BuzzwordPalooza Part 1: Category Management

My colleague Peter Smith (Spend Matters UK) has done a great multi-part Spend Matters PRO series on ‘Category Management’ (Part 1, Part 2, Part 3), reflecting back on the importance of “CatMan” in relation to strategic sourcing over the years. As I read it though, it highlighted something that has been bugging me for years, namely, the lack of clarity on procurement buzzwords and terminology. Given my background, I am a bit of a stickler for precision in terminology and definitions, and also in trying to understand the variation that exists within any type of definition or measurement in order to draw better conclusions and recommendation (although I am not as much of a stickler as someone like Jacque Fresco!). This is especially true with the terms category management and strategic sourcing.

Here is my problem with category management:

Peter, and most sourcing professionals, understandably define category management as a key supporting strategy within strategic sourcing. However,

I won't delve into strategic sourcing (especially since there has been much ‘chatter’ on this topic already) other than to say that I agree with Jason that it’s alive and well – even if the supporting sourcing execution processes are also used for tactical sourcing too. For more information on tactical sourcing, or at least the ‘one-time buys’ segment of it, see the following downloadable research I wrote on it in a previous life.

So, to define category management, and there are certainly differing interpretations, one has to go back in time. When I was doing some strategic sourcing activities as a management consultant in the 1990s, using cross-functional commodity teams had become standard practice for use in an n-step strategic sourcing methodology. As time wore on though, such episodic initial sourcing projects (i.e., commodity-level sourcing) began to transition to broader systematic category sourcing of higher-level spend categories, and included broader techniques such as demand/specification management and supplier performance management to help the sourcing professional create value.

Yet this is when category sourcing got the name ‘category management’, even though, by definition, a subset of the [albeit broadened] sourcing process. This is where the rails fell off. Some firms kept it as a subset. Others renamed their entire n-step sourcing methodology to category management, and frankly, some companies weren't even entirely clear on what the terms meant within their own company or even within procurement (this is based on experience working with hundreds of procurement organizations)!

The most precise definition for it is really is something akin to the cross-functional (and cross-enterprise) and cross-lifecycle management of supply for major spend categories, within which strategic sourcing is a key strategic for supporting it – not vice versa!

Graphically, it would look like this…

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I wrote a paper on this idea in conjunction with some of my esteemed colleagues from Archstone Consulting (of which an abridged version is here), who did a case study on this with McDonalds at SIG (presentation here), but the most important guidance I can offer is to not just rename your tired sourcing process with the category management name if you are not going to do ‘true category management’ that uses all category value levers to achieve the category value objectives of importance to the spend owners. It’s just like renaming purchasing (the department) to supply management (the process) without fundamentally changing anything (hat tip to Peter Kraljic here circa 1983). This tactic will merely calcify your brand as putting lipstick on the proverbial pig rather than becoming a true strategic business partner.

In fact, for some companies, the term category management itself may be already tainted as a procurement specific term for a re-skinned sourcing process. For them, they may in fact want to find a new term, or better yet, plug-in these critical processes into higher-level business management processes that already exist (I’ll do a separate PRO research piece on this soon).

What do you think? Can category management be freed from its shackles within the sourcing process, or do we need a term to define end-to-end category optimization?

*note: when in doubt, use ‘optimization’ instead of ‘management’ to generate the next-level buzzword.

More importantly, is it important to be clear on the terminology and the buzzwords that we use? I hope so, because I’m queuing up a bunch of others for future posts: SRM, cost avoidance, SIM, platform, etc. Vote early (and often – for all our Chicago readers) for your choice. We’d love your feedback privately or here on the blog.

Discuss this:

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