Category Management

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

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 it 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

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
•  

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

What is a CM 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

It is a systematic, disciplined approach to managing a product category as a strategic business unit.

CM & Procurement centres resources on the markets ability to supply. Category management adopts a clear understanding of the organisations key objectives and as part of the strategic procurement process the procurement manager develops a set of executable strategies.

If executed well the spend profile is split in to a framework based on a few categories and this becomes a solution based framework rather than one tied to directorates. If an organisation is switching to a category approach this requires work to bring stakeholders on board and may involve project management, change management and leadership skills.

The key aim when adopting a category management approach is to understand the needs of the customer and to ensure this doesn’t get lost when looking at the market’s ability to supply. In addition by consolidating spend into buckets of different categories, the expectation is that the procurement manager should develop expertise within the categories they look after.

By building knowledge the procurement manager is sought after because they have the commercial expertise to explain the competitive landscape, the supply market and the key trends within a particular category. Stakeholder requirements are linked to market ability to supply.

As a procurement manager you will be expected to know who the major suppliers are, their strengths and weaknesses and when assisting with a competitive tender exercise you should use this knowledge to critique the specification to develop a balance between total cost of ownership, value for money and demand management.

Category management can help you achieve better results because the application of the category management process creates an aggregated demand which makes you more attractive to the market. Spend in scope of category can be leveraged to gain maximum returns.

Category management allows you to work with fewer suppliers and in return they can assist with innovation opportunities, suppliers who are invested are more likely to engage, bring new ideas and discuss emerging technology whilst preventing risks.

How do I start?

1. Create categories
2. Assign them to procurement managers
3. Check that the team has the relevant experience or confidence to lead a category management model
4. Build communications across the entire value chain
5. Ensure there is visibility on spend data
6. Build trust with the supply base
7. Explain to stakeholders- what the plan of action is
8. Develop supplier relationship management
9. Differentiate between a commodity strategy- look for broader objectives and value add

15 Pathway questions covered by Jonathan O Brien- available at Amazon- Category Management in Purchasing

Good Category Management = Savings

1. How can purchasing intervention make a strategic and significant contribution to my business?
2. What is category management and how how can it add benefit?
3. What are the right categories to work on?
4. How can I identify and prioritize potential opportunity for each category so I can direct my resources accordingly?
5. What is required in order to successfully adopt and implement category management?
6. How do I engage the wider organisation within a category based approach?
7. For any given category; how do I identify what the organisation needs to buy
8. For each and any category, what is my current position?
9. How can I identify the optimum, and ideally breakthrough, future sourcing strategy for a category?
10. How do I ensure that all future sourcing strategies are based on a robust understanding of all market and external drivers and factors?
11. How can I effectively implement new sourcing strategies so they become a reality and we realise the benefits?
12. Once improvements are implemented how do I continue to drive them?
13. How should I mange those suppliers who are important to my business?
14. How does the company need to structure and organise itself to deploy category management effectively?
15. Is category management an approach that will still be relevant in the future?

Everything above is written or curated by me, everything below is written by Chat GPT, who has written it better?

I asked 3 questions!

How do I apply procurement category management?ChatGPT

Applying procurement category management involves a systematic approach to managing and optimizing the sourcing and procurement activities for specific categories of goods or services within an organization. Here are some steps to help you apply procurement category management effectively:

1. Categorize your spend: Start by categorizing your organization’s spend into different procurement categories. This can be based on factors such as the nature of goods or services, suppliers, industry, or strategic importance. Common categories include IT hardware and software, marketing services, office supplies, logistics, and facilities management.
2. Assess category requirements: Understand the specific requirements and objectives for each category. This includes analyzing historical spend data, identifying key stakeholders and their needs, assessing market dynamics, and considering any regulatory or compliance requirements. This analysis will help you develop a comprehensive understanding of the category and its strategic importance to your organization.
3. Develop category strategies: Based on your assessment, develop category strategies that align with your organization’s overall goals. These strategies should outline how you plan to optimize costs, drive supplier performance, manage risks, and achieve value for money. Each strategy should be tailored to the unique characteristics of the category and may involve various sourcing approaches, such as consolidating suppliers, implementing strategic partnerships, or exploring new markets.
4. Supplier selection and management: Identify and select suppliers that align with your category strategies. Develop a robust supplier evaluation and selection process that considers factors like quality, cost, capacity, reliability, and sustainability. Establish clear performance metrics and key performance indicators (KPIs) to monitor supplier performance over time. Regularly review and assess supplier performance, addressing any issues, and fostering collaborative relationships to drive continuous improvement.
5. Implement sourcing plans: Develop detailed sourcing plans for each category that outline the steps and timelines for executing procurement activities. This may include activities like issuing requests for proposals (RFPs), conducting negotiations, and finalizing contracts. Ensure that your sourcing plans consider factors like competitive bidding, total cost of ownership, and risk mitigation strategies.
6. Monitor and optimize: Continuously monitor and evaluate the performance of your procurement category management initiatives. Regularly review spend analytics, supplier performance data, and market trends to identify opportunities for improvement. Use this information to refine your strategies, renegotiate contracts, identify potential cost savings, and drive efficiencies across the category.
7. Collaborate and communicate: Effective category management requires collaboration and communication with various stakeholders within your organization. Engage key stakeholders, such as finance, operations, and legal departments, to align objectives, gain support, and ensure compliance. Regularly communicate category strategies, achievements, and potential impact to senior management to demonstrate the value of your efforts.

Remember that category management is an ongoing process that requires continuous monitoring, adaptation, and improvement. By implementing these steps and fostering a data-driven and collaborative approach, you can effectively apply procurement category management to optimize your organization’s spend and drive value.

who invented category management?ChatGPT

Category management as a concept has evolved over time and does not have a single inventor. It emerged in the 1980s as a strategic approach to procurement and was initially developed and popularized by consumer packaged goods (CPG) companies, particularly in the retail industry.

While there is no specific individual credited with inventing category management, it is widely acknowledged that several companies and industry professionals contributed to its development and refinement. Some notable contributors include:

1. Procter & Gamble (P&G): P&G played a significant role in shaping category management practices. In the 1980s, P&G introduced the concept of “category captainship,” where a manufacturer collaborates closely with a retailer to optimize the performance of a specific product category.
2. Kurt Salmon Associates: Kurt Salmon Associates (now known as Kurt Salmon, part of Accenture Strategy) is a management consulting firm that was instrumental in refining the concept of category management. They conducted research and worked with retailers and manufacturers to develop best practices and frameworks for implementing category management.
3. The Efficient Consumer Response (ECR) Initiative: ECR was a collaborative effort by retailers and manufacturers in the late 1980s to improve supply chain efficiency and customer satisfaction. It emphasized the importance of category management as a strategic approach to optimize product assortments, promotions, and replenishment.
4. Retailers and Manufacturers: Various retailers and manufacturers contributed to the development and adoption of category management practices. Companies such as Walmart, Tesco, and Procter & Gamble were early adopters and helped popularize category management through their successful implementations.

It is important to note that category management has evolved over time and has expanded beyond the retail industry. It is now widely applied in various sectors, including manufacturing, healthcare, hospitality, and government organizations, with adaptations to suit their specific needs.

While multiple individuals and organizations have influenced the development of category management, it is considered a collaborative effort that continues to evolve based on industry trends, best practices, and advancements in technology and data analytics.

What procurement skills are in demand for the future?ChatGPT

As the procurement landscape evolves, certain skills are increasingly in demand to navigate the challenges and capitalize on emerging opportunities. Here are some procurement skills that are expected to be in high demand for the future:

1. Strategic Thinking: Procurement professionals need to think strategically and align their activities with the overall goals of the organization. This includes understanding market trends, identifying opportunities for innovation, and proactively contributing to the strategic decision-making process.
2. Data Analytics: Proficiency in data analysis and utilization of advanced analytics tools is becoming crucial. Procurement professionals should be able to gather and analyze large volumes of data to identify patterns, make informed decisions, and generate insights that drive efficiency, cost savings, and risk mitigation.
3. Digital Fluency: With the rise of digital technologies, procurement professionals need to be digitally fluent and adaptable. They should be familiar with emerging technologies such as artificial intelligence (AI), robotic process automation (RPA), blockchain, and data visualization tools. Understanding how to leverage these technologies can streamline processes, enhance supplier collaboration, and improve decision-making.
4. Supplier Relationship Management: Effective supplier relationship management is vital to achieve sustainable and collaborative partnerships. Procurement professionals should possess strong interpersonal skills, negotiation abilities, and the capability to build and maintain relationships with suppliers. This includes managing supplier performance, resolving conflicts, and driving continuous improvement.
5. Risk Management: As global supply chains become more complex and interconnected, the ability to identify and mitigate risks is essential. Procurement professionals should have a comprehensive understanding of risk management methodologies, including supply chain disruptions, geopolitical factors, cybersecurity threats, and environmental and social risks. They should also be adept at implementing risk mitigation strategies and developing robust contingency plans.
6. Sustainability and Ethical Sourcing: The focus on sustainability and ethical sourcing is increasing, driven by environmental concerns, social responsibility, and regulatory requirements. Procurement professionals need to be knowledgeable about sustainable procurement practices, including green sourcing, circular economy principles, supplier diversity, and ethical standards. They should be capable of integrating sustainability considerations into procurement strategies and supplier selection processes.
7. Change Management: In a rapidly changing business environment, adaptability and change management skills are crucial. Procurement professionals should be able to lead and manage change initiatives effectively, communicate the benefits of new approaches, and ensure smooth adoption of new processes and technologies within the organization.
8. Soft Skills: Alongside technical competencies, strong soft skills are vital for effective procurement. These include communication, collaboration, problem-solving, and decision-making skills. The ability to work cross-functionally, influence stakeholders, and foster teamwork is critical for successful procurement outcomes.

It’s worth noting that the specific skills in demand may vary across industries and organizations based on their unique needs and priorities. However, the skills mentioned above reflect the broader trends shaping the future of procurement and can help professionals thrive in an evolving procurement landscape.