Overcoming Barriers to Category Management Innovation in Your Supply Base
- Category Management
Category management is not new in procurement. The concept was initially introduced in the 1980s as a process of grouping products into specific categories based on how consumers used them.
The thinking behind category management is simple: segment the categories of services and goods that you’re sourcing and purchasing, then organize your procurement activities around those categories. While this might seem like a large undertaking, the benefits are worth the upfront investment. By following a simple guide, you can start overcoming the resistance and building an effective category management strategy.
Before you get started on your category management path, it’s important to know who will be involved internally. Depending on the size of your organization, you may not have all of these roles established already, but larger organizations will likely find four main characters involved.
- Chief procurement officers oversee how the category strategy connects with the rest of the vision for procurement.
- The global category lead is responsible for developing a strategy that minimizes risk and maximizes value.
- Category managers are the doers. They’re in charge of executing the strategy via procurement technology and establishing partnerships with important suppliers.
- Internal stakeholders aren’t involved in creating the strategy, but buy according to the established guidelines and driving bottom-line impact.
The first steps to implementing and realizing a category strategy are building a strategic vision and then selling that vision to the rest of the organization. It’s important to set expectations – realistic expectations – to get the necessary support you need. Your overarching vision should connect with supporting details so that it’s comprehensive and easy for stakeholders to understand.
Building a Vision
Start by creating an initial list of spend categories. It doesn’t have to be perfect or exact at this step. Instead, think of this as something of a brainstorming session, and then narrow things down later. Connect these categories with larger business goals and you’ll start to see which should take priority.
Once you’ve narrowed your category list a bit, it’s important to identify how much opportunity each category brings. A SWOT analysis, combined with market and trend analyses, can give a good idea of where your focus should be and how much value you should reasonably expect. Based on these expectations, procurement can outline next steps based on a full understanding of existing contracts, commitments, and projected demand. All of these factors should be considered in order to produce the most accurate projections possible. Once you have these projections, it’s time to share them.
Selling your Vision
An essential step to getting buy-in from the rest of the organization is identifying who it impacts and whose approval you need in the first place. Take time to dig into which stakeholders, partners and suppliers will be most affected by your category approach. Include them in your efforts and analysis, not only to ease their concerns, but also to get their valuable input. This makes them feel included and invested in the project, so you’re less likely to encounter resistance. This is your best opportunity to sell them on the enterprise-wide value of a category level approach.
Optimizing your Strategy
Once you’ve outlined your vision and begun making the case to the rest of the organization, it’s time to begin looking at the actual execution. How can you adjust levers and take action to see results? This is the step in the process where you look at how you’re actually going to put your strategy into practice.
Start by evaluating what you’re doing right now. What does your supplier portfolio look like? How do you need to shift it to optimize your priority categories? Establish key performance indicators to measure your progress and look at what new risks you might be introducing in each category (and how you can mitigate them).
You’ll also have to take some steps internally. Start by outlining what steps to you need to take to smooth out change management. Look at your internal resource capacity so that you can make realistic predictions, and document your strategy to more easily onboard new team members when the time comes. You’ll also have to dive into your data a bit to see how expansive it is, how trustworthy it is, and where there are gaps.
There are plenty of action levers you can take advantage of. Take the time to choose the right ones that align with your overall strategy and your organization’s priorities so that you can make accurate predictions and begin seeing progress.
Once you’re up and running with your category management process, it’s essential to make sure you have a reliable, clear view into your data. The benefits of this are twofold; you provide an easy way for stakeholders to see your progress, and you provide your team accurate information to inform continued adjustments over time.
For this, a category dashboard is essential. It allows you a 10,000 foot view without losing sight of the data behind your KPIs. The best way to build a comprehensive category dashboard is with dedicated category management software, preferably as part of a suite that shares data with contracts, sourcing, eProcurement and more. It will provide a central location for category strategies and data to improve collaboration throughout the team.
An Ongoing Effort
Category management is a constant, ongoing process. Rather than a linear effort with an end, it’s cyclical, meaning that you must constantly reevaluate and improve to stay ahead of the curve. In order to do this, you’ll need standardized processes with clear metrics that you can measure progress with, and the ability to get buy-in and share reports with stakeholders throughout the organization.
JAGGAER Category Management helps you not only design your category strategy, but make it a reality. Identify and quantify opportunities to build precise strategies backed by reliable data.