Applying Category Management in purchasing benefits organizations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers.
It is a strategic approach that focuses on the vast majority of organizational spend. If applied effectively throughout an entire organization the results can be significantly greater than traditional transactional-based purchasing negotiations.
The concept of Category Management in purchasing originated in the late 80’s. There is no single founder or originator but the methodology first appeared in the automotive sector and has since been developed and adopted by organizations worldwide.
Today many global companies consider Category Management as an essential strategic purchasing approach.
At its most rigorous, it is a cross-functional business process, performed with internal customers (users of the category) and other constituents within the business (those who influence the category’s specification, performance and quantity). Indeed, the cross-functional identification of sourcing and contracting options that meet business needs is a key strength of category management.
Category Management Process
There is no standard universal category management process.
One process that cross-functional teams can follow involves executing category management in five phases:
- Initiation phase
- Analysis phase
- Category strategy creation
- Category strategy implementation
- Continuous improvement
Each phase consists of executing steps. For example, developing a communication plan is a step in the initiation phase. Developing a cost breakdown is a step of the second phase, analysis. Some steps are sequential and need to be completed before moving on, other steps happen in parallel, and some run throughout the entire process. Some steps require more time investment than others, although this depends on the category.
The overall process remains the same regardless of the category. It must be kept in mind that sometimes for specific categories it might not be practical to complete all the steps.
Category management is not a one off initiative it is a continuous process that is run category per category. Once the process for one specific category is completed it must be evaluated. The lessons learned will allow adapting the category strategy to changes in the supply market or changes in stakeholders needs.
To implement an effective category management process requires dedicated resources. To determine whether it has a role, you need to assess whether there is a return on investment. Portfolio analysis will enable you to profile the category (value of expenditure, supply market difficulty and risk) to assess the most suitable sourcing method and determine whether a category management approach is appropriate.
Read more about the Competences:
|Strategy Development||Category Management||Finance Management|
|Cost Management||Sourcing Process||Negotiation|
|Legal||Performance & Contract Management||Operational Procurement|