Evolving Disciplines: Category Management
Procurement is still an evolving discipline and if you ask any two practitioners to describe what we do for any one of our processes such as “Supplier Management” or “Strategic Sourcing” you are likely to get very different answers. I believe this is largely because we, as procurement professionals, tend to have different focuses based on several factor such as the industry we are in and the maturity of the procurement organizations we work for. Thus, we look toward category management.
The topic of category management is no different. There are multiple approaches on how to deal with category management and what is included in category strategies and plans vary greatly between organizations. A recent survey of top procurement executives showed that ALL of them thought it was an important part of the procurement process but at the same time NONE of them said their organizations were doing category management consistently across their enterprise spend.
I am writing this editorial to reflect on what I have found to be the main components of a comprehensive category management program and what is needed to make those components effective for organizations.
The main outcome of creating a category strategy is to be able to determine how the different actors the plan relates to will behave and which tactical levers to use to manage the relationships in the category. Fundamentally this means category should have guidelines for when to bring transactions to market, if and how to manage incumbent suppliers, the best way to transact with suppliers and existing and desired category Key Performance Indicators.
Developing a comprehensive category strategy is quite time-consuming as it means collecting and evaluating a fair amount of data relevant to the category. In order to be able to develop
First of all, the internal landscape of the category needs to be evaluated.
- Internal category stakeholders, which will include the consumers of the goods or services, the supporting staff involved such as IT or Operations and the procurement resources processing transactions or running competitive selection processes.
- Incumbent category suppliers, supplier performance and compliance data
- Category contract information
- Spend data, including transaction data and spend on POs, the internal category landscape is relevant as you can gain an understanding of how you ended up in the situation you are in and the amount of flexibility you have to make changes in the category. For instance, an organization may have multiple outside printing service providers(statements, marketing, manuals, packaging, etc), understanding why the internal stakeholders chose one over the other, supplier relative performance, the differing contract end dates and any flexibility to move work between providers is relevant as you develop a strategy to either gain resilience and/or decrease costs of the category.
Category Management Importance/Risk
Once the picture of the internal category landscape has been developed you are in a good position to be able to assess the criticality and/or risk of a category. Each organization will do this differently as most procurement organizations do this to assess risk and criticality of individual suppliers. Usually I recommend re-purposing the artifacts that are already in place, but the idea here is to determine what would happen in the event of a supplier failure in the category, what would the regulatory/ operational/ customer/ implications be and how challenging would it be to shift from one supplier to the next in the event of failure.
Category importance and risk will influence how suppliers are selected and managed as well as the recommended contract term. When selecting a suppliers for a critically important categories organizations are well served to do longer term agreements and adapting collaborative supplier management strategies.
Supply Market Analysis in Category Management
The final input to a category strategy is to take an outside view of the category. There are multiple ways to do this and there are books written on this subject, for simplicity I will cover two main angles of this rather complicated topic.
It is important to get a view of who the leading category suppliers are and what kinds of clients each attracts. Understanding the number of credible suppliers available in the category, how they compete (price, features, functionality, etc) will help determine how to best extract value from the category. How incumbent category providers stack up vis-à-vis the available suppliers is important to evaluate, what capabilities could be gained by switching providers or introducing another supplier in the mix.
This is often a neglected consideration as we all believe we are special and that all suppliers will move heaven and earth to get our business. While that is sometimes true, it is important to assess how suppliers view current and prospective clients as part of a category strategy.