Sourcing and Procurement
Category management: Breaking it down
In today’s highly competitive and volatile market, businesses must take care of various factors to maintain their competitive edge. A strong procurement strategy can go a long way towards streamlining and refining purchase decisions to ultimately improve the bottom line. Category management is a major aspect of a sound procurement strategy, and can help boost savings by consolidating purchases, build strong vendor relationships, and ensure efficient use of resources. This article explores the importance of category management in procurement operations to discover how this proactive approach to sourcing can benefit your organisation.
What is category management?
Category management refers to the categorisation or grouping of similar areas of spend, based on the functions of the goods or services being procured. This practice creates opportunities to consolidate a business’s spend on related products, for a more efficient procurement process that takes advantage of the economies of scale. Common categories of spend for businesses today include office management, professional services, industrial products and services, medical expenses, human resources, security, IT, transport, and entertainment.
Developing a category management strategy
An organisation’s approach to category management will depend on the business structure, industry, and specific organizational goals. Below are a few pointers that decision-makers should keep in mind when developing a category management framework.
- Clearly define categories and sub-categories
- Conduct spend analysis services to evaluate the expense on each category and sub-category
- Conduct market analysis to evaluate the supply market for each category
- Consider insights gained from the market analysis to modify requirements or discover new suppliers
- Consistently draw insights towards strategic sourcing activities from lessons learnt to boost procurement efficiency
The benefits of category management in procurement
Incorporating a category management strategy into your organisation’s procurement processes is a great way to boost revenue, reduce risk, and build relationships with suppliers. Let’s take a closer look at the various benefits of category management in procurement.
Spend data consolidation
Consolidating an organisation’s spend data allows for easier spend analysis, which in turn, enables smoother tracking and reporting of business expenditures. A thorough spend analysis can also highlight areas where outsourcing is more economical than procuring.
Cost saving opportunities
With clear insights into various categories and sub-categories of business purchases, procurement teams and category managers can work towards generating value from purchases. Information and insights gleaned from category management and the associated analyses can guide purchasing decisions or highlight whether leasing certain products will prove to be more economical.
More value from vendors
A functioning category management plan can help you understand your vendors better and make sure that you work with your vendors and suppliers in the most effective way possible. It can also help refine contracts in a manner that you extract the most value possible from your vendors.
Increased customer satisfaction
With an experienced category manager handling various procurement responsibilities such as sourcing, negotiating supplier contracts, and taking bids, core teams can focus more on revenue-generating activities. This ensures that customer concerns receive undivided attention and that the best possible experience can be delivered without distractions.
Comprehensive category management provides detailed and accurate insights into pricing and spending through a detailed vendor list. Procurement teams are well-informed and better equipped to negotiate prices and ensure the economical use of resources when making purchases. Systematic category management practices can offer a clearer picture of business expenditure and a better understanding of current as well as future contracts.
Better spend visibility
Compiling a report of spends across categories provides a clearer picture of how money is spent, and with which suppliers. This provides insights into which suppliers are offering the most value, and also helps curtail maverick and tail spend. This awareness can significantly improve the bottom line.
*For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like living organisms will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.
How can Infosys BPM help?
Infosys BPM offers end-to-end category management services, and comprehensive support and consulting services to several Fortune 500 clients.