What is category management?
Category management techniques are used by companies to optimize the oversight and allocation of resources by organizing related products and resources into logical groups. This makes it easier to effectively manage these resources. Category management strategies are aimed at providing customers with what they want, where they want it, and when they want it. In order to achieve this, products are grouped into categories according to how they are used, consumed or purchased.
Category management in procurement helps an organization retain a focus on the most important business categories, typically in terms of profits generated and/or resources used. Value-based categorization may be determined through ABC analysis. It can also help in strategic sourcing, an approach to supply chain management that helps leverage the company’s purchasing power and find the best possible values in the marketplace.
Essential elements for the success of category management
If done correctly, category management can deliver far-flung and immense value in procurement. However, implementing a successful category management strategy is easier said than done. The much far-reaching and broader scope of category management makes it imperative for enterprises to have the right foundational elements without which they will struggle to drive meaningful, long-term results:
Organizational design
Designing an effective and optimal procurement organization is a fundamental process that enables enterprises to meet their business and procurement needs. To achieve this, companies must consider a number of key factors including, ongoing category management program, CRM approach, centers of excellence (CoE), and tactical buy desks. Deploying shared service centers or procurement-led CoEs to assist with tactical spend activities is another option that can be considered. Most enterprises today even have a procurement BPO provider to support their tactical sourcing.
Talent management
Category management is an inherently expansive program. So, the people involved in the formulation of a category management strategy for business must display capabilities that are equally expansive. Category managers must address key aspects such as relationship management, communication, program management, change management, and leadership. They must also display deep domain expertise, which is integral to building credibility with stakeholders.
Category management platform
Though businesses may rely on several procurement software tools, they often do not possess the features required to support ongoing category management. Most of the solutions available today have the required features including the ability to import and display external market intelligence, view supplier performance, monitor category-level risk, create savings opportunity assessments from spend analysis, carry out discussions on topics with other internal stakeholders, and track ongoing performance in a savings dashboard. However, they lack the ability to bring all these elements together.
Category segmentation
Categories are often segmented in terms of supply market of low-level commodities. However, it would also prove beneficial for companies to do this in a way that taps into demand needs. There are several factors that determine how to segment categories into the appropriate spend management approach. But the most critical aspect is to strike the right balance — global or regional or business unit category management, strategic sourcing or tactical sourcing.
Robust governance
Having a robust governance is key to the success of a successful category management strategy. Here, governance refers to the arrangements to ensure how the organization can govern category management and ensure its effectiveness in the organization. This requires resources, processes, and defined ways of working. It is also vital to have a good project manager who can oversee the management of all category projects against an overall plan. Furthermore, regular stage reviews of category projects at key points in the process help ensure rigor in the process. To achieve this, it is also important to have a planned and managed, creative approach to business-wide communications about the program. A review group can meet regularly to review all aspects of progress and ensure the necessary support and enablers are in place.
