Category management is the process of pulling together similar products in a single category; and then addressing all the diverse initiatives of a single category as a whole. The initiatives captured in a particular category may include merchandising, procurement process, retail, and sales efforts.
More precisely, category management bundles together items to avoid scattered, separate agreements. The process of categorizing together similar items saves money, time, and resources by consolidating discrete agreements into one contract.
Scholar and researcher Brain Harris coined the term category management in 1997. Category management was intended to improve strategic sourcing but missed key aspects for maximizing efficiency. Harris’ project management model is measurable, structured, and improves organizational processes.
Category management process in procurement captures the following steps:
1. Defining the category
Defining the category involves setting the parameters for your specific categories based on your customers’ behavior. How your customers navigate each category will inform you on product selection, pricing, segmentation, and many more.
2. Assessing category role
The next step of category management in the procurement process is assessing the role of each category. This is where you maintain focus between a category and a company’s broad portfolio. What’s the overall significance and impact of each category? Businesses can think of category roles from a volume standpoint or a sales perspective.
3. Performance tracking
Performance tracking involves examining how each category performs. Compare market performance, retail performance, and other categories. This multi-lensed approach will provide valuable information for the next phases of category management. Performance tracking brings a greater impact on strategic sourcing, it improves the management of the procurement function, and measures project progress in real-time. This, in turn, leads to the transformation and re-invention of the procurement management function.
4. Set goals and objectives
Any business initiative must have clearly defined goals to achieve success. That means that your merchandising options are no exception. You must define your objectives and benchmarks to set each category’s key performance indicators KPIs. Assessing sales volumes, assortments, and market share will jumpstart you to set actionable, measurable goals.
5. Planning your strategies
Based on your goals and objectives, gather your thought leaders at this juncture and devise your strategies for execution. Consider what marketing and product strategies your organization can take; and what the in-store process will be for individual categories. At this point, it’s advisable to keep an eye on how you can increase sales, grow your market share, boost traffic, and other specialized goals.
6. Designate category tactics
This is where you must get into the nitty and gritty of how you can put the strategy in motion. Set repeatable and clear actions to improve category strategies. Consider how you can improve sales, market share, supply methods, promotions, and placements.
Once you’ve laid down your strategies and clarified your objectives, you’ll want to lay a holistic, actionable plan for your team. So, write down a plan to solidify your actions, strategies, and category roles. Implementation requires that different stakeholders (employees, managers, etc.) commit to a designated action plan.
Reviewing category management isn’t a one-time procedure. It’s designated to be a cycle to review and tweak processes. In this step, evaluate your results and modify the processes as you cycle back through the steps.
What to know about Category Management in Procurement?
Category management is neither a simple practice nor a complicated process. Whether you’re a procurement leader who has practiced and mastered category management, or you’re just starting, here’s what you need to know about this procurement strategy:
- Category management is the most evolved procurement strategy. The simplest form of procurement occurs at the tactical level of executing orders. Higher strategic levels include the strategic sourcing phase of consolidating the supply base and capturing more supplier value. In addition, category management uses in-depth knowledge and market insight to drive value and evolve in real-time. This improves vendor supplier relationships.
- Category management is a continuous implementation. The other thing to know about category management is that it’s not a one-time practice but an ongoing process. Category management concerns continuous improvement and a dynamic process that requires proactive monitoring and management. In addition, category management is not a one-time strategic sourcing exercise. Rather, it denotes a long-term approach that monitors market dynamics and consumer trends.
- Deep market knowledge is necessary. A key component of successful category management is a better understanding of the marketplace. The category lead personnel must develop a better grasp of their categories and stay updated on the latest developments and emerging trends. Industry newsletters, professional associations, and internet news research can help obtain this insight. Something as simple as setting up an email newsletter notification can update you on changing market dynamics.
- Category management doesn’t require a category manager at the onset. Category management often revolves around an iterative process of category ownership, categorization, and setting formal roles. A category coordinator can oversee a category because s/he acts as a portfolio manager. After s/he is hired, the category coordinator begins training the organization on a centralized approach to category management.
- Procurement’s role in category management is to guide businesses. One of the biggest misunderstandings in procurement is that category managers take over the responsibilities of other stakeholders in the procurement process. Indeed, category managers work alongside other procurement stakeholders to answer pertinent questions regarding demand and forecast, operational and financial requirements.
Typical outputs of the collaboration between category managers and other procurement stakeholders include:
- Examining historical purchasing patterns
- Understanding key financial strategies
- Alignment with stakeholders on the particular requirements
- A shared understanding of what quality looks like
ProcurePort – Reinventing Category Management in Procurement
ProcurePort has proven excellence in helping enterprises develop category management plans and set integrated category management strategies. According to ProcurePort’s industry experience, well-executed category management solutions provide superior results than tactical, short-term strategies. A well-implemented category management strategy results in; long-term vision, stakeholder alignment, increased visibility and planning through historical data tracking.
Contact ProcurePort and develop expert knowledge in category management.