Category Management (CM) is a commonly used concept in the retailing and purchasing realm. CM lacks a single definition, it is adopted by businesses and industries in different ways, For example, the retail sector, being an early adopter of the terminology, generally defines category management as the breakdown of a range of products into separate categories. Retailers typically use CM to manage product types in an attempt to methodically design their store layout. On the opposite end of the table, Procurement professionals define Category Management slightly differently.
In the Procurement space, Category Management is used to separate products into categories, but the goal is to optimize the supplier spread rather than a layout. The CM model maintains that each product category is treated as a separate entity and sourced accordingly.
Procurement teams assign category labels based on relative criteria to divide the array of products. The managing function comes in when determining the right sourcing strategy for that particular category. Often, Procurement teams will be tasked with deciding whether or not to consolidate suppliers. In some cases, combining spend into one contract will result in a lower unit price. In others, depending on the category and requirements, it’s best to keep the supply base broad or leverage different suppliers for different products and services based on their specialties.
There are additional advantages to simplifying your spend categories. For example, category management allows for your revenue goals to align with supplier market capability. When corresponding goods are purchased together, you have a better overview of what sales numbers to expect. Your supplier relationships will also likely flourish under this model as providers have a simple, profitable, and reliable agreement with your brand. This efficient, risk-reducing business initiative could bring your cost reduction strategies to the next level.
The CM model does come with its obstacles, however. Individual business units might be skeptical about a new spend management model. Successful category management requires stakeholder engagement and buy-in which means it’s up to Procurement to demonstrate the value (mentioned above) of a CM framework in supporting budgetary and business unit goals.
There is no universal step-by-step model for implementing category management because each strategy will run parallel to the organizational structure of their respective company. However, there are a few best practices every procurement team should keep in mind when carrying out the CM process. This series will equip you with the essential information you’re going to need to either improve or begin your CM project.