Sourcing and Procurement
How category management helps in driving business growth?
Retail businesses are increasingly emphasising predicting future trends in consumer behaviour while managing today’s risk and uncertainty. Customer behaviour insights and current portfolio performance are important for pricing and promotion, the two most common yet difficult parameters to plan in the long term.
According to a survey, 76% of businesses say that stronger relationships with suppliers and transparency are more important now than five years ago.
This article explains category management and its types, changing customer behaviour, omnichannel demand, and best practices.
What is category management?
Category management is a systematic cross-functional process to segment the products and services in a business. It gives you a granular understanding of the availability of items, sales, and spending on these products and services. For example, by using category management, a retail business can understand the demand for jerseys during winter. Based on this demand, they can stock up during the peak and shoulder seasons.
Businesses can use category management to understand cost categories, identify inefficiencies, and reduce direct and indirect expenses. It becomes easy to keep and manage KPIs for each category to track the performance. You can benchmark suppliers, compare your offerings with those of competitors, and manage risk exposure.
Types of categories in procurement
The general rule is to characterise items based either on an internal classification model or on global standards such as the UN Standard Products and Services Code (UNSPSC). There is no correct method. However, the two broad categories are –
- Direct categories
- Indirect categories
The term ‘direct’ typically refers to raw materials in manufacturing. Businesses often acquire them in large quantities from trusted suppliers, and they are of high value. These items form the core of business operations. For example, the procurement of tyres could be a direct category for an automobile manufacturer.
Goods under the ‘indirect’ category support day-to-day operations but are not under a specific product or service. Examples include supplies for maintenance, utilities, telecommunications, and professional services to keep the facility running.
Examples of indirect categories include business consulting, HR, accounting, and legal services.
A direct category in one business could be indirect in another. For example, IT hardware procurement may be a direct category in the software or banking industry but an indirect category in the food and beverages industry.
How do we adapt to shifting shopper behaviour?
From brands educating their customers about the products to customers driving the demand, the market landscape has completely changed. The demand for vegan dairy, cruelty-free personal care, and sustainable clothing are a few examples where the customers drive the demand.
Category management lets you predict the next micro-trend for the first mover’s advantage. Access to high-quality and self-execution data is crucial. Businesses can understand what’s catching customer’s attention and tweak their marketing campaigns while predicting and preparing for the next trend.
Readying the retail space for omnichannel demand
Customers want to purchase products online while they browse others in-store under the same retailer brand. Category managers must understand and adapt to omnichannel behaviours to create adjacencies and customise planograms and segment categories. This requires a 360-degree view of the categories.
Consumer omnichannel preference is an opportunity for category managers to highlight their products and increase online and offline sales.
Best practices for effective category management
Category managers tend to centralise buying and fail to segment suppliers. This is a reactive approach to managing sales and customer demand. The top tips for category management are:
Leverage negotiation by segmenting suppliers
Businesses must leverage category insights and analytics to understand their suppliers and create a foundation for negotiation strategies. This lets category owners identify price and product discrepancies. Targeted insights, growth trends, customer surveys, and contract teardowns prepare companies for negotiations.
Data-driven decision making
Use procurement and market data with advanced analytics to understand and analyse spending patterns, market trends, supplier performance, and cost-saving opportunities.
Stakeholder engagement and collaboration
Engage end-users and key stakeholders, including finance, operations, and procurement. Collaborate with the stakeholders, understand their requirements, and align objectives to foster stronger relationships.
Strategic supplier relationship management
Establish clear communication channels with suppliers, negotiate better contracts, and foster long-term relationships by evaluating their performance. Segment the suppliers to align them with the category’s objectives.
Leverage market intelligence
Monitor price fluctuations regularly and stay up-to-date on market trends, emerging technologies, and industry dynamics with market intelligence in sourcing and category management. Match these insights with supplier capabilities and industry innovations. This knowledge helps in proactive decision-making, identification of opportunities, and risk mitigation.
Category management platform
Have a category management platform that consolidates all source-to-pay functionalities onto a single platform. This does all the tasks, including performance tracking, savings opportunity assessment, stakeholder collaboration, monitoring risk, and assessing supplier performance under one umbrella.
How can Infosys BPM help you with category management?
The platform-agnostic Category Control Tower (CCT) at Infosys BPM is a genome-based category management solution offering actionable insights to help category managers get real-time insights and proactive alerts.
Read more about category management system at Infosys BPM.
