solutions. 15

4.1 Arranging Overall Organisation around the Customer 15

4.2 Building a Functional Level of Trust with Suppliers. 15

4.3 Ability to Measure Success of Category Plan. 16

4.4 Category Role and Definition. 16

5.0 Conclusion and Recommendations. 17

5.1 Conclusion. 17

5.2 Recommendations. 17

References and Bibliography. 19


Executive Summary

In this assessment, ADNOC company has been used as a case study which operate in extraction of crude oil from wells with the selected spend category being service which include support services including the telecom networks for company assets in different geographical areas where they operate in UAE.

The category planning identified for this category of spend has been used as an approach of demonstrating on how it is line with the goals and objectives of ADNOC with knowledge of their key stakeholders. This has been noted to have a direct implication on influencing the sourcing strategies and other contract management initiatives. The already developed category plan is in alignment with the customer business objectives with their strategic practice being on the value maximization, reduction of risks and effective management of the supply of goods and services.

In this analysis, the category scope of the procurement of telecom networks for company assets by ADNOC has been evaluated with the different categories highlighted. This has been done through the use of Kraljic Portfolio matrix, SWOT analysis, Porters 5 Forces and business environment analysis has been adopted to identify supplier positioning.  Further, the key facts and insights on the market competition and the overall cost of ownership analysis has been conducted. Part of this analysis is the implementation plan development, different challenges faced in plan implementation and strategies for mitigation of the challenges.

Considering the identified findings, different recommendations have been offered to improve the category plan for ADNOC in the procurement of the telecom networks for company assets different geographical areas where they operate in UAE. These recommendations include an improved supplier relationship management and improvement, sourcing strategies and a continuous improvement in the overall phases of their category planning.

1.0 Introduction

Category planning can be defined as a process of development of a category plan in line with the client’s expectations, business objectives and strategic strategies used to maximize value, reduction of risks and effective management of the supply of goods and services. According to CIPS (2013) category planning needs to be in alignment with the business objectives and its development with primary customer stakeholders. Further, successful category plans are expected to have a direct influence on sourcing strategies and distinct contract management initiatives. From a broad point of view, O’brien (2019) defined the category management is a supplier process of managing different categories as strategic business units, creating enhanced business results by focusing on efficient delivery of services to customers. As illustrated in figure 1, category management involves planning, sourcing and supplier management.

Figure 1: Planning Fitness in the Category Management

Source: CIPS Materials

In majority of organisations, category planning is normally implemented by sourcing managers for rationalizing their suppliers, buying power aggregation, driving down pricing and eventually improving their supplier performance against their contract. The intention of this is production of an interactive and collaborative business process where all distributors and suppliers are operating as partners to enable creation and management of client-guided category plans. Also, in category planning, the best approach is to align customer business plans, procurement targets and customer stakeholder strategies. Before the category planning, diagnostics are used to develop the category profile and marketing the research and intelligence. After a successful category planning, the category management is implemented.

Using the identified background, this assessment creates a category plan of ADNOC telecom system consisting of two types of telecom networks namely SDH/PHD system running over fiber Optic cable and CCTV system. This would be inclusive of the implementation plan and challenges that would affect the implementation plan and strategies for their mitigation.

2.0 Background of Organisation and Selected Category of a Product

2.1 Introduction to ADNOC

Since its establishment more than 46 years ago since 1971, the company is involved in playing an instrumental role in the Abu Dhabi economic development as one of the leading energy producers globally (ADNOC, 2019). The company produces approximately 1.6 million barrels of oil and 5.6 billion cubic feet of gas daily.  Through an embracement of new and innovative approaches for maximizing the value of their resources, the company leverage from pioneering of the approaches and technologies. The outcome of this is ensuring their positionality in meeting the overall demands of an ever-changing energy market and continues to have a positive implication on the Abu Dhabi economy influencing on the future generations. The company procurement division is categorized in the Corporate Services function of Company matrix structure and playing the role of tendering and procurement of services and goods essential for a business.

2.2 Selected Category of a Product

The selected spend category is maintenance support services including telecom networks for Company assets in different geographical fields distributed among the owned assets by ADNOC. In ADNOC, the products are identified with their capability to guide data gathering from the wells and later transferring them to the control room and then to the company main tower in Abu Dhabi. The sourced data is later displayed on the screens for the need to monitor them and other requirements. The essence of this is harnessing the functionality of the systems with a zero tolerance of the system failure being expected. The services could be grouped into category description, core products and non-core products. The core products include maintenance of emergency systems, spare parts for SDH/PHD systems with the non-core products including the spare parts for CCTV systems and spare parts for fiber optic. However, the non-core products are optional subcategories which include the alternative supply agreements in place in different locations. The product category tree is as evidenced in figure 2;

Figure 2: Category Tree of the Selected Category

2.3 Scope of the Report

This assessment has been narrowed from the broad focus on the procurement and supply chain management to category planning of the telecom networks for company assets by ADNOC in their headquarters in Abu Dhabi. The category strategy has been established to be instrumental in ensuring promotion of their supplier agreement to be able to leverage on spend and increase their B2B automation for the telecom networks for company assets in different geographical areas where they operate in UAE. From this point of view, this assessment delves on category planning as a strategic area in the broad section of procurement and supply process. This can be achieved through an evaluation of the course contents and techniques that can be accessed easily and relevant procurement and supply process. This evaluation is inclusive of identification of challenges in plan implementation and mitigating potential challenges.

3.0 Category Plan

The category plans need to be established using the key stakeholders and alignment with the customer business objectives, influencing scope of category sourcing and set strategies. This is affirmed by Knoppen and Sáenz (2015) that has noted that category planning ought to be generating strategic progress of contract management practices and effective category strategy communication process.

3.1 Kraljic Portfolio Matrix of the telecom networks for company assets

For the purpose of positioning the maintenance of the company telecom network, in the category plan to be developed, Kraljic Matrix tool could be appropriately used. This is affirmed by Padhi et al. (2012), who note that the Kraljic matrix guides the establishment of a purchasing strategy for products and services used in an organisation. This is implemented by eliminating the supply vulnerability as much it is possible for maximization of the potential buying power as shown in figure 3;




Figure 3: Kraljic Matrix Supplier Positioning

Supply Positioning

Owing to the fact that the maintenance support services for telecom networks for company assets previously ranked as routine items since the profit impact are low and the supply risk. This was guided by the low value of transactions and multiple sources of alternative products being sourced. Hence, the best practice was to move items to the leverage category which is characterized by high expenditure, multiple alternatives and qualified supply sources. For achieving this objective, category planning must be inclusive of enhancing the purchasing power to standardize and establish purchase requirements. In ADNOC, the procurement plays this critical role.

Supplier View of Customer Account

The primary objectives of suppliers of the maintenance of Company telecom systems and network in ADNOC are inclusive of active engagement of clients identified as a low value but attractive. This also solves the issues of managing inventory level of stock for 344 spare parts of two telecom systems by different OEMs, contract estimated agreements, supplier manpower, supply chain risks, code of conduct and signing agreement with single service offered. Besides, supplier ought to progressively nurture their customers, expanding their business and sourcing for new opportunities available in their markets. For example, the supplier could demonstrate intentions of enrolling to new projects by ADNOC which is increasing their on-shoring activities in Abu Dhabi. For improving this relationship, the supplier could raise mutual dependency and offer an improved level of inducements.

Supplier Classification

The supplier can be grouped as sharing short to medium-term vision and objectives as a positive factor for routine grouped products in transitioning to leverage category.

3.2 Market Structure

As evidenced in Kraljic analysis, telecom networks for company assets are routine category. Hence, the best approach is to source products through engaging local suppliers in Abu Dhabi.  The market structure is shown in figure 4;

Figure 4: Market Structure of telecom networks for company assets

Importantly, maintenance of company telecom network have higher operating margins with efforts prioritized to diversify the offerings to increase entire revenues. Hence, for the maintenance of company telecom network, distinct facts and insights are sourced. They include;

  • Existing independent maintenance of company telecom network dealers including Earthlink telecommunication, Viafone technologies, DuTelecoms, Etisalat-UAE, Workz group and Smartworld targeting the business sector through their online offerings.
  • A common trend in UAE and ADNOC holding off purchases of the non-essential products evidenced by the existence of an increased global economic downturn. Further, the entity makes considerations on sourcing services offered at cheaper prices in the market level.
  • Existing limited projected growth in UAE telecom industry
  • Suppliers largely venturing in non-core products and factoring on issues of legal, HSE and administrative management

The core products sales are as shown in figure 5;

Figure 5: Sales of maintenance of company telecom network Core Products

In UAE, the market has fragments ranging from multinational high volume distributors, retailers and local telcom services. In regard to the local suppliers, they are found occupying approximately 60% of the overall UAE market informed by already set strategies for promotion of in-country value concept. The UAE market as such has low switching costs for their buyers, low product differentiation and poor market growth.

3.3 Overall Cost of Ownership Analysis