Category Management (CM) can make an otherwise complex and disordered supplier network into a consolidated one that's easy to navigate. CM is an initiative worth pursuing if you are looking to strategically manage your spend categories and see that your supplier relationships remain high-value in the long term.
In Part I of this series on Category Management, we discussed what exactly category management is and how it applies to procurement. As a quick refresher, procurement teams use category management to separate each product the company produces into individual categories and see that each product category is treated as its own business unit and sourced appropriately.
Today, we will discuss how a procurement team should introduce a Category Management program to their company’s supply chain management processes. Because of CM’s company-specific structure, there is no universal approach. Each category management initiative will be designed based on the nature of the company, what they are producing, what they are buying, and so on. Here is a rough overview of what steps you should take to implement your unique CM program.
Phase 1: Training
Because of CM’s complexity, providing training for employees will prove necessary for introducing the program effectively. Understanding the definition of CM will not be enough; your employees will need to understand the ins-and-outs of the method to apply it to the company. There are online training options that provide engaging and interactive modules to help your employees become acquainted with the information and equipped to carry out the CM method.
Phase 2: Initiation
Next, announce your plans to every internal party that is involved. Make your objectives clear and instruct each team member on how their efforts will serve these goals. Stakeholders will want to know what changes are being made and why. You will also want to establish a new communication plan for you and your cross-functional team. Remember, consistency and clarity are key.
Phase 3: Analysis
Your team should conduct a thorough data analysis to determine the financial impact of each spend category. How you conduct this research will be heavily dependent on the programs that your company utilizes. You might want to consider getting an analyst to normalize the data before you begin if you are using multiple ERPs. This is an important step to identifying which spending categories will provide the most strategic opportunity
Phase 4: Strategy Creation
The next step is designing your unique category management system. After your team has a good understanding of your spending habits, you can decide how you would like to split up product categories and figure out which are of the most immediate importance. In this phase, you’ll also want to decide the roles of the team members. You can organize category managers by unit level, have centralized category managers, or establish a hybrid of the two. Another option is outsourcing the full CM process to a consulting firm. Alternatively, you can handle some categories internally and delegate especially tricky categories to a third party using a flex system.
Phase 5: Implementation
It’s time to take action. Put all the hard prep work to use and implement your CM strategy. Because you are just getting started, it’s a good idea to keep a particularly close watch on the CM processes as they go into place. This will allow you to see the processes that are or are not working and quickly make adjustments as necessary.
Phase 6: Continuous Improvement
Last but not least, be sure that you evaluate how your CM initiative is progressing. Did you realize cost savings in the categories you predicted you would? Did you segment the product categories correctly or should the categorization method be altered? Even if everything was executed correctly, the supply market fluctuates and your CM design may need to be modified to align with stakeholder needs. It's always smart to keep a continuous overview of how your category management process is performing.
These stages represent a tentative model, but they do not necessarily need to be accomplished sequentially. Your company might need to skip a phase, run two phases simultaneously, or have one of them operating throughout the entirety of the process. The task of deciding how to carry out the CM process is up to you and your cross-functional team.
In Part 3 of this series, we will discuss the concrete benefits of implementing a category management system.