5 simple truths about category management

Category management may not be known as simple, but it doesn’t need to be complicated either.

Whether you’re a procurement leader who has implemented category management or are thinking about it, here are five simple truths about category management:

1. Category management is the most evolved procurement strategy of the three common approaches (tactical purchasing, strategic sourcing and category management).

The simplest form of procurement is at the tactical purchasing stage — executing orders (three bids and a buy).

Higher levels of strategy are employed at the strategic sourcing stage to capture more supplier value and to consolidate the supply base.

Category management uses in-depth market insight to drive value to entire categories and evolve in real time as the market changes.

2. Category management is not a one-time implementation and then you’re finished. It’s a continuous evolution.

Category management is about continuous improvement of lifecycle costing. It’s a dynamic approach that requires proactive management and an evolution toward peak effectiveness, which is a moving target that changes with market dynamics. Category management is not strategic sourcing; it is a long-term approach to monitor trends, marketplace dynamics and the supplier landscape within a particular area of spend, and it is adjusted often (usually two to four times a year) to reflect changing business conditions.

3. A deep understanding of the marketplace is required.

A key component of category management is deep knowledge of the marketplace. The person who is the category lead should develop a deep understanding of their categories and stay up to date on the latest developments so that the procurement approach can be optimized to the market’s offerings. This insight can be gained through external market research, professional associations, industry newsletters and internet news searches. Something as simple as setting up a desktop alert based on certain keywords can help you stay informed of changing dynamics in a particular industry or supplier group.

4. Category management does not require hiring or implementing a category manager from the start.

Category management evolves through an iterative process of categorization, category ownership and eventually instituting formal roles. A category coordinator can be assigned to start to manage a category as the transition to category management occurs. Typically, a category coordinator acts as a portfolio manager over groups of sourcing projects   and can begin to “train” the organization for a centralized approach to managing categories.

5. Procurement’s primary role in category management is to guide the business stakeholder by using a series of targeted questions

One of the biggest misunderstandings by stakeholders is that category managers are trying to take over the stakeholder’s role in the procurement process. In fact, category managers work with stakeholders by helping to answer the key questions about Demand and Forecast, Financial, Operational Requirements and Quality so that category strategies are closely aligned with business needs and objectives. Typical outputs of this process include:

• Examination of the historical purchasing patterns
• Understanding the key financial strategies
• Alignment with stakeholders on the distinct features and requirements necessary
• A common understanding of what quality looks like and how it should be delivered

ProcureAbility has a wealth of experience in helping clients develop category management organizations and holistic, long-term category strategies.

In our experience, well-executed category management will produce far better results than tactical or short-term approaches. Outcomes of well-implemented category management include enhanced stakeholder alignment through deep market knowledge, long-term vision and strategic planning through historic data tracking, increased visibility to progress through benchmarking, and motivating the workforce by developing expert knowledge in dynamic categories.

Jake Taylor is the Director of Advisory at ProcureAbility.