SIG University Certified Sourcing Professional (CSP) program graduate Silver Chaudry discusses how category management takes sourcing initiatives out of silos to create shared objectives and continuous processes across business units that drive efficiency.
Category management is a strategic and collaborative approach to procurement involving the segmentation of related goods and services to proactively manage and consolidate spend, track savings and identify areas of improvement. Category management was first developed in the 1980s, evolving from strategic sourcing but differing as it is an end to end process where the analysis is continuously refreshed to keep up with changing market trends. (Strategic sourcing was typically reactive in nature, conducted for immediate requirements and taking place as a one-time event.) Category management also places emphasis on supplier development, where category managers work closely with suppliers to foster innovation and achieve superior outcomes.
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Hard and Soft Skills of Category Management
Category managers work with internal stakeholders to develop the overall strategy for the category, ensuring that it aligns with business objectives. They must have an in-depth understanding of the good or service, demand and key suppliers to develop and implement strategies that generate significant value such as reducing risk, driving innovation and optimizing processes. Category managers require both hard skills, such as data analytics, and soft skills, such as communication to build relationships with stakeholders and suppliers. Most of their time is spent conducting detailed market analyses, gathering requirements, collecting and analyzing bids, assessing supplier capabilities and performance, negotiating contracts and ultimately being the single point of contact for their category. This leads to enhanced coordination and communication, as well as effective stakeholder and supplier relationships.
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6 Steps of Category Management
The category management process is ongoing and involves six essential steps.
- The first step is to define the category, which consists of the grouping of materials or services that have similar supply and usage characteristics to meet business objectives.
- Next is the planning phase, where the category profile is developed, outlining all key stakeholders and their roles, and business requirements are defined.
- Following the planning phase is the category strategy phase. In this phase, the strategy or action plan is created, including category objectives, market analysis, initiatives, and management techniques.
- The category execution phase is next and is where the initiatives are implemented according to the strategy.
- The ongoing management phase, typically referred to as governance, is the process of implementing plans to monitor supplier and program performance as well as compliance.
- The last step is the category review, which can be done on a quarterly, bi-annually or annual basis as appropriate. The review phase is done to compare the performance results to targets and identify areas of improvement.
Prior to an annual review, it may be a good idea to conduct a survey or gather user feedback to analyze customer satisfaction. The supplier, relevant stakeholders and category manager should be included in the review. The agenda should consist of a spend review for the period, an analysis of service levels and key performance indicators and a discussion on current business objectives to ensure alignment.
Driving Success by Smashing Silos
Benefits of category management include easier tracking, measuring and reporting of centralized spend data leading to greater visibility, savings, program compliance and strategic contract negotiations. Category management also leads to better supplier performance. Taking the time to build a relationship with the supplier leads to effective communication, collaboration and innovation. Category management also streamlines and standardizes processes that can be leveraged across multiple categories, improving the implementation and monitoring of services levels and overall program governance. Lastly, category management delivers better value to ensure that internal clients and stakeholders are satisfied and view the procurement team as a trusted strategic partner and ally, rather than a hurdle in their process.
Category management is considered a best practice in procurement. It took strategic sourcing to the next level by moving away from carrying out sourcing initiatives in silos and instead created shared objectives and continuous processes across business units within a company to drive efficiency.
The Certified Sourcing Professional (CSP) Program is a 12-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.