Deploy a Strategic Category Management Solution to Maximize ROI
Posted by Amenallah Reghimi, Product Manager, Cognitive Intelligence, Category Management and Analytics in Supply Chain on June 7, 2019
Defining Category Management
Category management has a decades-long history that has lead us to our modern understanding of procurement categories. Created in the 1980s, category management was originally the process of grouping products into categories based on how consumers used them. Originally created by marketing teams, category management helped retailers increase sales by minimizing unproductive competition between their own products.
Today, the term has evolved to identify a process for improving efficiency in supply chains, but at its core it is still about grouping items to maximize value. According to CIPS, category management is a strategic approach that organizes procurement resources to focus on specific areas of spend. Category managers can zone in on one specific category and conduct market or pricing analysis for that particular group. By leveraging this in procurement decisions, they can create higher ROI than traditional purchasing models.
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What’s a Category Manager?
A category manager is a strategic, specialized role within a procurement organization. Often a category manager will have strong, deep knowledge in one particular category, and will be responsible for defining that category, managing vendor relationships within that category, and making relevant purchasing decisions.
For example, a research facility may have a category manager for organic chemicals. This person would need to have a strong background in organic chemistry to fully understand the products in that category, how they’re used, and how often they need to be purchased. They would then be responsible for establishing a vendor network with and ensuring that the organization is making smart, strategic purchases that align with company goals.
The Category Management Process
To start, a category manager typically works with members of different procurement teams to develop a category plan that encompasses the products and services in their designated category. Then the category manager gathers data to find improvement opportunities. They work with stakeholders to identify, measure, and prioritize these chances to maximize efficiency.
A model for category management might look like this:
This first stage includes defining your category, examining current spend trends and business goals, forecasting demand, and considering stakeholder analysis.
Market & Portfolio Analysis
In the second stage, you may dig deeper into data across your entire market. This includes looking at macro analysis, trend analysis, a procurement market analysis, cost structure analysis, category positioning, and a SWOT analysis.
Category Strategy & Levers
The third step in the category management process includes evaluating current levers, selecting and prioritizing levers, and creating a to-be supplier portfolio for tracking and comparing potential suppliers.
This stage includes evaluating potential suppliers, defining your key performance indicators that you’ll use to manage supplier success, and evaluating the risks in your category’s supply chain.
Implementation planning typically includes planning procurement activities, defining your category team, evaluating capacity and the amount of required time for your activities, and documenting your strategy.
Implementation & Tracking
Finally, you’ll want to establish and monitor views of your sourcing activity progress against your success measures and your savings initiatives.
What Category Management Means for JAGGAER
When operating your procurement organization around categories, having a solution designed for category management is essential. With JAGGAER’s Category Management module, you can manage the category process right inside your procurement suite. This allows a single suite to encompass the full procurement space while integrating seamlessly with a “Category in the Middle Approach.”
While many companies are forced to employ a “Category on the Side” solution that works outside of their procurement suite, JAGGAER offers a category focus as an integrated part of your procurement workflows.
JAGGAER aims to simplify the category management process by providing a solution that:
- Aggregates existing and planning level category information
- Assists in strategy planning for future purchases
- Enables collaboration between cross-functional teams to develop a strategic approach
- Provides approval processes to simplify management of go-forward decisions
- Provides a central location for overseeing the execution of sourcing operations resulting from the category strategy
The keys to success of a category management solution are:
- Automating visibility of categorized information and spend
- Allowing integration to external systems
- Providing an alternative for those customers that do not have integrations
- Providing a central place for managing strategy planning and decisions, and guiding those decisions wherever possible
- Providing clear oversight of all activity initiated as a result of a category strategy
- Automating aspects of the overall process as much as possible
A dedicated category management module allows category managers to focus their efforts on maximizing their return on investment and intelligently analyze data, all without leaving their procurement tool.