Strategic Procurement: Category Management

May 12, 2020
Christina Yardley
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Category Management is a ‘strategic approach which organises procurement resources to focus on specific areas of spend. This enables category managers to focus their time and conduct in-depth market analysis to fully leverage their procurement decisions on behalf of the whole organisation.’ (The Chartered Institute of Procurement & Supply).

Adoption of a formal Category Management Process delivers the following benefits:

Aligns procurement activity with business priorities and secures business buy-in
Enables improvements in quality, service levels, availability, and value for money
Increases the potential for delivery of procurement savings
Provides insight into, and ability to reduce, supply chain risk
Provides a platform for effective supplier management and continuous improvement
Optimises the use of procurement’s functional resources
Establishes the procurement team as partners in delivery and an agent for change, who can unlock value for the organisation

How can you move your organisation towards a Category Management approach?

Stage 1: Planning

Robust planning gives you a framework for an initial category outline and engagement. Useful outputs from this stage are a category charter, stakeholder analysis, a vision statement, and market analysis.

The category charter is a statement of the scope, objectives, and the stakeholders engaged in the management of the category. It provides a high-level overview of their responsibilities and outlines the category objectives. It also defines the role of the category manager(s). The Category Charter is a reference point for the ongoing development and evaluation of the category.

Stakeholder analysis is simply the analysis of “who’s who”, what their interest in the category may be and whether they are likely to be supportive or have other perspectives upon the category. By identifying those with whom you need to communicate, and their preferred style, you will be able to manage stakeholder perceptions and expectations throughout the process of change, and secure their support. An appreciation of different viewpoints also helps with analysis of options, and identification of less obvious critical success factors.

A vision statement expresses the desired future state that the category must have in place to fully satisfy the defined and agreed business needs. This is a useful summary tool which can be used to re-check that all stakeholders have the same end-goal in mind.

Market analysis enables you to formulate a strategy on how to develop your category management. It studies the attractiveness and the dynamics of a services or goods market within a specified industry. By understanding the key drivers of your market, you can identify competitive and commercial advantages. There are many different aspects to a detailed market analysis, but some examples are:

Value Lever Analysis – Examine cost drivers (the factors that cause category costs to be on the scale that they are) and cost levers (the changes that could be made to reduce the cost).
Risk Analysis – Identify existing and possible challenges that might influence the category, documenting and allocating a quantifiable value to each risk, to enable prioritisation and articulation of responses.
Supply Chain Analysis – Conduct systematic analysis of the upstream and downstream processes associated with the acquisition of a category, allowing you to understand the optimal level at which to engage the supply market, vs what you have traditionally purchased; this can be helpful in highlighting how little we really know about what we buy, highlighting the upstream supply chain before the goods reach your supplier.
Opportunity Analysis – Consider different potential options on how to engage the market, and identify the optimal solutions to fit the business requirement and culture; this process enables systematic and objective evaluation of different strategic options which is impartial and justifiable, for example, do nothing, change the basis of supplier engagement, change the degree of supply chain integration, consider a joint venture/acquisition – and so on.
Innovation – Most procurement organisations default to trying to buy the same things better next time (a version of strategic sourcing), but Category Management requires people to genuinely think outside the box; whilst this comes naturally to entrepreneurially minded people, for everybody else this is a methodical process that explores all aspects of possible change – for example, look at your complaints, consult your team (they experience core processes and interactions every day, and can often see opportunities for innovation, but may need encouragement to bring their ideas forward) or review something that is standard in your organisation or the industry and find a way improve it.

Stage 2: Optioneering

More detailed optioneering builds on the preferred outputs from Stage 1. The purpose of the optioneering stage, is to fully engage the business areas impacted by the category plan, ensuring the resources required are fully mobilised, and engaged with delivering the category vision based on agreement to a detailed plan – a plan designed to deliver some ‘big rocks’ (i.e. the most critical deliverables).

Once optioneering has been exhausted, a road map should be produced, containing the key steps along the journey towards the category vision. This details the pathway towards the desired future state, showing what must be in place to fully satisfy the business needs.

Stage 3: Execution

In the final stage you will work through the agreed plan developed during the planning and optioneering stages. Clear and regular reporting on progress to the plan, and demonstration of the business value being created, is critical to success.

The project will most likely have a number of interdependent workstream. A mobilisation plan is a simple way to summarise each workstreams scope, the responsibilities of that team and the governance in operation. It provides a high-level overview for stakeholders to understand the responsibilities of each workstream whilst defining the roles for each project team member. To enable the monitoring and measurement of outcomes, a simple template describing the key business outcomes targeted by each workstream over a relevant timescale, is also a useful tool.

In addition, a financial plan should be completed so that everybody understands the business value being created and the impact it will have on budgets across the business. By understanding where and when benefits will be delivered you can engage stakeholders to commit the required levels of resource to deliver the targeted outcomes.

Stage 4: Evaluation

You can evaluate the success of your category plan against the following three statements:

The way your business works has changed as a result of your category plan, so much so your CEO would recognise the value added; ‘big rocks’ have been delivered.
Key internal stakeholders talk openly about how your plan has helped them achieve their business goals (not just your savings targets).
Your business has changed, making it easier for your suppliers to add value, and this value is recognised in ways other than a reduction in the supplier’s invoice pricing.

Finally, don’t expect results overnight; a good category plan takes time to develop. The key to success is the relationships you establish both internally and externally to your organisation. Allocate enough time to develop your plan, and the relationships necessary to successfully implement it. If you don’t drive through the ‘big rocks’, then this time next year, you’ll still be ‘sifting sand’.

(Big Rocks time management theory taken from ‘The 7 Habits of Highly Effective People’ by Stephen R Covey)

Author: Christina Yardley