You can call category management (CM) a systematic way of procurement where firms segment their expenses into areas that contain related or similar services/products. It enables the focus on opportunities for efficiency and availability of products/services. This type of product management involves splitting indirect/direct services and products or classifying services or products into supplier, value, type, and volume.
A category is an assortment of products that customers find reasonable substitutes for each other. Products can be categorized based on similarities in customer tastes, liking, disliking, preferences, such as fast food, baked confectionery, sweets, etc.
How do organizations benefit from category management (CM)?
- It enables procurement experts to manage their time, do market observation to modify their negotiations and adequately manage their suppliers in tandem with the company goals.
- It helps the procurement managers to manage resources, contribute to economies of scale and improve supplier relationships while gaining a detailed understanding of how this classification of products works.
All the processes involved in CM are controlled and managed by a category manager and his CM team. A CM process is not possible without a team specialized in this particular job.
A CM team includes a category manager, sales planning managers, brand managers, and marketing information specialists. This team will manage sales promotion, brand strategy, advertising, and one entire product line.
What is the process involved in CM?
The CM process has the following stages:
- Initiate
- Prepare
- Prioritize
- Define
- Implement
- Maintain
- Improve
- Initiate
The category manager has to begin by classifying the types that the procurement team will manage.
- Prepare
Once categories are adequately classified, the goal of the firm should be established. So, the purchaser or category manager can manage the category in tandem with the company’s goals.
- Prioritize
To achieve the vision, the category manager needs to set some objectives from the beginning. For example, the goal for the local economy could be to acquire fifty percent of direct-cost products from suppliers in that region, state, or country. Objectives should be proper and easy for calculating the benefits.
- Define
Strategy to be set for the future should reflect the goals. For example, you are contacting every supplier within a 100 miles distance and inviting them to tender for all indirect cost-related deals.
- Implement
Finally, when the senior manager and management approve the strategies, the category manager has to collaborate with the shareholders/stakeholders to gain buy-in. The plan needs to be backed up by every single person concerned to ensure its effectiveness.
- Maintain
To ensure that the policies are executed, and goals are achieved, the category manager can set KPI, which means Key Performance Indicators or SLA, i.e., Service Level Agreement. These can be observed/supervised to measure performance.
- Improve
Improve at regular breaks, & the timing of such breaks always depends on the type of industry. Procurement is a forever improving/changing function, which means the category which was relevant in the beginning may go obsolete over a period. The reviewing procedure is essential to ensure that categories are always pertinent and keep up with the overall corporate goals/motto.
What is the sign of a successful category management strategy?
An efficient CM incorporates multiple areas, including:
- Team leadership & management
- Stakeholder identification & management
- Better communication integrating soft skills
- Supplier relationship management
- Supplier evaluation & appraisal
- Ethical/sustainable procurement
These are some crucial features of CM, and this strategy can help the organizations keep up with the demand of customers.