Putting category management in its place

(We're pleased to feature this guest article from Ahmed Ali, MCIPS MSc,  procurement professional and freelance writer. It is  a little longer than our usual pieces, but with the current debate around category management - see here and here -  it seemed particularly relevant and interesting. It first appeared in the IFPSM ezine www.ifpsm.org).

There appears to be a split on the discussion over the value of category management. On the one hand you have staunch advocates that see category management as the pinnacle of world class procurement. At the other end of the spectrum there are sceptics that argue that category management was a fad that is no longer in vogue.  Surely there must be an alternative school of thought to reconcile these two polar opposite extremes?

The powerful potential of category management to unlock value is unquestionable. However with the complexity, volatility and diversity of 21st century business, it is inconceivable that category management is always (without exception) the right answer. It would be unwise to submit entirely to a management concept without first deliberating on its appropriateness.  We certainly see many examples of companies jumping on the category management bandwagon in an attempt to demonstrate ‘cutting edge’ procurement best practice, often with complete disregard to their unique and specific circumstances.

There is an abundance of scholarly work on category management from a marketing perspective however there is an absence of literature on purchasing category management. This lack of academic provenance further re-emphasises the need to reflect on the all-important question of appropriateness. How can a procurement approach such as category management, which potentially has profound implications to the entire organisation, be embarked upon without first carefully considering fitness for purpose? As purchasing professionals the question of fitness for purpose is deeply engrained within our psyche; so why this sudden recklessness? It is slightly disturbing to observe how this concept has reached a status of almost infallibility; any criticism of category management (be it constructive or not) seems to be taboo.

The strange use of the term ‘commodity’ by Sir Philip Green in his review on government spending prompted me to investigate what ‘commodity management’ actually is.  To my surprise I discovered that the term ‘commodity’ and ‘category’ are inter-changeable and can relate to the same concept.  I was left in no doubt that commodity management, commodity sourcing and commodity councils are synonymous with the theory of purchasing category management. It appears that the roots of category management aren’t only in marketing (despite this common held belief) rather traces of category management were already present in the profession in the form of commodity management. I hope the marketing antagonists in procurement find this revelation is a source of solace.

The main notable difference that I could discern between commodity management and purchasing category management is the former is selectively applied to standardised items whilst the latter is comprehensively applied to the entire purchasing spend. Commodity management appears to be more about managing procurement in categories intuitively whilst category management is a defined, structured, systematic business process. However, we must not assume that all reference to commodity management is akin to category management. There is a concept of commodity management that is solely concerned with mitigating the impact of volatile commodity markets.

So why is all of this relevant? I hear you ask. Well, if the theory of category management is grounded in commodity management (a procurement approach for standardised items), then perhaps category management is also more appropriate to straightforward and simple categories.  Perhaps category management’s emphasis on leveraging is an indication that it is for ‘leverage items’ (low importance of purchasing and criticality) as defined by Kraljic?

Complexity in the context of procurement can be defined as ‘that which prevents the buyer from simply buying discrete components (including service systems) and combining them together’ (Caldwell et al).It can therefore be inferred that category management is less appropriate to complex items as such items require the buyer to focus on suppliers that integrate supply chains together and not the actual individual category supply markets themselves.

A category approach may not always be compatible with complex procurements that cross the boundaries of conventional supply markets.  It is difficult to see how a category management structure can foresee and facilitate the innovation that an unknown mix of supply networks can bring to deliver unique requirements. Furthermore, it is an over-simplification to assume that suppliers will operate in neatly defined market categories.  Many will intentionally choose to operate in unrelated market categories.  Ironically whilst we claim that the roots of purchasing category management are in marketing, we appear to conveniently overlook purchasing category management’s implicit negation of a fundamental feature of marketing, namely diversification.

Category management seeks to optimise decisions on a company- wide category level. This is rational and sensible, however if you are procuring a complex item using a project based approach, such a corporate view is not always advantageous. There are many commentators that have discussed the inherent tension between project and company- wide processes so I refer you to them in support of this particular point. By focussing on categories, the process of category management will enable you identify the optimal sourcing options available to those categories.

However the optimal sourcing strategy may not always necessarily be at the category level. For instance a contracting strategy for a construction consortium to carry out building works could encompass the delivery of services such as facilities management after the construction phase under the same arrangement. This is in order to address the problems of traditional design, construct and handover were the works contractor is not incentivised to address post construction issues. Here we see two distinct categories; construction and facilities management under the same contracting vehicle.

The application of category management in the context of complex procurements is relatively more problematic but not impossible. I am not advocating that we ‘throw the baby out with the bath water’ and restrict category management to the realm of simple standardised items. After all even if we assumed for a moment that category management is only suitable for simple items, a complex item if unpacked will eventually generate mutually exclusive simpler constituent parts. Category management in the context of complex procurements can be highly effective if applied selectively and intelligently with the idiosyncrasies of the company in mind.

What I am advocating is the avoidance of the naïve ‘one size fits all’ mind-set to a matter that potentially has profound and far reaching implications to the entire business.

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Voices (5)

  1. Dan:

    How many organisations implement category management:

    “Right, we need to do better. This ‘category management’ seems to be all the rage, lets try that. You, do all the IT contracts. You do all the facilities management. You, do all the…. What’s left?… oh yes, you can do the construction. Right, that was easy. Oh yes, we need to do a strategy. Simples, we’ll just take the existing procurement strategy and just amend the wording. We can take out all the references to strategic sourcing, we’ve done all that now. Right everyone, carry on.”

  2. David:

    I agree with some of the comments made here thus far, in particular in relation to the article.

    Having had the privilege to have been a practitioner in the world of procurement for over 20 years, and in my time the description of “Buzz Words or titles” for procurement have been many and varied. the likes of good old purchasing, strategic sourcing and Category Management have all been used. I am an advocate of ensuring that procurement professionals align and meet the demands of the organisation they represent whether domestically and or internationally depending on business structure.

    I do though believe that looking at common spend categories and sub categories of spend enable a more strategic view of the opportunity to secure better deals for the business as a whole. Alignment, buy in and sponsorship is required at senior management level to enable execution at the grass roots level I believe, as this is where the opportunities live or die in respect of execution and delivery of those opportunities

  3. Trevor Black:

    This is the best summary of Category Management I have read to date. I know of several organisations who have adopted CM and the employees as well as some within the procurement team don’t understand it. The common factor in these organisations is that someone senior imposed CM in order for them to be ‘cutting edge’ and secure political brownie points without themselves not having a clue as to what it means. Procurement is in danger of going the same way of IT in having ‘here today-gone tomorrow’ buzz words that don’t connect with the people to whom they serve.

  4. bitter and twisted:

    Category Managers should always be haunted by the nagging fear that the category is wrong.

  5. Alis Sindbjerg Hemmingsen:

    I agree. One size does not fit all. When building your conceptual approach to category management it is important that you look at the company DNA and structures. Though you should also very much look at what you want to achieve with category management.

    I am also thinking that it would make sense for some companies wo have worked with category management for a long time to close it down and find new ways of generating savings and value.

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