Category Management

Category management is a process of managing spend along the lines of different functions to generate procurement outcomes that meet business needs.

The video below gives you a brief overview of Procurement, in this blog we will talk about Category management an activity carried out by mature procurement departments.

You can apply this by grouping products and services together on the market’s ability to supply and not on the basis of how your workplace is currently set up to buy goods and services.

Why is category management important?Sometimes procurement is invited late to the table and stakeholders have greater awareness about a product and service than the procurement manager. If you apply the principles of category management you can exude more credibility by demonstrating the depth of your category-specific knowledge, the supplier landscape and the technical specification.

Develop your category management skills by getting to grips with the basics

  1. Do you understand the Business Objectives? It is important that you think like your stakeholder rather than the purse string holder. Procurement can be both tactical and strategic. Both are important but a good procurement person can switch between both.
  2. What are the strategic plans to achieve the business objectives and how to find your position in this strategy to help the department/ function or stakeholder achieve their vision?
  3. Do you have a procurement strategy? Not all projects require a procurement strategy, however, if it is high value or high risk, having a strategy will make you more confident in presenting data at a moment’s notice.
  4. Build relationships, attend events and keep up to date with what’s happening with the market. If you position yourself as the category expert, speak the language. Understand who the influencers are, and make sure you understand trends affecting the category historically, the position at the current moment and how it may change within the next 6, 12- 18 months.
  5. Always be prepared. It is critical to have good spend data, profile the data to help you develop your category plan.

Applying Category Management in practice

Gathering Business Requirements- Business requirements analysis is a detailed evaluation of the requirements of the business/ stakeholder now and in the future. This is typically for a commodity or service. Establishing the needs helps in the process of strategic planning and writing the sourcing strategy as it helps to develop a deep understanding of the needs and requirements of the business both now and in the next few years.  The information should help you with the following:

  •  Design the most appropriate strategy
  • Write meaningful objectives
  • Provide the context and narrative for future negotiations and measuring success metrics post contract award
  • Review the alignment of the procurement strategy against organisation objectives
How to gather and understand business needs- There are many ways to form detailed analysis. Sources include statements on the corporate strategy, a roadmap for the business unit, product plans, supply strategy, and interviews with the stakeholders. Ask relevant questions:
  • What is important to you, what does the contract need to deliver?
  • What is business critical
  • How can we improve on current specification/ service?
  • What problems or issues do we currently face?
  • How would the business prefer the needs to be prioritised
  • How quickly is the market changing and how might this affect our needs in the short, medium and long term?
  • What must the contract deliver? what are the stretch targets
  • How do we define success?
  •  .

    Project Initiation

    1.  Identify Opportunities
    2.  Map stakeholders
    3.  Agree on scope of work
    4.  Establish project or category team
    • Develop your team charter
    • Outline the current situation, the target and the proposal on how you will meet your goals
    • Conduct an Opportunity analysis
    • Map out which stakeholders are on board, who are the supporters and who is likely to block progress, add steps on how you will improve on their baseline position
    • Being together your cross functional team
    • Define the roles and responsibilities
    • Establish the team dynamics
    • Develop terms of reference
    • Establish a project plan
    • Insert a RACI chart

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    Research

    1. Identify current and future business requirements for a category or commodity
    2. Assemble all of the available information to make informed strategic analysis
    • Define the category or commodity
    • Identify the business requirements
    • Obtain a copy of the spend report and analyse for trends
    • undertake supplier research either desktop or speak to the contract management team, hold meetings with suppliers in the market place
    • Map out the current market positioning- leaders and influencers, businesses on an upward trajectory
    • Issue RFI to gather information about the market
    • Develop storyboards
    • Make sure you are aware of the technology roadmap/ what constitutes the total cost of ownership/ cost drivers/ pricing model
    • Validate what you want to achieve- quick wins, deep savings, vendor management

     

    Category management strategy

    1. Perform a rigorous analysis of the information you hold and piece it together
    2. Generate a procurement strategy that justifies the proposed category approach

    Include the following in your sourcing strategy:

    • Porters 5 forces
    • PEST Analysis
    • Portfolio Analysis
    • Supplier barometer
    • SWOT analysis
    • Generate an options analysis
    • Develop an ITT/RFP
    •  Make sure you have tracked all risks in a risk register
    • If required get sign off for the procurement/ category strategy to proceed

    Sourcing/ Implementation

    1. Using an Invitation to Tender or RFX to get what you want.
    • Make your case clear, you are the customer and you must state what the market must deliver to meet all the business benefits outlined in the procurement strategy.
    • Conduct pre- market engagement
    • Hold Supplier days. conference calls to share information
    • Share your final draft ITT/RFX before it’s issued for final comments/ sense check
    • Develop a tender pack
    • Complete the tender exercise
    • Transfer the information to a contracts database
    • Exchange contracts and keep the momentum going for project implementation

    Apply lessons learned 

    • Develop supplier capabilities to meet long-term business goals
    • Develop and maintain appropriate business relationships
    • Analyse gaps
    • learn how things can be improved by asking for feedback, supplier questionnaire e.t.c.
    • Agree on roadmaps for future improvements
    • Conduct supplier and market reviews
    • Continue to meet with stakeholders ( don’t wait until the last minute to be invited to the table for discussions) your role is not to be the stationery buyer but too add real value
    • Monitor and measure improvements