Category Management Best Practices

Category Management is the management of a grouping of similar items which an organization desires to procure under a single deal.

This powerful methodology executes and is underpinned by the following:

  1. A comprehensive understanding of Customer and Business Requirements:
    This is an understanding of the most critical customer / business requirements, specifications, and expectations
  1. A comprehensive understanding of Dynamics of the Market:
    This is an understanding of drivers of cost, trends, and forces, that impact and influence supply chain success. The capacity of the market and its actors to meet customer and business requirements must be assessed and clearly understood
  1. A comprehensive understanding of Sciences of Procurement Strategy Design:
    This is an understanding of all aspects of effective procurement strategy design and alignment to key stakeholder requirements. Effective procurement strategies efficiently enable the realization of Corporate Strategies and objectives
  1. Ensuring a Total Cost to Serve Reduction and Support of Operations:
    Profitability can be realized through revenue increases and cost reduction. Procurement Functions are front and center in the enablement of both methodologies. Fostering Collaboration and creating Visibility across supply chains is essential to be successful in today’s Procurement Environment
  1. Ensuring an efficient and effective process to minimize Supply Risks:
    Many experts see risks as parasites that can lay dormant for years until events occur which create points of failure that cause them to erupt with intense consequences. Plant fires, pandemics, natural disasters have reaped havoc in Supply Integrity over the years
  1. Leveraging of Supplier Management:
    Supplier Management. Supplier management means collecting metrics about a supplier’s performance for your organization, sharing those metrics with the supplier, and discussing and implementing ways that the supplier can improve its performance as measured by those metrics. Though the buying organization may provide ideas for how to accomplish those performance improvements, the responsibility for developing plans, the allocation of the resources and doing the work involved is usually squarely on the supplier

 

Table 1 demonstrates the correlation of Category Management Best Practices.

Table 1Category Management Mandate

Source: NLPA 2020

The first step in deploying an effective Category Management System is understand the Distribution of spend. Table 2 is an array of KPI that display a typical spend distribution.

Table 2, Distribution of Spend Management

Source: NLPA 2020

Table 3, Spend by Category

Source: NLPA 2020

Table 4, Percentage of Total spend by Category

Source: NLPA 2020

Tables 2, 3, and 4 provide a much clearer understanding of procurement activities and opportunities for cost reduction. The information on Table 2 can be benchmarked against industry standards and a platform for continuous improvement and performance gap closure. Buying Talent can be leveraged as best suited for the “Operational Buckets” or Categories depending on expertise and experience.

The dollars spent that are displayed on table 3 can also be categorized by spend by supplier. The raw material, packaging, contract labor , and machine part spend can be categorized by products that are exposed to disruption depending on supplier capability, geographic location, and political constraints.

Category Management, if leveraged properly can yield great innovation, savings, cohesiveness, risk reduction, and competitive advantage.

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