What is category management?

What is category management?

1. Benefits of category management

   • Better pricing and improved T&Cs: 10-30% savings by combining spend and reducing supplier base. Discounts, rebates, better payment terms.
   • Fewer supplier contracts: faster processes, reduced admin, better relationships, improved performance
   • Improved supplier relationships: SPOC, streamlining communication, improved performance and builds trust, increase visibility of risk exposure
   • Stakeholder satisfaction: supply market expertise allowing innovation to thrive, trust built, co-working promoted
   • Better spend visibility
   • Risk management and contingency planning: improves information sharing with suppliers enabling collaborative planning, forecasting and replenishment processes allowing identification and management of risk
   • Supply chain Innovation: optimisation of processes and effective collaboration lead to opportunities for innovation
   • Requirements linked to supplier capabilities
   • Specialist skills and experience aligned to each category
   • Increasing leverage by including all relevant spend
   • Requirement/spec developed to deliver best value
   • Changes can be anticipated and planned for
   • Right current and future capabilities are developed
   • Effective communication

2. Direct categories: items that are vital to the business e.g. raw materials, components and sub-assemblies. Typically required in large quantities, often of high value, usually acquired at the best possible cost & quality from a pool of reliable suppliers.

3. United Nations Standard Products and Services Code (UNSPSC) can be used to group categories.

4. Rigorous, fact based, end to end process for proactively collaborating with stakeholders to develop and implement sourcing strategies that deliver significant value for an organisation’s external spend. It links business strategy to sourcing initiatives.

   • Category governance and strategies
   • Spend management
   • Management review and reporting
   • Sourcing (strategic & conventional) and purchasing
   • Can be developed for the long term (3-5 years), medium term (1-3 years) or short term (quick wins).

5. Indirect categories: required to keep the day to day business operating e.g. repairing equipment, office supplies, services, hardware & software IT categories. Capital expenditure (CAPEX) neither direct nor indirect; calculated on a project by project basis.

6. Role of category manager: managing a category group from planning to execution, analyse business strategy, create initiatives and projects around business priorities. The role is to identify: demand requirements, value creation opportunities, potential suppliers and risks. Success: taking a holistic approach to the entire sourcing process and use their process, PM, consulting, supply market, negotiation and technology skills across it.

7. Category board/council: bring together stakeholders from different functions. Focus on spending deemed important to mitigate the impact of supply security risks and reduce the threat of disruption to the supply chain. Oversee a specific category, work within a governance structure. Made up of senior members with direct influence on procurement decisions for strategic spending; used for high value categories. Procurement prepare market analysis, help define business requirements and outline strategic options. CMs help to linkthe business to supply markets. Category boards alter the focus of procurement teams, increasing the importance of analytical skills and ability to engage with the market

   • What are the risks and mitigations?
   • How can we optimise financially?
   • What value, performance, quality and service do we expect?
   • How do we define performance and incentivise it?
   • Which suppliers do we want to work with?

8. Main enablers to successful category management: People, Tools, Technology Category management is supported by: policy, procedures, strong governance, clearly defined roles and responsibilities, stakeholder involvement, performance measurement and benefits tracking

9. Key to success

   • Evaluation of cost drivers
   • Option definitions to assit sourcing decisions
   • In depth understanding of future plans and business strategy so that categories aligned to goal
   • Capture performance data to drive quality and service improvements
   • Short, medium, long term planning and sequencing
   • Continuous analysis of spend, market and commodity prices
   • Robust stakeholder relationships
   • Track actual savings realised
   • Early involvement

10. TCO: structured approach to calculating the full costs associated with buying and using an asset or acquisition over its entire lifecycle; purchase cost, installation, maintenance, repairs, training, support.

11. Category plan outline: exec summary, category profile, supply market analysis, objectives, strategic analysis, opportunities & projects, implementation plan, risks, options, recommendations

    • Category profile includes: category group, sub-categories, historical spend, current contracts, projected future demand, supply market(leading suppliers, trends, competitors), key stakeholders

12. Cross functional teams

    • Internal clients
    • SME
    • Procurement
    • Core team + co-opted as required
    • Benefits
      • Robust outcome
      • Skill transfer & learnings
      • Improved internal cooperation
      • Improved relationships

13. What is strategic sourcing?

    • Benefits of strategic sourcing
      • Develops performance measures for supplier
      • Emphasise supplier relationships
      • Promotes innovation, improved quality and teamwork
      • Encourages collaboration
      • Approach based on leveraging spend data
      • Highlight opportunities
    • Structured process to source goods and services esp. high value and critical ones at the lowest TCO and incurring the least risk.
    • Transition to strategic sourcing is often the first step towards category management
    • Assess the supplier market and internal needs, develop multiple strategies, identify qualified suppliers and engage in a structured sourcing process
    • What is the right sourcing business model?
      • 1. What is the most approrpriate contractual relationship framework? Dependent on dependency , strategic impact, risk and whether the spend confers competitive advantage
        • Transactional
        • Relational
        • Investment
      • 2. What is the most apporpriate economic model. Dependent on : mutual advantage of collaborating, nature of the work, criticality, risk tolerance
        • Transactional: payment per transaction
        • Outcome based: tie payment to mutually agreed outcome . Must be highly integrated and collaborative with shared risk/reward
        • Output based: payment tied to SLAs or other pre-defined measures