Experienced procurement professionals will no doubt have heard the terms ‘category management’ and ‘category planning’. For some, they may represent an ideal way of working that feels very far from the reality of their day-to-day experience. For others, they may be synonymous with a past attempt to try something new that sadly failed due to lack of momentum, support, resource or internal buy-in.
Whichever camp you fall into, we’re here to tell you why category management is key to effective procurement functions, and offer our top tips for successful implementation – whether it’s your first foray into it, or you’re approaching category management second time around.
In the private sector, businesses may drive revenue as far as they can through sales and expanding into new markets, yet still struggle to improve their profit margins. In the public sector, there is the ongoing battle to do more with less – to expand and improve services despite budget cuts.
In both cases, a strategic approach to controlling expenditure is vital. Without it, it can be easy to allow costs to spiral in the background.
Where category management comes in is to provide the holistic, 35,000-foot-level view of spending across your organisation.
Instead of procuring different products and services separately, it involves grouping areas or types of spend together for ease of management, and to identify where cost savings and other improvements can be made.
A more modern approach to procurement, done right, and together with effective supplier relationship management (SRM), it can make a huge difference to a business’s efficiency and profitability.
The benefits of category management can be wide-ranging, and include:
First, and perhaps most obviously, effective category management can be the key that unlocks those bottom-line savings organisations are seeking. Having an overview of your organisation’s entire spend, as well as a closer relationship with the marketplace, will help to show areas where spend may be consolidated, either through standardisation across sites, by combining the buying power of multiple procurement teams, or by merging multiple contracts into one under a particular supplier. Due to the nature of contract management, these savings may not be made overnight – it can take some time to align contract terms for example – but the time and effort invested will be worth it in the long run.
Better value for money
Price is not the only criteria upon which contracts are awarded, and the benefit of category management is that, done well, it provides a much clearer evaluation of what is important to a organisation across different areas of spend, whether that be legal compliance, socio-economic benefit, encouraging SMEs, environmental credentials, or something else. So, category planning may result in a focus on a sub-category that does not drive pure cost savings, but drives further benefits to the organisation elsewhere.
Increased innovation It can be tempting to stick with the safety net of an existing supplier because you know they can do the job, even if it means you miss out on the opportunity to get something better for your money. Moving to a new supplier can feel like a big risk, especially where organisations have goods and services that represent critical spend, or have to be traceable, or 100% compliant. By providing a more-holistic view of the marketplace, category management enables organisations to have better visibility of opportunities for split-sourcing to test up-and-coming suppliers who may offer more innovative approaches, as well as providing a better foundation from which to manage those relationships. The result is that your organisation can test the waters and bring in more innovation, with less and managed risk.
Improved job satisfaction Procurement professionals that successfully transition from buyer to category management lead are likely to experience increased job satisfaction, leading to better staff retention. They will still be doing the deals that give them the ‘buzz’, but with more depth: more diverse evaluation criteria, a wider view of the marketplace, and being closer to the data and stakeholders will make the job more varied – and more interesting. They’ll also be able to clearly demonstrate the value they provide for stakeholders through their work – value that those stakeholders could not achieve themselves.
Once established, category management is a much more efficient and effective method of procurement, but the process of establish category plans and moving across to new ways of working can be daunting for organisations, especially if they have tried before and failed for whatever reason to make it a success.
Setting up category management is a big piece of work, as it represents a fundamental shift in the way procurement works, so it can be difficult to find the time needed to give it the proper attention it needs when you have a day job to do as well.
At eXceeding, we can provide support to organisations wanting to implement category management to help them with the transition to the new way of working. As well as providing assistance to establish category plans and advice on encouraging cultural change, our category management specialists offer coaching to help existing teams get to grips with a new way of working.
Whether you’re new to category planning, or have tried it before and struggled to make it work, we can help.
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