What is category management?
Procurement is a significant part of any business, big or small. Without an efficient procurement strategy, expenses can quickly get out of control. Category management is a way for businesses to strategically approach spending and segment it into buckets with similar products or services. This enables businesses with opportunities for consolidation and to enhance efficiency during procurement.
Some areas under category management may be segmented into direct and indirect products and services as well as by value, vendors, type, and volume. With such a categorisation, businesses can identify areas that are acting as cash sinks.
The benefits of category management
Category management goes way beyond purchasing goods and services. It is a strategy to develop supplier relationships, with several benefits.
- Better vendor performance: Category management can help you work effectively by sourcing requirements, collecting bids, and negotiating contracts with a range of vendors.
- High client satisfaction: By streamlining the vendor network, your business can focus on delivering customers with greater value and diversity of products and services. This results in high customer satisfaction.
- Great supplier relationships: Category management helps you set effective communication with vendors.
- Better spending and product negotiation: Without category management, you may lack insights about price, costs, and spending. Category management tracks all the contracts and their terms as well as the extent of expenditure.
How to do category management?
The CIPS (Chartered Institute of Procurement & Supply) category management cycle defines a 4-phase process with 6 key activities:
- Initiate: The key activity in this phase is to initiate/prepare.
- Prepare strategy: In this phase, there are two key activities, including identifying and prioritising opportunities and preparing/presenting category strategy.
- Deliver strategy: This phase includes two key activities: implementing category strategy/change recommendations and maintaining.
- Align and improve: In the last phase, the key activity is to improve and enhance.
This cycle helps your business define a process for category management and keep costs under control.