The Truth About Category Management

Unorganized binders sitting on a desk.

With the evolution of procurement and the shift from a reactive, “three-bid-and-buy” scenario to more advanced means of sourcing, Category Management often is a concept best placed at the latter end of the spectrum. This makes sense because if you still quote products and services on an as-needed basis, you likely haven’t introduced the concept of collectively sourcing all spend within the category or subcategory. That reactionary approach may be the result of several things -- lack of support from the business, a misunderstanding of Procurement’s role, an inadequate process or workflow, or a combination of all of the above.

On the other side, many organizations have Category Management structures in place, or at least claim to. From my experience, an organization saying it has a framework for Category Management and an organization actually having such a framework are two very different things. More often than not, organizations will either employ a homegrown version of the methodology or leverage something that’s really not like Category Management at all.

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Category Management can be approached differently based on several factors, including the industry you are in, whether you are service or product focused, what model of procurement you apply (centralized, decentralized, or center led), what drives the most spend in the organization and so on. As a result, I don’t think there is a strict rulebook on how to apply Category Management to your business.

While no two organizations will approach Category Management the same, these best practices should help any organization ensure their unique methodology is effective.

  • Start with good data. Having good data on which to build your Category Management approach is absolutely critical. This starts with spend data from an accurate source of truth such as your ERP or P2P tool. Line item-level detail from POs or invoices is helpful to gauge exactly what you are buying from your suppliers across a category. Clean spend data also provides Procurement with an accurate picture of it. Good data is nothing, however, unless it’s mapped to the right spend taxonomy. After all, data on its own is just raw information.
  • Make sure you have a plan. Applying a Category Management structure means that you have a clear, easy to use and thorough category plan. So many organizations fail at this simple task. While I don’t see the need for a strict template for all Category Managers, I think there should be a solid outline for what is required in a category plan, as well as optional elements based on the particular category. Some elements to consider for your category plan outline include: spend profile, supply base overview, contract summary, sourcing event pipeline, and short- and long-term strategy roadmaps.
  • Train your staff. There are times when we hire just the right people to do the right job from day one, but this far from the norm. Even if you have a staff that truly, deeply understands how to apply Category Management, they will still need to be aligned on how your organization approaches it. All Procurement staff who are leveraging a Category Management process should follow the same basic methodology. Like your plan, this methodology will vary from category to category based on the level of complexity and spend, but there still needs to be a base foundation that everyone within the organization can understand and apply.
  • Track your success. Category Management is only as good as the value you can drive from it and that needs to be measured over time. If you are just starting out using a formal Category Management approach, you have a baseline for what your organization looked like before versus after. When considering Category Management, be sure to establish metrics from the beginning and have a clear methodology for how to apply them. You may find over time that new metrics are added and others are retired, but at least start with a set that make sense and can help demonstrate the effectiveness of the program.

Category Management does not have to be rocket science, you can very successfully apply it within your organization and see incredible results over time. In addition to the above tips that mainly tackle Category Management from a Procurement standpoint, it is important to include your business stakeholders in the process. Procurement should be driving Category Management, including creating and managing the plan throughout the year, but it is not a solo effort. The stakeholders must be on board with Procurement’s approach. Procurement’s role is to advise the stakeholders while collaborating on what works best for them. Category Management can be an excellent avenue for building stronger partnerships within the business.

However you decide to apply Category Management, make sure that it is a tool in your arsenal, and not the only one. Procurement’s value is driven in so many ways, and this is just one of them.

Ready to get started on your Category Management plan?  Plan your work and then work your plan by using our template to build a business case for category management in a specific spend category. 

Jennifer Ulrich, Associate Director, Source One, a Corcentric Company

Jennifer Ulrich is an Associate Director at Source One, a Corcentric company. Ulrich is a procurement transformation and strategic sourcing expert and Supply & Demand Chain Executive Pro-to-Know, with extensive experience leading large-scale sourcing initiatives in both direct and indirect spend in industries including biotech, medical devices, pharmaceuticals, CPG and more. She is a trusted advisor with cross-functional knowledge of Procurement and Supply functions; develops transformation roadmaps; and provides customized training on strategic sourcing, contracting and negotiations, spend analytics, category management, procurement process improvement and supplier relationship management.