Category Management

In the procurement area, the term can be used in two ways: as a description of the procurement process, or as a basis for organising the procurement team. As a description of the procurement process, category management involves applying the end-to-end procurement process to a specific range of goods or services. This involves all the pre-award processes such as category analysis and demand management, sourcing and contract negotiation, as well as the post-award processes such as performance management. As a basis for structuring procurement resources category management usually involves defining the need, sourcing the market, negotiating the contract and managing the providers after the award. In order to ‘scale the role’ so that different categories represent approximately equal challenge, three key factors are considered: the value of spend in each sub-category, the diversity of the sub-categories and the challenge in the supply markets. See also Category and Procurement.

In short

Category management groups what an organisation buys into categories of related goods and services, and gives each category an owner who manages it end to end: from the need and the supply market, through sourcing and the contract, to supplier performance after the award.

How it differs from running tenders

A tender buys one requirement at one point in time. Category management looks at all the spend in a category, across the whole organisation and over several years. Decisions about demand, specifications, suppliers and contracts are then made together, not one purchase at a time.

The category management cycle

1. Analyse the category. Use a spend analysis to see what is bought, from whom, by which parts of the business and on what terms.
2. Understand the need. Work with the people who use the category on demand, specifications and service levels. Reducing or reshaping demand is often worth more than a lower unit price.
3. Study the supply market. How many suppliers there are, how much power they hold, what drives their costs and where the risks sit.
4. Set the category strategy. Decide how to buy: consolidate suppliers, change the specification, go to market, renegotiate with the incumbent or change the delivery model. See 5 tips for developing a winning category strategy.
5. Source and contract. Run the market approach and negotiate the contract the strategy calls for.
6. Manage suppliers and review. Track performance, compliance and savings after the award, and refresh the strategy well before the contract ends.

Organising the team by category

Many procurement teams give each category manager a portfolio of categories. To balance the workload, portfolios are sized on the three factors in the definition above: the value of spend, the diversity of the sub-categories and the difficulty of the supply market. The category manager owns the strategy and the stakeholder relationships for their portfolio.

Where to start

• Rank categories by opportunity, not by spend alone. An opportunity analysis shows which categories will return the most for the effort.
• Begin with two or three categories where spend is fragmented, contracts are missing or expiring, and the business is ready to change.
• Write a short plan for each category and review it at least once a year.

Help with category management

Comprara adds category and commercial experience to procurement teams through its procurement delivery support service, and helps set category ownership and decision rights through procurement strategy and advisory. For a practical guide to buying by category, read The Category Management Playbook.

Category Management Essentials and the Category Management Masterclass are taught at the Academy of Procurement.