The CIPS Category Management guide explains the definition of category management and how to roll out category management within an organisation’s goods or services sector with consideration to the benefits and challenges of making the organisational change.
What is Category Management?
Category Management is a strategic approach to procurement where organisations segment their spend into areas which contain similar or related products enabling focus opportunities for consolidation and efficiency.
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. 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 focus should be placed.
What are the benefits of Category Management?
- Category Management enables procurement professionals to focus their time and conduct market analysis to fully leverage their negotiations and correctly manage their suppliers in alignment with the corporate objectives.
- Category Management helps to organise the procurement team resources and contributes towards economies of scale and enhanced supplier relationships whilst gaining an in depth understanding of how each category contributes to risk management.
"Category management provides a deeper understanding of the market, products, suppliers and the supply chain to develop strategic category plans. This deeper level of insight and mapping of the supply chain takes into account environmental, social and political factors to manage risk more effectively for the organisation."
Hear from Zara Jones on Category Management, listen to the podcast (24.50)
Category Management Cycle
The CIPS Category Management Cycle is a 4-phase process with six key activity steps to successfully procure significant categories of spend. You can apply elements of the cycle when you don’t need to follow the full process.
Category Management should not be confused with expenditure segmentation. It is a structured framework of activities designed to deliver superior procurement outcomes. The cycle can help you to define a Category Management process.
CIPS CATEGORY MANAGEMENT CYCLE
What is the Category Management process?
- Initiate - Start by defining the categories that procurement will manage: this can be done by using the Direct and Indirect model as a starting point or a guide.
- Prepare - Once the categories are defined, visions need to be established so that the buyer or category manager is able to manager the category in alignment with the corporate vision. For example, if the corporate vision is to support local business to develop the local economy, the buyers need to create a vision to use suppliers within close proximity.
- Prioritise - Objectives need to be set as part of the process to achieve the vision. Objectives for the local economy, for example, could be to source 50% of direct cost products from suppliers in the same county, state or region within 5 years. Objectives set should always be SMART for ease of measuring the results.
- Define - The strategies that should be set as the next part of the process need to reflect the objectives. A strategy for this example could be to contact all suppliers within a 50 mile radius and invite them to tender for all indirect cost related contracts.
- Implement - Once the strategies are agreed and approved by senior management, the category manager needs to work with the stakeholders to gain buy in. The strategies need to be supported by everyone to ensure their effectiveness.
- Maintain - To help ensure that the strategies are implemented and the objectives are achieved, the category manager can set Key Performance Indicators (KPI) or Service Level Agreements (SLA) which can then be monitored to evaluate performance. A KPI could be to sign three strategic product or service contracts with local suppliers within one year. As per objectives, KPIs and SLAs should aim to be SMART.
- Improve - At regular intervals, and the timing of such intervals depends on the nature of the industry, the categories should be reviewed. Procurement is a constantly evolving function so it may be that a category that was relevant at the start of a period becomes obsolete, non-critical or moves from direct to indirect. The reviewing process is important to ensure that categories are always relevant and in keeping with the overall corporate vision.
This process is not set in stone and not all stages will always be relevant to all category managers and all organisations but what this does do is provide a starting point and guidance to help devise an efficient Category Management process for procurement.
A Successful Category Management Strategy
Effective Category Management encompasses a multitude of areas including but not limited to:
- Supplier relationship management
- Supplier evaluation and appraisal
- Effective communication incorporating soft skills
- Market analysis, competitive forces and external factors
- Stakeholder identification and management
- Sustainable/ethical procurement
- Team leadership and management
Category Management: Read the Full Guide
The CIPS Category Management guide explains the definition of Category Management and how to roll out Category Management within an organisation’s goods or services sector with consideration to the benefits and challenges of making the organisational change.
DOWNLOAD THE FULL GUIDE
What is a category manager?
A category manager specialises in the handling of good or services for a specific category e.g. services, logistics, transport, security, and is responsible for planning and sourcing the area. It is a very specialised procurement role which requires individual to have a background in the category being handled.
For category managers to be best placed tools such as Belbin’s Team Roles and Myers Briggs’ Personality Test can be used to evaluate the types and drivers for managers. From this work categories can be matched to individual’s traits and interests for optimum results.
How will technology impact Category Management?
As procurement further evolves technology will become a driving force within most areas. Within Category Management technology will be able to assist through the improvement of MRP and ERP systems as well as upgrades to barcoding, RFID and automation.
Combined with SRM, the use of soft skills and EI, the development of technology, evaluating the market, identifying and managing stakeholders, ensuring ethical conduct, constantly pushing towards sustainable procurement, Category Management is an excellent method to increase productivity, reduce spend and add value to the supply chain function.
Category Management Resources for Members
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Category Management Training
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Category Management Podcast
Hear from ZARA Jones on the Category Management podcast.
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The CIPS Global Standard for Procurement and Supply is a competency framework used to enhance efficiency and performance.
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