A category management program can put your organization on a path to achieve better outcomes, experience greater savings and result in an increased focus on collaboration and innovation. But launching a category management program is not just as simple as flipping a switch.
In our blog post, The Guide to Understanding Category Management, we provided you with a template to develop a business case for category management in a specific spend category and noted that category management is not to be confused with strategic sourcing, although it evolved from the overall strategic sourcing approach.
Before we jump head first into creating our category management program, there are some important considerations to take into account. The Hackett Group (Hackett) and GEP recommend addressing the following four critical needs for an effective program, which are summarized below.
#1: Create an organizational design to best meet the needs of procurement and the business.
Getting visibility into spend analytics is one of the first steps to implementing a successful and sustainable category management program. Then, with your spend data in place, you can begin to develop your category management plan.
Central to this strategy, according to Hackett’s research, is executing a strategy set by a centralized team through regional or local teams. A number of characteristics should be considered to meet the unique needs of each organization, including an ongoing category management program, formal CRM approach, Centers of Excellence (COEs) and tactical buy desks.
#2: Determine the importance of spend attributes to business needs and identify categories to be managed.
Hackett recommends that spend management strategies follow the practice of “global by design, regional where appropriate, local as required.”
The key to determining how to segment your spend categories is all about balance. Operational staff with specialist knowledge of the category should be represented or at least be closely involved. As the chart indicates below, size of spend is a primary determinant, but this can also represent an area in which savings can be easily made.
#3: Understand which spend management practices are crucial factors in the success of a category management program.
This level of strategic planning will constrain resources that are probably already tight, which is why Brian Churchill, CPSM, Procurement Operations Manager with Amazon, recommends outsourcing tactical procurement work and sourcing in non-strategic categories. This will allow your procurement team to focus on the truly strategic initiatives that will lead to a sustainable category management program instead of being mired in grunt work.
Hackett identifies certain practices that contribute to a highly successful category management program, and chief among them is communication between procurement, stakeholders and business lines. Other best practices include data accessibility, and alignment and executive buy-in for key business objectives. Notably, an area of improvement that procurement organizations struggle with is increasing the opportunities for procurement leaders to network with other business executives.
#4: Evaluate and implement technology solutions that enable procurement to optimize category management programs.
Hackett’s research recommends enabling category managers through software to create and maintain a successful category management program but also notes that most software lacks the ability to bring all the information together in one dashboard.
Category managers should take note that supply chain software is increasingly being targeted by hackers who are injecting malware into the software. When looking for supply chain software to complement a category management program, ensure the vendor follows industry best practices. With supply chain attacks costing upwards of $1.2 million, it’s a step you can’t afford to miss.
Looking for more category management resources? Check out the SIG Resource Center for templates, presentations, business cases, whitepapers and strategies to help you build your category management strategy.
Stacy Mendoza is a Digital Marketing Specialist with Sourcing Industry Group (SIG). Stacy began her career in market research as an editor for Hart Research Associates in Washington, D.C. Since moving back to Florida in 2014, she has worked in marketing and public relations, specializing in content creation, media relations and crisis communications. Stacy is a passionate volunteer who donates her time to help nonprofits develop marketing strategies and awareness campaigns. Stacy holds a Bachelor of Arts degree in English from The Florida State University in Tallahassee, Florida. Follow her on Twitter and tweet at @SIG_Stacy.