Description
Examine the requirements for initiating and preparing the introduction of a category management
process
Solution
Category management is an approach to procurement where goods and services are segmented into categories based on their similarity and managed as unique business units. The focus is on understanding market conditions, and supplier capabilities, and aligning procurement strategies with business objectives. ADNOC faces challenges in initiating and preparing category management due to its complex and diverse procurement needs. This is since the organisation must satisfy the areas in figure 4;
Figure 4:Complexity of ADNOC Category Management Areas
Source: JCCP, 2024
Identification of critical success factors for strategic sourcing and development of KPIs for mapping categories of direct and indirect expenditure is essential yet a big challenge (Monczka et al.,2020)
3.1 Category Management Process
The category management process is a strategic initiative that requires proper planning and adherence to several key requirements that ensure success in its initiation and preparation. This process involves multiple stages that are essential for optimizing procurement efficiency, enhancing supplier relationships, and achieving strategic sourcing objectives (Smith & Jones, 2023) as shown in the following;
Figure 5:CIPS Category Management Cycle
First, ADNOC ensures that there is maximum organisational commitment. Senior management and stakeholders engagement across departments such as procurement, marketing, sales, and finance are vital. This commitment ensures cross-functional collaboration and alignment of goals which are fundamental to the success of category management initiatives.
A key step in category management at ADNOC is defining clear and distinct categories. Each category should be carefully identified to allow for focused management and analysis. This clarity ensures effective decision-making and resource allocation throughout the category management process
The expenditure categories are mapped using the BCG matrix and the Ansof Matrix which provides a structured approach to prioritize investments, optimize costs, and explore new opportunities (Hossain & Kader, 2020). Each matrix applies to ADNOC’s expenditure categories as below. Each category is segmented based on its strategic importance, growth potential, and market share using insights from the BCG Matrix as shown in the following;
Figure 6:BCG Matrix Analysis Summary
Source: Summarised from Hossain and Kader (2020)
This matrix categorises categories into four unique quadrants namely the stars, question marks, cash cows, and the Dogs.
- The stars represent expenditure categories with high growth potential and strong market positions. ADNOC can strategically allocate AED10 Million to enhance leadership operations in terms of growth and investing in AED25 Million part of their AED20.2billion Ruwais LNG Project (Middle East Economy, 2024).
- Question marks show categories experiencing high growth but with lower market shares. For ADNOC, this would involve ventures like research and development in renewable energy aiming at increasing market share through targeted investment and strategic initiatives (Improved $17Bln first World’s First Net Zero Natural Gas Project).
- Cash cows are categories with high market shares but with low growth rates. These areas such as operational expenditures for established operations are vital for the generation of steady cash flow from current $194Mln (AED712Mln). Efficiency, and optimization measures here can maximize profitability and sustain market leadership.
- The dogs category represent categories with low growth potential and market share. ADNOC may review legacy contracts for outdated services considering options like renegotiation or phase-out to reallocate resources more effectively.
Once categories are defined, the next step involves rigorous data collection and analysis. Each category of data would be pursued by prioritising in the following areas;
Figure 7:ADNOC Data Analysis areas
Source: CIPS (2024)
The outcome of the different areas provides critical insights that drive strategic sourcing decisions. Data analysis helps to identify opportunities for cost savings, supplier consolidation, and performance improvements.
Supplier assessment is another critical component for ADNOC which involves the evaluation of current and potential suppliers based on criteria such as pricing, quality, reliability, and innovation. Strong supplier relationships are key to achieving competitive advantage and mitigating risks within each category (Faruquee et al., 2021). Identification and mitigation of risks related to supply chain disruptions, market volatility, regulatory changes, and supplier dependencies are essential for ensuring continuity and resilience in ADNOC’s procurement operations.
A strategic sourcing strategy is developed for each category to achieve the procurement objectives. These strategies outline how products and services are sourced, contracted, and managed to optimize costs, enhance quality, and align with ADNOC’s organizational goals. Key performance indicators are then established to measure the success of category management initiatives including metrics such as cost savings, supplier performance, and inventory management efficiency.
Modern category management practices at ADNOC are better managed using technology. Implementing advanced procurement software, data analytics tools and supplier management platforms enables efficient data-driven decision making and offers real-time monitoring of procurement performance. Employees are also trained and equipped with the necessary skills for better adoption of the new processes. Effective communication and stakeholder engagement are equally important in ensuring alignment on objectives, strategies, and expectations across all departments and external partners involved in category management.
Legal and compliance considerations must also be carefully managed throughout the category management process to ensure full adherence to procurement regulations, contract laws, and ethical sourcing practices to safeguard the integrity of procurement activities and minimize legal risks.
Finally, a framework for continuous improvement is established which is essential for sustained success in category management at ADNOC. Regular review of the strategies, ongoing monitoring of KPIs, and feedback mechanisms allow organizations to adapt their sourcing strategies in response to changing market dynamics, emerging risks, and evolving business needs.
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- Within six months, PS&M personnel will be provided with chances for capacity building through partnerships with educational institutions to gain knowledge and skills for implementing category management.
- The PS&M would become more motivated in the long run by providing recognition and benefits for pursuing category management implementation.
- Within a year, an effective change management strategy would be pursued, focusing on tracking the change and spotting change resistance
1.0 Introduction
1.1 ADNOC Organisation Background
In this report, the organisation of focus is Abu Dhabi National Oil Company (ADNOC). This is for understanding the impact of contract terms and conditions on distribution of risk and power with their suppliers. This is an organisation which began its operation in 1971 and today is ranked as the leader in diversified energy group which is owned by Abu Dhabi Government (ADNOC, 2022). The organisation network of holistically integrated business has based their operations across the entire energy value chain assisting their capacity for meeting overall demands of the consistently changing energy markets. For remaining competitive, the organisation has allocated $15 billion for advancing and accelerating lower-carbon solutions, investment in new energy solutions and decarbonisation technologies for lowering their carbon intensity with 25% by 2030 and successfully facilitating their NetZero by 2050 target. The company has a network of fully operational companies that operate throughout the entire hydrocarbon value chain, handling tasks including exploration, production, processing, storing, refinement, and supply in addition to manufacturing a wide range of petrochemical products. I work as a Contract Engineer for ADNOC Offshore, one of the company's divisions. The offshore division of ADNOC is responsible for the delivery and development of oil and gas resources in the waters surrounding Abu Dhabi. With OPEX and CAPEX, ADNOC Offshore spends over 3,000 million dollars annually. The organisation structure is as illustrated in figure 1; Figure 1: ADNOC Organisation Structure1.2 Identified Category Management
The deployment of the iSourcing system, a technology-focused procurement procedure, was chosen as the category management in this study. The need for oil and gas has significantly expanded in the modern era since the Covid-19 epidemic. As a result, ADNOC is forced to spend money on equipment to help them process and refine more oil and gas products. In light of this, the team leader's responsibility is to see that an iSourcing system is in place and can be utilised to purchase the new machines that the company needs to upgrade its operations. Locally in UAE, regionally in the Middle East, and internationally in Western nations, this would apply. This project aims to produce a report outlining the implementation of the change approach. This is done while ensuring the team members and leader have the necessary abilities to carry out the plan successfully. Implementing the new category management strategy is the kind of change being sought. The learner will be the team leader throughout the full category management process since a team has been chosen to oversee the deployment of iSourcing. The practical approach would be utilising various tools and strategies that demonstrate leadership and best practices in change management, along with a focus on the category management data from the ADNOC firm.2.0 Change Management Approach
2.1 Introduction of the Required Change Process
In its Procurement Supply and Management (PS&M) budget, ADNOC had allocated roughly 10 million UAEis before the COVID-19 epidemic. Up to 5,000 domestic and foreign providers are currently utilised in this. Because of the significant financial allocation in PS&M, the ADNOC sourcing method is crucial to their operations in this scenario. Logistics, equipment, and facility administration are all purchased separately by the organisation, all of which fall under the organisation's primary spending categories of computers and technical systems. As a result, they lack a centralised system that would allow all departments to be involved in aiding the procurement procedure (CIPS, 2020). The Burke-Litwin Model (Coruzzi, 2020) can pinpoint the internal and external factors that contributed to the identified change. This model ranks the many change drivers according to their importance and provides evidence of each one in figure 2; Figure 2:Drivers of Change Model When taking into account the ADNOC organisation and indicated change, these elements have the following effects, as stated in Table 1: Table 1:Summary of the Drivers of Change in ADNOC OrganisationFactors of change | Explanation |
External environment | Supply chain networks have been significantly impacted since COVID-19. ADNOC's ability to replenish stock, equipment, and machinery has been affected. Therefore, ADNOC would participate in strategic alliances by including diverse actors and intermediates in the complete value chain through iSourcing |
Individual and oganisational performance | ADNOC's investment in iSourcing would reduce PS&M turnover, everyone's performance, and supply chain network satisfaction. |
Leadership | To ensure iSourcing success, the PS&M will lead and manage efficiently. This inspires and guides other organisations to iSourcing success. |
Mission and strategy | The achievement of ADNOC's aim to provide high-quality oil and gas products would be ensured by the deployment of iSourcing. The justification for this is to quickly and effectively engage highly qualified vendors. |
Organisation culture | Implementing iSourcing would promote the collaborative and teamwork-oriented organisational culture of ADNOC. This is due to the platforms offered by iSourcing that provide suitable options for teamwork and collaboration. |
Task requirements and individual skills | Employees at ADNOC lack the knowledge and skills necessary to deploy iSourcing. This deficit might be filled by offering possibilities for professional advancement. Implementation of the change would be successful. |
Employee motivation | This report's proposal suggests that providing monetary and non-monetary rewards is necessary to encourage people to adopt iSourcing. This is for employing remarkably contemporary systems of practice. |