Category Management is an approach to Procurement that is gaining ground in both the public and private sectors. In Category Management products or services that have similar characteristics and are bought from similar supply markets are grouped together and treated as a discrete group or category.
These categories are then more manageable from a procurement perspective because the items in a category require the same supplier market intelligence, the same sourcing strategies and similar supplier relationship management programmes. Although these activities are not new their application may require a change to current organisation structures and roles and responsibilities. Like any successful change, the benefits need to be sold to the rest of the organisation. Here are 10 reasons you can use to do this.
1. It links customer requirements with supply market capabilities. Once you know what core supplier capabilities deliver your customer requirements you can identify and work with those suppliers that are “best of breed” in that capability.
2. It enables the business requirements definition or specification to be developed so that it delivers best value. Defining your business requirements is a team game in that it identifies both the user requirements and commercial expectations. A balance between the two is what delivers best value.
3. It ensures that the right skills and experience are applied to the right activity within the category management process. Category management creates the critical mass needed to have experts for each of the activities in this process rather than generalists having to do a wide range of them.
4. It ensures that all relevant spend is included in the category so that your leverage is maximised. Without category management there is a danger that the purchase of individual items are spread across your organisation in quantities that are too small to get volume related benefits.
5. It allows you to anticipate and plan for changes in technology. By knowing how customer requirements might change (and what that means for technology) and what your major suppliers are planning, you can identify any gaps that might occur in the future between the technology needed and what is available. Do this soon enough and you can stimulate your suppliers to do something about it. Identify supplier innovations early enough and you can help shape the offering made to your customers.
6. It reduces risk. Creating categories and putting them under the proper management of experts enables you to spot any trends or developments that might create a commercial risk and do something to prevent or mitigate it.
7. It develops the right supply capability both for today and tomorrow. This is similar to the technology reason. If you can get an understanding of what capabilities are going to change over the next few years and what suppliers plan, you can influence both.
8. It helps to build good communications across the entire value chain. We should not forget that value chains are made up of people. Category management gives you the visibility and opportunity to communicate the right message in the right way to the right people to get the result you want.
9. It builds trust and co-working across all of the value chain. Trust comes from delivering your promises and not being unfair. Understanding your categories means that you can set goals for everyone in the value chain that meet their needs as well as yours and is within their capability.
10. It ensures that many supply options are considered rather than just the obvious one. When someone is responsible for developing a commercial sourcing solution for a user need but they do not have the right experience, it can be too easy to jump to the first solution that springs to mind. The category management process ensures that options are considered.