Category management is a spend strategy for procurement that segments the overall expenses by types of products. By dividing the products in categories, managers can specialize and understand better the dynamics of that market.
That strategy leads to more accurate plans for sourcing and managing of suppliers. It also reduces the cost of buying goods, lower risks on the supply chain and increases the value of the supply base. Another benefit of category management is finding more innovative suppliers.
The concept and method was developed in the late 1980s by the automotive market. Since then, it has become one of the most popular purchasing strategies for procurement, adopted in companies worldwide.
Let’s discuss more about category management and how it affects procurement operations and the global market.
What is Category Management? How does it work?
As established, category management is a procurement strategy where the organization of the products depends on the function of them. They are categorized in groups for spending and then arranged for the order.
For instance, categories may include: office supplies, RH, security items, IT, transport, medical, industrial. So, a specialist is responsible for each of the categories, with tasks such as strategic sourcing, category plan and data oversight and record.
That specificity requires professionals that have a background or involvement with the product he is handling. Although more specialized workers may reduce the labor offer, the benefit of this includes reducing mistakes and more trustworthy orders, since they know what the company actually needs.
The process for Category Management
Firstly, you need to define the categories for your procurement process. What does your operation need to contemplate? Which differences can result in categories and subcategories to segment and which professionals can handle each of them?
That definition will reflect the whole strategy, because from them you’ll be able to define values for each of them and the categories that need to be priority. So, after the definition, you need to conduct a spend analysis.
That means, analyzing historical data and defining how much you expend in each category and how you can improve that process. If you find ways to minimize costs and innovate suppliers, that will result in more profit and a more efficient process.
Finally, you need to analyze the market and find supplier bases and scope of work for each of those items. That data you impact directly on the sourcing process for every category and professional, so it needs to be done beforehand.
The 4 P’s of Category Management
A basic principle of marketing is also relevant in the definition of your category management plan. There are four essential elements that in a way impacts production and on the other hand the procurement process.
They help the manager analyze sales records and ensure that the right amount of products are bought. They are:
- Product: Its fundamental for the category manager to look for quality products and best cost benefit for the category. So, getting to know the product and their specifications is the first necessity for sourcing.
- Pricing: This is the most basic one. Managers need to conciliate quality of product and pricing, depending on financial aspects of the operation. So, evaluating how much you have to spend and the prices in the market assures profitability.
- Placement: The disposition of the products in the store, in collaboration of category managers and marketing team. It’s important to figure out a logical continuity for products and types. Also, the possibility of optimizing warehouse to maximize space in stock.
- Promotion: Finding marketing tactics that can increase sales it’s also important for each category. Products that sell faster may not need so much promotions as slow-moving inventory. So, managers must figure out those types of decisions.
There are a lot of beneficiaries of category management, first it makes access to data more flexible and open to the whole company. Then, you can find cost opportunities to save money and spend less in each of the categories. It also reduce risks of operations and increase compliance with vendors and suppliers.