Businesses that acquire a large number of varied products face the arduous challenge of streamlining the procurement process. They can save tremendous amounts of time and effort if they effectively categorize the products beforehand.
While strategic sourcing has been around for a while, its main drawback is that it concentrates solely on cost reduction, whereas category management uses foresight to aim at maximizing value addition. Market intelligence sources like Beroe inc. have found that efficient management of indirect spending can induce savings to the tune of 15 to 20%.
What is Category Management?
It is a technique that manages sourcing across the entire supply chain with the intent of achieving, monitoring, and improving outcomes. For instance, The United Nations Standard Products and Services Code is a globally accepted classification system used to achieve: (a) transparency in expenditure analysis, (b) cost-reduction in procurement, and (c) optimal exploitation of e-commerce.
How CAN you Implement Category Management in your Business?
There are no cut-and-dried set of steps you can take to ensure optimal procurement. However, the basic stages involved in it are as follows:
Defining the Category:
After carefully analyzing your business expenditure, you should be able to sort your procurements into goods and services with related characteristics. You can examine how your procurement depends on the retailer and customer demands. Your categorization should allow the decision-maker to understand how profits vary across and within each category when there are changes made to key components of the procurement process.
Align the Categories to the Firm’s Vision:
A firm can have different objectives such as wanting to minimize cost, maximize consumer satisfaction, improve sustainability, etc. When categories align with the firm’s motives, the decision-maker finds themselves in an advantageous position to take bold actions.
Chart a Course of Action:
Once you have the objectives of the firm in place, you need to lay down a course of action that must be taken to achieve it. For instance, if a firm wants to maximize its procurement of sustainable goods, you will have to collate each supplier’s report on the sustainability of its product and rank them in order.
The decision-maker now has a clear idea of the trade-offs involved in being more environmentally conscious on the one hand and reducing costs on the other.
Strategize and Implement:
Once you have a course of action for all categories and the management approves of it, you can start with its implementation. The firm may have to change its suppliers and re-group deliveries.
Monitor the Progress:
Set out key performance indicators (KPI) to help you monitor the movement of the company’s objectives. A positive impact on the indicators is a good sign to continue on the charted course.
Additionally, Category Management allows you to factor in dynamic macro-economic changes such as an increase or decrease in demand, price fluctuations, and policy implications. When these aspects are carefully monitored, their impact on the KPI can be deciphered with ease.
Course Correction:
A key benefit of using this method over strategic sourcing is that it takes a life-cycle approach to procurement management. You can make long-term changes to your plan as and when you are faced with new data.
In Summary
Category Management is a multi-dimensional approach to sourcing, which includes enhancing a firm’s relationships with its suppliers, analyzing the market and competition, and managing stakeholder engagement. The ultimate goal of the ongoing process is to increase value addition in the supply chain while allowing the firm to consistently improve its performance.
