The importance of having category management in procurement is now dawning on organizations that do not have well-defined procurement goals. One of the key reasons for this being that these players are unable to get the best value out of their third-party controllable spend. Moreover, companies could end up paying a hefty price for processing day-to-day transactions without having a clear-cut plan.
What is category management in procurement?
Category management is a strategic process that involves organizing procurement resources to focus on certain specific aspects of spend. Category management heavily focuses on organizational spend. If leveraged effectively throughout the organization, the results can be significantly greater than traditional transactional-based procurement negotiations. Applying category management in procurement benefits companies by minimizing risk in the supply chain, reducing the cost of buying goods and services, and increasing the overall value from the supply base and gaining access to more innovation from suppliers.
Benefits of category management in procurement
Category management in procurement is of great strategic importance, and if applied effectively across the organization, the results can be significantly greater than traditional transactional-based purchasing and procurement negotiations. Let’s take at some of the strategic benefits of adopting category management in procurement:
Improved supplier performance
Having an efficient plan of category management in procurement will enable companies to work with suppliers in a better manner. Also, organizations can increase the speed between initial adoption and full implementation of the plan. Once new supplier contracts are initiated, category management in procurement provides a layer of continual strategy adjustment.
Better supplier relationships
Employing category management in procurement helps organizations to establish a single point of contact within the organization’s structure and might even roll those up into an account management structure. So, coordination takes place at the highest level and specific tasks are delegated out at the business unit or functional level. Hence, clarifying and streamlining communication in that way usually improves relationships.
Clear visibility on spending
Category management in procurement gives companies a better picture of ‘how much is being spent on what’. As category management focuses on specific spend areas, companies gain better insights into the full list of suppliers and the full extent of spending involved in the procurement process. They also get authentic information on the accuracy of the spend that has been reported.
Greater client satisfaction
In the case of a given project or managed service, the category manager is usually the go-to person and market expert. The category managers gather requirements, collect bids and negotiate contracts. This gives ample time for business people to focus on their jobs and improves the scope to deliver better value to the clients.
Shorter purchase order and invoice processing cycles
Category management in procurement introduces standardization, which speeds up the processes in companies. For instance, typically the first person to be alerted to the statement of work (SOW) from a supplier is the category manager. As an experienced category manager is familiar with SOWs received from multiple suppliers and have a better understanding of the pricing and terms and conditions. Consequently, they are able to execute actions faster.
Category management process
Leveraging category management in procurement delivery brings about significant improvements to the supply and consumption of goods and services. It can further aid in better managing costs or extract further savings. Here are the key steps involved in the category management process:
Identification of opportunity
Opportunity identification is the primary step of category management in procurement. It involves a set of internal tasks, which relates to understanding the business and its needs. Buyers need to find answers to questions relating to the amount being spent and the key stakeholders.
This stage is more concerned with several factors that are external to the business. In this stage, buyers seek to understand the capabilities of THE supplier market and identify means by which the internal needs can be addressed.
This is a highly crucial stage in which buyers determine and finalize sourcing methods that will best position the company in the market. In this step, the buyers are required to unite internal and external capability to understand which strategy best suits the business.
The buyers must evaluate the various supplier options available to them and choose the supplier who possesses the required capabilities. Companies can also consider reaching out to suppliers with whom they do not have a direct relationship, there could be chances of getting a better deal.
Conduct auctions and RFPs
Shape and negotiate proposals
Once bids have been received, the company can further shape the offering to add more value. This is a key step where a category manager can contribute to the process, by mobilizing knowledge of the business and identifying the cost-saving levers.
Execution and supplier management
On finalizing supplier deals, it must be ensured that the contractual terms are fulfilled, and suppliers contribute adequately in adding value in the relationship. Also, the need for continued risk management and due diligence will be required in riskier or business critical relationships.
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