Category Management: Strategic and Tactical Benefits

Spend Matters welcomes this guest post by Becky Partida, research specialist, supply chain management at APQC.

Many organizations have looked to the strategic development of supplier categories to align procurement efforts with business goals and provide value to the enterprise. APQC has found that organizations with category management programs in procurement have significantly shorter supplier lead times as well as faster purchase order processing. Data from APQC’s Open Standards Benchmarking in procurement indicates that organizations that have initiated category management programs have shorter lead times than organizations that have not initiated these programs. As shown in the figure below, organizations with category management have a median supplier lead time of only 7 days, compared with 21 days for organizations without category management programs.

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APQC 1

The gap is even more pronounced at the bottom-performer level. Those organizations with category management programs experience average lead times of 9 days versus 30 days for those organizations that have not initiated category management programs.A deeper look at APQC’s data in the figure above shows that top performers using category management experience average lead times of 5 days. Top performers that haven’t initiated these programs experience lead times that are twice as long.

For purchase order processing, there is again a large difference between organizations with category management programs and those without such programs. As shown in the figure below, those with category management show a median turnaround time of 10 hours versus a median 30 hours for those organizations without category management programs.

APQC 2

Aside from the potential benefits to procurement process performance, organizations can obtain strategic benefits through developing, assessing and monitoring procurement and supplier performance in specific supplier categories. The categories are more manageable from an organization’s procurement perspective because each category requires its own market intelligence, sourcing strategies, and supplier relationship management programs. Category management helps build deeper 2-way relationships with suppliers, often resulting in improved supplier performance.APQC’s data indicates that organizations using category management programs have much shorter cycle times for processing purchase orders at the top- and bottom-performer levels as well. The top performers using category management experience an average cycle time of 6 hours, compared with a nearly 14-hour cycle time for top performers that haven’t initiated category management programs. The bottom performers with category management programs have an average cycle time of 12 hours versus the 72 hours of those organizations without category management.

APQC recommends that organizations adopt category management as a minimum process standard in their procurement plans and procurement strategy. Organizations should have a clear understanding of current spending for each individual category, and they should assign an owner to each category based on use and knowledge. They can consider both current providers and new providers as potential suppliers for a category.

Organizations that include category management as part of their strategic sourcing and procurement processes demonstrate shorter supplier lead times and faster PO processing. This holds true for top, median and bottom performers. The reasons for these gaps may lie in the organizations’ discipline in understanding and selecting suppliers within a particular category as well as the organizations’ collaborative relationships with those suppliers.

Voices (3)

  1. Bob Kain:

    Leveraging technology can make your life simpler, both personally and professionally. This article underscores this, especially with the cycle time required for a Purchase order. With proper Process Review and Change Management practices implored with the execution of Category Management, you could see as a maximum of 12 fold increase in capacity (6 hours of a high performing organization compared to 72 for an other performing organization), and capacity is critical.

  2. Andree Cox:

    This is all very good news for those undertaking category management, but what are the major pitfalls and why do some many organisations fail to achieve success? 12 key issues standout from our research, which is now freely available.

    1. sejal shah:

      I would like to know why some organizations fail.

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