What does it take to be successful with category management?
How can procurement managers know that their strategies are working?
Procurement leaders within organizations are not unaware of the importance of procurement category management. In fact, up to 96% of CPOs view category management as a top 3 priority.
So, what are some of the best practices one can adopt to ensure victory in this critical process? Before diving into these ways, let’s first define category management.
What is Category Management?
The Chartered Institute of Procurement and Supply (CIPS) provides us with a comprehensive definition:
“Category management is a strategic approach to procurement where organizations segment their spend into areas which contain similar or related products enabling focus opportunities for consolidation and efficiency.”
It is a targeted approach or tactic employed by procurement teams to deliver strategic value to their enterprise.
For those seeking to be successful in procurement category management, here are three best practices to adopt.
1. Understand your suppliers and the external factors affecting them
It’s no secret that China is one of America’s top three trading partners alongside Canada and Mexico.
In 2019, the U.S. imported goods from China worth $451.7 billion. In fact, Chinese imports into America account for 18.1% of the total U.S. goods imports quota.
What exactly is the U.S. bringing in from the south-east Asian country?
Electrical machinery, furniture and bedding, toys and sports equipment, plastics, active ingredients for medication, agricultural products – i.e. processed fruit and vegetables, snack foods, spices, fresh vegetables, and teas just to mention a few of the larger categories.
With thousands of businesses relying on suppliers in foreign countries, it’s no longer just enough to focus on internal procurement matters.
You need to know what sort of regulations are being enforced by authorities and foreign governments upon your suppliers on the other side of the world because it will inevitably affect your own affairs.
Understanding your suppliers and the potential problems within the supply chain will also help you figure out the best way forward when it comes to reducing risk in your own operations.
Now more than ever, category managers need to think three to four steps ahead and prepare business continuity plans in case there are disruptions in the supply chain.
When you understand the seven-step strategic sourcing process as well as your vendors, it becomes easier to succeed with procurement category management.
2. Appreciate the role of a category manager
Building onto the first point of understanding your vendors is the need to appreciate the role played by a category manager.
Many enterprises are under the impression that category management is a function of procurement and can be absorbed into it.
While yes, there are areas the two disciplines overlap, the truth of the matter is that category management is a separate area of procurement expertise and requires a person qualified in this field.
Category management is a field notorious for having high category manager turnovers and this stems from a misunderstanding of the responsibilities and importance of category managers within an organization.
The simple truth of the matter is that for procurement category management to be effective there needs to be understanding as well buy-in from all who are involved in procurement.
3. Automation will revolutionize and streamline processes
How much of your current procurement processes have been automated?
Is it even possible to automate procurement?
A resounding yes!
There is an increasing demand by category and procurement managers for automated eProcurement technology that can handle everything from sending out RFPs to purchase orders as well as paying for invoices.
Such digital platforms are exceedingly helpful as they allow enterprises to transition from legacy, paper-based category management which is often extremely difficult to capitalize on.
One of the biggest benefits of automation and adopting cloud-based eProcurement solutions such as those developed by ProcurePort includes the fact that this revolutionary technology does not require a colossal upfront investment for purchasing new on-premise servers and other hardware.
What are the Advantages of Employing These Procurement Category Management Best Practices?
There are several pros to be had when you adopt these techniques but the chief most is the provision of a favorable cost-benefit and promotion of more efficient procurement practices.
By integrating these three ways into your own existing category management strategy you stand to gain when it comes to being organized and being able to take advantage of economies of scale.
That’s not all but you’ll also obtain a better insight into how the various categories you have chosen affect your risk management.
While it might seem like an uphill battle trying to get things right with procurement category management, the truth of the matter is that it is possible.
Armed with innovative strategies such as the three outlined above, category managers can begin to make headway in their efforts to improve and succeed in their campaigns.
Don’t miss out on learning what is supplier performance management? SPM guide in our next blog post.
And if you would like to discuss procurement software solutions with a consultant don’t hesitate to contact us today.