Category management

Five Fundamental Principles of Category Management

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Five Fundamental Principles of Category ManagementCategory management is a long-term, strategic approach to procurement in which certain employees or teams of employees are responsible for procuring specific types of items, such as IT equipment, office supplies or construction materials.

To manage categories successfully, you should respect several major principles of the practice: cross functional working, the use of facts and data, a strong supply market knowledge, open-ness to change and stakeholder engagement. Below is a look at these principles in more depth.

Cross-functional working

Cross functional working is crucial. When developing your category management strategy, you must have a comprehensive team of stakeholders. People who will be using the system, people who will own a specific category and people who will own the strategy… they must all be part of your cross functional collaboration.

This is what allows you to gain a real insight you can act upon and a complete understanding of the use cases you’ll address in your process.

Fact- and data-driven decision making

Data is your friend. As long as you have strong analytics, you’ll receive clear insights that enable you to take appropriate action. The analytics will help you analyse your performance and decide where you can improve.

You’ll be able to see where you could reduce costs in your category. You’ll be able to decide who should be responsible for operations. You might even discover new market factors beyond the control of you or your supplier (and form a way to navigate around them).

Strong supply market knowledge

A strong supply market knowledge entails knowing commodity prices, your supplier’s financial standing and being aware of the supplier/supplier risk. You have to take a holistic view of your requirements and the pipeline when it comes to sourcing, and at all times know exactly where you and your suppliers stand. Supply market knowledge is critical to driving the success of a long-term project, especially when it comes to direct materials.

Extensive knowledge of the different aspects of your supply chain is essential to mitigate risk. You can limit legal, supply and reputational risk, and negotiate the best prices for the goods or services you’re trying to procure. You can also prepare for any major disruptions global events, such as a pandemic or a natural disaster, could cause, so that you can keep things moving.

Open-ness to change

Successful category management requires being flexible and proactive, and is about challenging what has happened before and exploring new approaches to meet the needs of the business or organisation. This makes being open to change indispensable in category management.

At some point, your business needs will change, and you’ll have to align your category management strategy with them. Refusing to evolve with change will leave you with a dated category management strategy that doesn’t have the impact you want it to.

Stakeholder engagement

Communication at the different stakeholder levels is paramount, from executives who provide support and investment, to line managers who approve categories, to technical experts operating in cross-functional teams.

Achieving the cooperation of technical stakeholders on the project calls for procurement team members to engage with the range of stakeholders. This allows them to develop an understanding of different stakeholders, how category management affects them and why their contribution matters. A category management strategy is doomed to failure if the key stakeholders, especially management, don’t buy into it.

Following these principles is vital to execute your category management strategy successfully. If you’d like help with your category management strategy or consultancy on any other aspects of your procurement operations, feel free to contact us. We’ll be happy to lend our expertise to your project.

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Author: Barkers Procurement
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