AOP BlogCategory ManagementCOVID-19

Caution! Category Dynamics Subject to Change

By September 23, 2020 No Comments

A couple of months ago on the pod we chatted with Arthur Piszczor, a Consultant at Corcentric, about the changes being seen in facilities services. He joined us as part of a monthly deep dive into the trends in one particular spend category.

Unsurprisingly, the COVID-19 pandemic has led to significant changes in the janitorial services market. 

Large, national providers are getting bigger because they have better access to the chemicals and equipment needed to sanitize officers, warehouses, manufacturing, facilities. etc. than the smaller ‘mom and pop’ businesses. This reality is creating structural changes in a supply market that used to be commoditized and price-driven. The net effect is that the balance of power has shifted from buyer to supplier, but will it last?

This depends on what happens going forward with all of the office space that is temporarily vacant as employees work from home. If this ‘adjustment’ becomes a longer term trend, we can be reasonably certain that today’s spike in demand for janitorial services will quickly become a glut of supply. Facilities services would follow the same trend as commercial real estate if working from home arrangements become permanent.

Facilities services provide us with an excellent example, but in all honesty, nearly all market dynamics – supply AND demand – have shifted over the past three months. 

Since March, most of us have been focused on simply maintaining supply. That emphasis is likely to go through several phases in the coming months. The problem with this is not necessarily procurement’s agility; it is that the category management process is not structurally built to result in a living, breathing document. Category plans are usually developed with stakeholders on a regular cycle determined by internal deadlines and then reviewed and refreshed annually or bi-annually.

If you haven’t done so already, now is the time to review any and all assumptions in your category strategies. Many of them will require you to develop a new strategy from the ground up if they are to remain viable in today’s altered conditions

Points to consider: 

  • How are the supply and demand dynamics changing in your category? 
  • Is there a shortage (or oversupply) of products, services, and/or human resources that is affecting your supplier’s ability to deliver? 
  • How are the market and supplier-specific factors combining to alter the supplier landscape? Are they creating monopolies or lowering the barrier to entry for new providers?
  • Can you access ‘sweetened deals’ in exchange for contract extensions that lock you in to multi-year commitments while protecting the supplier against emerging business models? (Note: Look for an upcoming podcast on this trend in the managed print category.)
  • How will each likely scenario over the next 0-24 months impact your category? What strategies will allow you to be as flexible as possible?
  • What new risks have emerged? How will you monitor and mitigate them? (If you need ideas, listen to our recent Category Continuity Plan podcast).

Perhaps a final thought on all of this category-level change is the need to fight procurement’s instinct to entrench in difficult circumstances. Yes, we have to keep the lights on and our fellow employees safe, but we can not give in to the temptation to start operating in a vacuum in order to move quickly and cautiously. This is a moment for procurement to increase our outreach. We need to be talking to suppliers, stakeholders, and budget owners, getting their feedback and input and considering their needs today and in the months to come.

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