Category Management is an approach to procurement that groups together items that either have similar characteristics or are sourced from similar supply markets. These categories of spend are then managed as a complete value chain (from end user to the lowest tier suppliers) with the objectives of lowering costs, improving service and stimulating innovation. Here are ten tips for kick-starting your category management program.
1. Get a senior management mandate. The category management approach will in all likelihood be different to the approach your organization currently takes. This will involve change and as with any change initiative it is vital that you get a mandate from senior management who can then help direct policy and remove any organic barriers you might find.
2. Develop the scope. The starting point for category management is to get a clear picture of what you currently spend. Building a spend cube (a database that lets you slice it into views of who spends what, on what, with what and for how much) is a great starting point for deciding what categories you should put into the program. Do not just replicate past contracts. Look instead to see how different sub-categories can be combined.
3. Have a process. If you are going to win the hearts and minds of those who need to be involved in your category management program (particularly budgetholders and users of the products and services) you need to be able to show them that you have a process for how you will go about the task. This should cover as a minimum how you will collect data, analyze it, draw conclusions, develop sourcing options and then select the preferred one.
4. Have proper governance. One of the reasons some people outside of Procurement resist category management is that they are fearful of your process becoming unstoppable once started with a risk that strategies may be deployed that damage the business. The way around this is to have a gated governance system that checks the output from each stage of your process and confirmations that you can proceed to the next stage. Usually this has representatives from senior management on the governance board.
5. Set expectations. Category management is not a quick fix solution to an organizational problem, although short term savings may be identified along the way. It is important to set expectations so that support is not withdrawn if immediately benefits fail to appear.
6. Set targets. Category management can and will deliver significant cost savings if managed properly. It can also deliver improved service and stimulate innovation. You need to establish with senior management the overall target that you are trying to achieve.
7. Decide how it will fit with contract management. One out of category management will be new contracts. It is important that you think about how these will be handed over to those who will be responsible for managing them and also how you will involve them in agreeing the contracts. Category management should not result in contracts that are incapable of being managed.
8. Decide how it will fit with supplier relationship management. Category management results in suppliers being selected who have the right capabilities and characteristics to meet your needs. Supplier relationship management should develop your key suppliers. Obviously, it is vital that these two functions work in harmony with the outcome of each informing the other.
9. Check that you have sufficient capacity and capability. Category management requires a relatively rare mix of skills. In addition to procurement expertise, category managers need skills in problem solving, project planning and relationship building to name just three. Before you press your feet on the accelerator too firmly, it would be wise to check that you have sufficient people with these skills other you may need to prioritize your categories.
10. Communicate. As mentioned earlier, category management is as much a change program as anything. The success of any program of change depends on the effectiveness of keeping everyone up to speed with your progress. So have a communications strategy and deliver it well.