Sourcing and Procurement
Category management: Breaking it down
In today’s highly competitive and volatile market, businesses must allign various factors including their supply chain and category management process to maintain their competitive edge. A strong category management procurement strategy can go a long way towards streamlining and refining purchase decisions to ultimately improve the bottom line. Category management approach is a major aspect of a sound procurement strategy, and can help boost savings by consolidating purchases, build strong vendor relationships, and aligning the category management process with organizational goals can ensure efficient use of resources. This article explores the importance of category management approach in procurement operations to discover how this proactive approach to sourcing can benefit your organisation.
What is category management?
Category management approach 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 procurement strategy
An organisation’s approach to procurement category management plan 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 procurement 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 procurement 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 procurement category 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.
Accurate accounting
Comprehensive procurement category management plan provides detailed and accurate insights into pricing and spending through a detailed vendor list, aiding in effective spend management. Procurement teams are well-informed and better equipped to negotiate prices and ensure the economical use of resources when making purchases. Systematic category management approach 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.
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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.
