Category management is the practice of segmenting the main areas of organisational spend on bought in goods and services into discrete groups of products and services according to the function of those goods or services and, most importantly, to mirror how individual marketplaces are organised. Using this category segmentation, organisations work cross-functionally on individual categories, examining the entire category spend, how the organisation uses the products or services within the category, the marketplace and individual suppliers, in order to determine and implement sourcing strategies that will deliver significant value to the organisation.
This extensive review process is structured to actively challenge what has gone before, and seek out and implement breakthrough opportunities that will generate significant value for the organisation. Value might take the form of leveraging dramatic reductions in purchase price but it could equally be about reducing the whole-life cost or total cost of ownership, mitigating increases in a rising market, reducing supply chain risk, improving effectiveness and efficiency or securing increased collaboration and innovation from the supply chain to help build our brand equity.
Category management consists of analysing the two main categories; direct and indirect. Direct being the costs that directly impact and are incorporated into the final product such as raw materials, components or services. Indirect are the products or services not directly associated with the final product such as utilities, marketing services etc.
Category management, when deployed effectively, can deliver many benefits to an organisation through optimising the value that can be derived from the supply chain. It gives a clear and structured framework that can be applied across the organisation’s purchasing requirements. Category management provides an approach to procurement which gives an organisation-wide view of procurement spend and ensures the buy-in of key stakeholders to the sourcing strategy, ensuring that not only is the strategy agreed but that it is implemented and the benefits are delivered to the organisation.
In an ever-changing world where the future is uncertain and circumstances outside our control such as political uncertainty in countries, volatility of raw materials markets, climate change and migration of people can affect a supply chain, it is really important for a business to constantly assess and adapt to facilitate growth and minimise risk to the cost base of the business.