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The Guide to Understanding Category Management

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In 2018, cost reduction still tops the list of priorities for procurement. As nations engage in trade wars and protectionist policies and extreme weather continues to cause disruption in supply chains, procurement will need to adopt new strategies to meet business objectives and goals.

Procurement can efficiently manage spend and continue to achieve cost savings through the adoption of category management, which is the process of categorizing goods and services and then managing these categories as "business units" to achieve improved outcomes in the most effective and efficient way. 

Category management was developed in the 1980s and takes a project management approach to sourcing to achieve improved outcomes, which is structured, measurable and drives continuous improvement. It is used in both the public and private sector, and while there is no standard categorization or grouping requirements, a general rule is to group goods and services that have similar characteristics. Organizations can use the United Nations Standard Products and Services Code to group categories or it can develop its own homegrown models.

Category Management is Not Strategic Sourcing

Category management is not to be confused with strategic sourcing, although category management evolved from the overall strategic sourcing approach. Some of the main differences between category management and strategic sourcing include the following:

Chart of the evolution of category management.

Stacy Mendoza, Digital Marketing Specialist