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• Managing product categories is a critical challenge for procurement professionals. Some of the problems experienced in category management include plenty of work, lack of time, dynamic changes, competitive markets, and technical dependencies.
• Whether it’s a strategic issue or an alignment problem, category management is a challenging endeavor.
• Just as lean management optimizes minimum inputs for maximum outputs, category management poses a similar challenge of effectively managing product clusters to deliver maximum value and sustainability.
So, in this post, we’re giving our golden rules for building a category management strategy. These golden rules will help you build a robust and scalable category management system that responds to your procurement needs and market demands.
Category management: What is it?
It’s important to revisit what category management is before delving into the golden rules for an effective category management strategy. Looking at empirical evidence and published research, the term ‘category management has a long-standing history. It’s this long-standing history of category management that has led to our knowledge of product categories as we know them today.
Defined in the 1990s, category management is the process of grouping similar products together into product clusters known as product categories. These products are grouped depending on how people or consumers use them. Category management relates to how retailers segregate product categories for efficiency gains.
Although today the lexicon “category management” has extended to improving efficiency gains in procurement planning and management, it was initially a way of grouping products. Category management is simply a process of grouping items, products, or services to maximize value.
The Chartered Institute for Procurement and Supply Chain CIPS sees category management as a strategic approach. It terms category management as a method of utilizing procurement resources to maximize spending.
Category management seeks to optimize product categories to achieve value and improve spending areas. When products are arranged as clusters, it’s possible to negotiate discounts and achieve economies of scale emanating from many discrete item categories.
Our golden rules for category management:
Category management is a strategic function of any procurement process. Supply chains are increasingly developing their knowledge of new procurement trends to optimize value and achieve competitive positioning.
Don’t remain behind!
Golden Rules for Category Management
1. Strategy alignment
It’s advisable to align all your business strategies before implementing a category management strategy. Departments and teams often function as silos, having different strategies and operations. The nature of siloed departments, functions, or units may pose a challenge when trying to implement a category management strategy.
Indeed, one of the biggest challenges of deploying a category management strategy is the lack of a procurement alignment strategy. When a business lacks an established strategy across its discrete functional business units, it becomes hard to set category management and spend strategy.
2. Collaboration is critical
We cannot emphasize the importance of collaboration in building responsive and agile procurement and supply chains. Suppliers and procurement heads must work collaboratively to meet and respond to shifting and ever-changing procurement needs.
Strategy alignment, as discussed in the first golden rule, cannot work in isolation. It needs to be complemented by collaboration. Cross-functional collaboration must accompany strategy alignment. You must assemble different procurement members and stakeholders when implementing a category management strategy.
Your organization needs to identify people actively using the category management system. These people will own specific product categories and be responsible for different product clusters.
It’s only by having people who ‘own and control’ different product categories that you can obtain meaningful insight into the performance and progress of these clusters. So, aim to assign procurement professionals control and management roles in product categories; they must feel connected to these discrete product clusters. They must steer leadership by being fully in charge.
3. Be ready to evolve
Don’t be reluctant to change and evolve. As the business grows, so will your procurement and sourcing strategies. Your organization must be flexible when designing and deploying a category management system. Flexibility will enable you to respond accordingly to shifting procurement and sourcing needs.
The Covid-19 pandemic highlighted the need for change. The Covid-19 pandemic completely changed the business landscape with massive layoffs, shrinking consumer spending, and supply chain shocks marked by stark shortages of crucial resource inputs such as semiconductors and processors.
Retailers, restaurants, and entertainment hotspots sustained serious shocks due to closures following social distancing measures. Without a doubt, the pandemic reiterated the need for risk management through constant evolvement and adaptation. Evolving was the only constant to remaining relevant in a dynamic global landscape.
4. Focus on data
You must trust your data to build an effective category management strategy. Data analytics is your friend. Your insights will be valuable and actionable as long as you’re mining and optimizing clean data. Aim to mine the highest quality data to obtain the best, most-valuable insights.
So, in implementing a category management strategy, it’s important to first focus on data. Data will help you identify different categories, spend management, obtain insight on category performances, and obtain an end-to-end view on the efficiency and sustainability of product clusters.
Data will answer some of the most pertinent questions your procurement faces: what methods are you currently using? Are these methods working? And who’s responsible for executing the actions emanating from product categories?
These questions represent critical evaluation benchmarks that can be answered by up-to-date, relevant, and clear data.
ProcurePort – Improving Insight into Category Management
ProcurePort provides tools suited for your firm’s category management strategy. We help organizations, small and large, bridge their category management gaps with up-to-the-minute procurement automation solutions. Our procurement software products help you manage vendors, oversee and monitor product categories, and obtain meaningful insight. Collectively, our e-procurement suite responds to changing procurement needs, helping you remain relevant in changing times.