Sourcing and Procurement
Strategic sourcing versus category management
Optimum procurement strategy and supply chains are the backbones of a successful business. However, interchangeably, organisations often use two of the most common procurement strategies, category management and strategic sourcing. As a result, many fail to leverage the benefits of one distinct strategy over the other. And to understand and utilise both of these procurement strategies effectively, one must first understand the key similarities and differences in strategic sourcing versus category management.
Strategic sourcing is one of the most common procurement strategies focusing on an organisation’s purchasing needs while minimising costs and maximising value. Strategic sourcing is often an ad hoc tactic focusing on short-term organisational goals. However, it is a vital procurement strategy as it helps:
- Maximise value for the company
- Minimise overall procurement costs
- Optimise inventory management
- Ensure the quality of products or services received
Strategic sourcing involves category planning, sourcing the projects, and measuring supplier performance, which requires high levels of synergy between various stakeholders and the procurement team.
The underlying principle of category management, another common procurement strategy, is bundling, i.e., grouping all similar products and services in a singular unit for more effective management and better business outcomes. For example, some categories can include information technology, human resource management, office management or industrial products (or services). Category management often focuses on the long-term organisational goals as it helps in:
- Centralising the spending data
- Streamlining business strategy
- Minimising costs
- Improving vendor risk management
- Perfecting the purchase-to-pay process
Category management requires a deep understanding of organisational demand, spending, product (or service) vendors, and market trends. As a result, it involves:
- Analysing large quantities of data to identify market trends and gaps
- Designing and implementing strategic goals in line with organisational goals
- Strategically sourcing, creating, and overseeing category plans
- Communicating and negotiating with the relevant stakeholders
Strategic sourcing and category management are two of the most common procurement strategies to reduce the overall procurement cost while maximising value. Because of their similar goal, strategic sourcing and category management have some key similarities; however, as they involve different approaches to this goal, there are also some inherent differences between them.
Strategic sourcing versus category management: Similarities and differences
A few of the key similarities between category management and strategic sourcing are:
- Both strategic sourcing and category management place a strong focus on research and analysis; both start with an assessment of current spending patterns and end with an analysis of the outcomes after the implementation of a strategy.
- Category management and strategic sourcing are used in supply chain management, where the former can aid with cost-cutting and the latter can help with supply chain efficiency.
- Both approaches to procurement results in a closer alignment between the organisation and its vendors in terms of shared values, objectives, and collaboration.
On the other hand, some key differences between category management and strategic sourcing are:
- Strategic sourcing is a process, whereas category management is a strategy.
- Strategic sourcing can become a part of category management, where you can optimise spending within the specific category.
- The focus of strategic sourcing is on spending less at each stage of the supply chain. Category management, on the other hand, focuses on organisational values and goal-based objectives, which may include optimising inventory via dynamic buying (with the help of demand forecast).
- The outcome of strategic optimisation is overall cost overall as opposed to the overall supplier optimisation in category management.
With different strategic approaches to cost minimisation and value maximisation, strategic sourcing and category management may have different utilities for your business. You need to compare strategic sourcing versus category management in alignment with your business goals to select the procurement strategy most suitable for your business needs.
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 on organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly 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 Category Management services and Execution is a guiding design approach that can help you implement the category management strategy to deliver maximum value while maintaining a strong strategic position and minimising operational efforts.