Category Management

Discover the basic principles and aims of category management.

What is category management?

Category management is a strategic approach to procurement. It’s where organisations segment their spend into areas which contain similar or related products. It allows more focus on categories that have opportunities for consolidation and efficiencies.

Category management may involve the splitting of direct and indirect products or services or may relate to the dissecting of products or services by value, supplier, type, or volume.

Direct: Costs that are directly related to the end product or service i.e., raw materials, individual making the product, expenses related to the product
Indirect: Costs that are not directly related to the end product or service i.e., company insurance, electricity, water, business premises – many overheads of the business are referred to as indirect costs

Associated theories that can be used to help the dissecting of products or services are Pareto (80/20 rule) and ABC Analysis. From these models it is possible to see where high levels of spend are being accrued and where the focus should be placed next.

Category managements enables procurement professions to:

Focus their time and conduct market analysis to leverage negotiations
Correctly manage suppliers in alignment to objectives
Helps to organise the procurement team resources
Enhance supplier relations
In-depth understanding of how each category contributes to risk management
Manage categories of spend

What are the principles of category management?

Category management allows procurement and supply professionals to create opportunities that will drive value for the organisation, such as reduced prices and costs, supply chain risks and timescales. And improved service to customers, quality, brand, reputation through sustainable supply chains and compliance to regulation.

It also helps organisations to help align their strategy to customer requirements and the supply market through:

Retaining a customer-driven focus.
Creating breakthrough improvements by focusing resources to identify opportunities.
Generating insights from facts and data such as supply data, supply market data, category data and organisational data to align the category strategy with the organisation's strategy.
Maximising benefits and opportunities to eliminate waste.

The key principles of category management are:

Categorisation: classifying organisational requirements and segmenting into categories creates expertise, and market knowledge to deliver innovation
Aggregation: collating the total business requirements can achieve a reduction in purchase prices and overall costs by increasing volumes and reducing the number of transactions and agreements
Standardisation: setting a standard set of policies and procedures for individual users and cross-functional teams for consistency and tracking benefits
Relationship management: enabling a clear and consistent exchange of knowledge and information with suppliers and key stakeholders to build relationships and add value
Outsourcing: identifying opportunities to utilise expertise from third parties, who have the skills or expertise to add value which enables staff to focus on other core activities.

CIPS Category Management Cycle

Our Category Management Cycle will help you to define an efficient category management process.

Find out more about the Category Management Cycle

Category management key themes

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