Many organizations talk about category management, yet relatively few have implemented this strategic approach to procurement. Implementing category management may seem challenging, but our experience suggests that a few, basic principles can take you a long way.
In short, category management is a strategic approach which organises procurement resources to focus on specific areas of spend, i.e. spend categories, by using a structured methodology.
First, classifying and categorizing your spend is a prerequisite for succeeding with category management. The spend categories establish facts and serve as the basis for resource allocation, responsibilities and procurement work in the various categories.
When considering the resource allocation, several factors should be contemplated. Most important is to ensure that critical categories for your business are adequately covered, typically the largest categories. At the same time, you should not neglect smaller categories as there may be large opportunities for savings - precisely due to the fact that they are often overlooked. Furthermore, the number of suppliers and spend complexity are vital factors when allocating resources.
One of the reasons for the potential inherent in category management is various success factors across spend categories. Consequently, different competences and skills are required to succeed with the procurement work in each category. Some categories may require strong technical expertise, while commercial or analytical skills are critical for other categories. Businesses that succeed in working interdisciplinary, and involving users closely in the strategic category work, often achieve the best results.
Tailoring the strategic approach to the categories is also essential. Category strategies are often based on an assessment of how important the category is for your business and the supplier market complexity. With this perspective, it becomes much more clear what actions you need to implement in the short and long term. These actions should be summarized in a standardized template for best anchoring internally. Typically, the best category strategies also have a clear link to the overall procurement strategy.
Are you developing a category strategy, but not sure where to start? Follow these six steps to create an action-based category strategy for your company.
With category management as the basic principle, businesses are often better equipped to realize their procurement potential and reach their goals - whether it be increased innovation, quality, supplier collaboration, consolidating spend or generally improved prices/terms.
The Kraljic Matrix classifies spend categories into four different groups (or quadrants) based on two dimensions; complexity in the supplier market and significance for your company. Strategic categories are one of these groups.
Categorizing and Classifying Spend - Five Practical Tips
Let's start with some theory about what spend categories are and what they should reflect: A spend category, or category, contains similar types of purchased products or services. In other words, a category should support the
How to Create a Category Structure For Your Business
Classifying your spend into categories is important for several reasons. One obvious reason is the prioritization of resources. Large spend categories with a significant potential for cost reduction should naturally be