Implementing Category Management Strategies

Implementing category strategies can help organizations leverage their spend across different key areas, establishing processes to manage and monitor like-item purchases. This allows for a deep dive into focused areas of spend across the organization, which can reduce waste, improve understanding of the spend, mitigate risk, improve the relationships between different business areas, and bring your suppliers in on a partnership to enable growth.

Many organizations have multiple types of spend, i.e., indirect versus direct spend, as they apply to goods and services. By grouping spend into categories, conducting a data-driven deep dive into what impacts specific spending within the organization and what can be considered addressable from a spend management perspective is easier.

Category management is an excellent way to focus procurement and relevant business activities and stakeholders on focusing on tactical and strategic expenses. By undertaking the category management approach, organizations should be able to understand the different types of spend and the effort required to manage the category over time.

The idea is that tactical items require a lower management level, while strategic activities are meant to build collaborations and drive constant improvement and value across the category. Evaluation of spend can be approached using the sourcing strategy to identify easy/quick approaches and the more complex/long-term approaches, focusing on the ease of implementation.

The identified five approaches to sourcing strategy are:

• Price and Demand Management
• Supply Base Management
• Total Cost Management
• Design and Requirement Management
• Business Model Management

In addition to the category strategy approaches, category managers must spend time on each category sourcing strategy component. Conducting this analysis is the foundation for developing the final category strategy.

Should these steps be skipped over, chances are the category strategy would be missing key components and lacking definition and critical structure that would benefit all involved parties. This critical analysis is the foundation of identifying which category falls into which of the sourcing business models will serve as the premise of the strategy. This is a combined effort of relationship models, sourcing models, and economic models based on how the relationship will be managed long term, in addition to identifying what immediate benefits the organization is looking to realize by implementing a specific category management strategy.

Ideally, the vision is to develop a category-specific strategy that involves the proper components, methods, and most effective business models. This should encompass all areas that impact the business (total cost of ownership), the stakeholder (pricing and delivery), as well as the supplier (preferred partnership, guaranteed revenue) based on the supply agreement/contract and desired outcomes.

Once category strategies have been implemented, it ‘s time to manage the category. The first step is to understand where your procurement team is in maturity and also understand the current level of management required. Regularly identifying areas and opportunities for improvement through regular assessment by all parties (stakeholder, vendor, and procurement) will determine the priorities and ascertain the current maturity level.

This assessment allows identification of how the category and spending have been managed in the past and where it requires more focused management from now on to meet the strategy ‘s goals. Putting in place regular business reviews, coupled with market and spend analysis, should reveal any adjustments that need to be made over time to continue realizing the total value of the category strategy.

Using practical approaches, sourcing models, and cross-functional relationship models, implementing category management strategies can build value throughout the supply chain. The business can realize efficiencies in every aspect of goods and service deliverables using a data-driven and tactical approach.