Why procurement teams need to be doing category management right now

Experienced procurement professionals will no doubt have heard the terms ‘category management’ and ‘category planning’. For some, they may represent an ideal way of working that feels very far from the reality of their day-to-day experience. For others, they may be synonymous with a past attempt to try something new that sadly failed due to lack of momentum, support, resource or internal buy-in.

Whichever camp you fall into, we’re here to tell you why category management is key to effective procurement functions, and offer our top tips for successful implementation – whether it’s your first foray into it, or you’re approaching category management second time around.

What is category management?

In the private sector, businesses may drive revenue as far as they can through sales and expanding into new markets, yet still struggle to improve their profit margins. In the public sector, there is the ongoing battle to do more with less – to expand and improve services despite budget cuts.

In both cases, a strategic approach to controlling expenditure is vital. Without it, it can be easy to allow costs to spiral in the background.

Where category management comes in is to provide the holistic, 35,000-foot-level view of spending across your organisation.

Instead of procuring different products and services separately, it involves grouping areas or types of spend together for ease of management, and to identify where cost savings and other improvements can be made.

A more modern approach to procurement, done right, and together with effective supplier relationship management (SRM), it can make a huge difference to a business’s efficiency and profitability.

The benefits of category management

The benefits of category management can be wide-ranging, and include:

Financial savings
First, and perhaps most obviously, effective category management can be the key that unlocks those bottom-line savings organisations are seeking. Having an overview of your organisation’s entire spend, as well as a closer relationship with the marketplace, will help to show areas where spend may be consolidated, either through standardisation across sites, by combining the buying power of multiple procurement teams, or by merging multiple contracts into one under a particular supplier. Due to the nature of contract management, these savings may not be made overnight – it can take some time to align contract terms for example – but the time and effort invested will be worth it in the long run.

Better value for money
Price is not the only criteria upon which contracts are awarded, and the benefit of category management is that, done well, it provides a much clearer evaluation of what is important to a organisation across different areas of spend, whether that be legal compliance, socio-economic benefit, encouraging SMEs, environmental credentials, or something else. So, category planning may result in a focus on a sub-category that does not drive pure cost savings, but drives further benefits to the organisation elsewhere.

Increased innovation It can be tempting to stick with the safety net of an existing supplier because you know they can do the job, even if it means you miss out on the opportunity to get something better for your money. Moving to a new supplier can feel like a big risk, especially where organisations have goods and services that represent critical spend, or have to be traceable, or 100% compliant. By providing a more-holistic view of the marketplace, category management enables organisations to have better visibility of opportunities for split-sourcing to test up-and-coming suppliers who may offer more innovative approaches, as well as providing a better foundation from which to manage those relationships. The result is that your organisation can test the waters and bring in more innovation, with less and managed risk.

Improved job satisfaction Procurement professionals that successfully transition from buyer to category management lead are likely to experience increased job satisfaction, leading to better staff retention. They will still be doing the deals that give them the ‘buzz’, but with more depth: more diverse evaluation criteria, a wider view of the marketplace, and being closer to the data and stakeholders will make the job more varied – and more interesting.  They’ll also be able to clearly demonstrate the value they provide for stakeholders through their work – value that those stakeholders could not achieve themselves.

Where do I start? eXceeding’s 10-point plan for category management implementation

1. Determine your categories and sub-categories. Category management depends on an organised, structured approach. By looking at all your areas of spend and breaking them down into themes with relevant sub-categories, you can decide where to focus your category planning energies depending on size, amount of spend or criticality to your operation.
2. Make sure you have quality data on your expenditure. Many organisations will have a lot of data on the front-end of the business through finance and ERP systems and will focus scrutiny there, but may have a lot less visibility of their costs. Effective category planning relies on quality data on past, current and forecasted expenditure, taking into account what is likely to happen in the next 12, 24 or 36 months.
3. Don’t forget about capex. The majority of organisations will only apply category planning to operational expenditure, with capital expenditure running separately, using different suppliers and subject to different processes and procedures. This is a missed opportunity, as bringing the two together may offer the opportunity to strengthen supplier relationships, reduce costs and improve efficiency.
4. Estimate the cost benefit. Evaluate your current suppliers and contracts. If you grouped them according to your category plan and went out to market in that way, what do you think the potential gross savings could be on your bottom-line expenditure?
5. Determine your ‘confidence factor’. How much support are you likely to get from employees and other stakeholders to do things differently? Do you have senior-level buy-in and are they committed to removing blockages to implementation? How much time do you and your team have to dedicate to moving across to category management? The answers to these questions will help to determine the level of outside support that may be required to complete the transition to category management.
6. Evaluate the opportunities for synergies and standardisation. Do you have different suppliers providing the same or similar products to your different offices or sites? Are there opportunities for you to go out to market at the same time with a standardised product or slimmed down list of options, and benefit from the resulting economies of scale?
7. Check if you can make life simpler. Whether through automation, disruptive technology, streamlining processes, or removing unhelpful blockages, investigate the means by which you can improve efficiency in your organisation. What is currently wasting your staffs’ time, and how can you change that?
8. Ascertain your opportunities for continuous improvement. Where can you innovate and improve? Can you use products that are more environmentally-friendly? Where can you improve compliance, or offer new socio-economic benefits to the community?
9. Establish a risk matrix. Draw up a list of the key products and services you need to ensure business continuity, and to meet security and compliance requirements. Use this to put together a risk matrix and business continuity plan that considers the impact on your organisation of a lack of supply in any of these areas.
10. Consider what you want from your suppliers. Supplier relationship management is a key part of successful category management. A buyer-supplier relationship should have mutual respect that drives benefits on both sides. So, it can be helpful to establish at the outset what you want your supplier relationships to look like, including how often you should be meeting at the operational and strategic level, and the sort of tangible benefits you expect from a long-standing relationship with a preferred supplier.

How eXceeding can help

Once established, category management is a much more efficient and effective method of procurement, but the process of establish category plans and moving across to new ways of working can be daunting for organisations, especially if they have tried before and failed for whatever reason to make it a success.

Setting up category management is a big piece of work, as it represents a fundamental shift in the way procurement works, so it can be difficult to find the time needed to give it the proper attention it needs when you have a day job to do as well.

At eXceeding, we can provide support to organisations wanting to implement category management to help them with the transition to the new way of working. As well as providing assistance to establish category plans and advice on encouraging cultural change, our category management specialists offer coaching to help existing teams get to grips with a new way of working.

Whether you’re new to category planning, or have tried it before and struggled to make it work, we can help.

To talk to us about how we can support your procurement function to implement category management, you can contact us or book a free appointment.