What is Category Management?

by Procurement Freelancers Team
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Category management is a process where a company breaks downs its goods and services into different segments during the time of procurement. There are many supplier development freelancers who can provide goods from each segment. This segmentation is generally done based on the kind of functions they perform. Every company has different categorisation techniques. The most common segments across all companies are professional services, IT & security, medical, human resources, office management and travel & entertainment.

What is the Role of a Category Manager?

The role of a category manager comes under procurement services. A category manager is in charge of a specific category of goods or services and he has the responsibility of creating a category plan, strategic sourcing and proving oversight. Category managers must have a background of the service that they are handling because they have to handle supply chain activities as well e.g. supplier development engineer experts. This role is a combination of domain experts and purchasing managers.

Category Management Process

Before starting with the category management process, it is important to consider a few things first:

  • Define the categories and subcategories
  • Determine how much should be spent on each category
  • Analyse the supply market and customer needs
  • Find the scope of work, new vendors and check if there is room for improvement
  • Use the knowledge from strategic sourcing and transactional purchasing

The category management process is divided into six steps as follows:

  1. Initiate – Define categories.
  2. Prepare – Determine the vision for each category and align it with company vision so that it is easy for the category manager to follow.
  3. Prioritize – Clearly define the objectives and plan to reach the goal. Goals should be SMART.
  4. Define – Define the strategies which should be a part of each process. These should match with the objectives that have been set.
  5. Implement – Category managers work with different stakeholders to implement the processes.
  6. Maintain – Set Key Performance Indicators (KPI) or Service Level Agreements (SLA) to monitor performance metrics.
  7. Improve – Evaluate the current categories at regular intervals to ensure that they match the industry requirements and standards. It will help to keep the overall processes relevant to the corporate vision.

For effective strategic management, a company needs analysis of strategic goals, cost savings through substitution and negotiation, supplier performance data and continuous engagement of all stakeholders.

Benefits of Category Management

Category management is very important for all organisations. It has numerous benefits. Some of them are as follows:

Centralizing spend data:

Category management helps to centralize all kinds of data making it easier to track, log or report. Spend analysis can be done on various options and it can be checked if outsourcing is going to reduce the overall cost. Supplier development freelancers can help in this case.

Better supply chain management and supplier relationships:

Since this job involves the procurement of resources, it is easier to build a strong relationship with suppliers which giver a better bargaining power to the companies. Understanding each category also helps in risk management.

Read: 6 Supply Chain Management Strategies for Better Business Outcomes

Better vendor risk management:

A company can get a good understanding of vendors through category management. Once the company is aware of the operational risk associated with suppliers, the manager can deal with each individual supplier accordingly.

Cost savings:

The expert insight into each category and sub-category ensures that the company can leverage the benefits of cost management.

Benefits from holistic spending:

Strategic sourcing helps in achieving economies of scale. If the category manager is making large volumes of purchases by entering into a long-term agreement, the suppliers will have a higher scope of work. This will mean that there is no need for negotiation for every deal and there are chances of getting discounts for bulk orders placed. This will also help to avoid repetitive purchase processes.

Procure to Process (P2P):

The category manager can first focus on perfecting the relation with one supplier in a particular category. Then this process can be replicated in dealing with suppliers from other categories.

Streamlined business strategy:

Category management is very important for strategic business plans because it associates goals with different strategic purposes. Even if the company has some medium or long-term goals, category management can be used to streamline the process by identifying suppliers and sources of capital much ahead of its time. This helps in the overall business process planning.

Procurement is one of the most important departments in any business. Category management as a part of procurement is crucial to every business no matter which industry it belongs to. Every company needs experts from different domains like supplier development engineer experts to run its business smoothly. Category management can add value by helping to reduce supply chain risk. It also helps to manage high volume demands, maintain standards and help to generate cash inflow for the company.

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