Defining the ‘Why’ of Category Management
- Category Management
“Strategy without tactics is the slowest route to victory. Tactics without strategy is noise before defeat. ” – Sun Tzu, The Art of War
When procurement thinks about why they might implement a category management process, the reasons that come to mind are likely to involve more effective management of spend or having increased time to invest in strategic supplier relationships. While these are reasonable goals that are naturally associated with category management, they are not specific enough to serve as a motivating value proposition.
As the opening quote from Sun Tsu points out, both strategy and tactics are necessary to achieve victory. While procurement certainly shouldn’t think of category management as a war, it is absolutely critical to have a guiding vision as well as specific objectives to direct the effort.
In our new whitepaper, we point out that there are three main elements to the category management value proposition:
- Creating a to-be supplier portfolio for tracking, evaluating and comparing potential suppliers
- Defining the key performance indicators for managing and tracking supplier success
- Evaluating the relevant risks in the supply chain for each category
Each of these elements takes the background work procurement has done in a spend category and translates it into action, creating new value for the enterprise using a variety of specifically chosen levers. The resulting value may take multiple forms and should ultimately solve the challenges that procurement teams face.
But the value we describe cannot be delivered without strategy and tactics. When defining the strategy for an entire category, procurement should strive for alignment with corporate objectives as well as the satisfaction of their own specific performance objectives. Each category strategy should deliver:
Sustainable Cost Reduction
Regardless of how sophisticated or value-oriented procurement becomes, savings and cost reduction are always going to be part of the conversation. That said, procurement should emphasize the right kind of savings. Savings that take the ‘big picture’ needs of the business, customers, and suppliers into account. Simply reducing straight material costs by leveraging volumes or rationalizing specifications is not enough. That approach might succeed tactically, but it will fail at the strategy level. In many cases, the best path to savings is transparency – increasing procurement’s understanding of relevant cost drivers so they can be managed or justified. Improving the management of a category by understanding it at a detailed level allows procurement to select both strategy and tactics that support sustainable cost savings.
Improved Buyer Experience
The expansion of eCommerce has driven up the expectations of distributed buyers. Every tool and method applied to help them access the goods and services they need has to be as intuitive and frictionless as possible. This ease of use must extend across categories, delivering a unified experience, and balancing the need to provide exceptional ‘customer service’ without abandoning the need for governance and risk management. In this case, the best strategy may be identified by procurement organizations that take the time to understand distributed buyers’ relationships with spend and suppliers. This understanding is key, as the tactics chosen as a result will either build internal bridges or start the construction of barrier walls.
Consistent Knowledge and Guidelines
If there is value in managing spend at the category level, then there is also value in providing reasonable consistency across categories. The same rules for making purchases and approving requests should apply globally, and those expectations should be clearly communicated. Regardless of how geographically or organizationally distributed procurement and buyers are, category level expertise and resources should be easily accessible to everyone. It is not enough to work as part of a centralized procurement organization. While a center of excellence can make decisions quickly, they are at risk of isolated judgment that will fall short of under-represented interests. Best practices have to be distributed across the entire organization – from procurement to buyers and back again – if category management is to meet the business needs in the long term.
When procurement thinks about why they are implementing category management, the first round of reasons is likely to address their own functional needs and priorities. What is important to remember, however, is that category management addresses spend at a higher level on purpose, deliberately ensuring that that enterprise strategy and procurement tactics are aligned. Category management provides the ultimate opportunity to deliver a wide value proposition, one that serves them and their stakeholders at the same time.