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Category Management – A Definition

Category Management is the commonly acknowledged way for procurement to improve its contribution to the business, yet it is poorly defined. Look up Category Management on Google and you’ll be hard pushed to find a good definition on the first page. For example, Wikipedia’s post on Category Management focusses on retail category management with a final section called “Category Management in Purchasing” shoehorned in. Here’s what it says:

“[purchasing category management] methodology is fundamentally different. Applying Category Management in purchasing benefits organisations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers. It is a strategic approach that focuses on the vast majority of organisational spend. If applied effectively throughout an entire organisation the results can be significantly greater than traditional transactional based purchasing negotiations.” Wikipedia

It’s not easy to find any helpful definition of Category Management. So what is it about category management that is so different, and what makes it so effective for organisations that get it right?

Is Category Management More Than Just Strategic Sourcing?

Our 2016-17 Category Management Survey demonstrated that many organisations still see Category Management as simply another term for Strategic Sourcing. However, our research concludes that Category Management is more than that.

1. It is a strategic end-to-end process for buying goods and services
2. It aligns business goals and customer requirements with supply market capability
3. It maximises long-term value for the organisation

Strategic sourcing is a process to source goods in the best way for the business. On the other hand, category management orchestrates procurement and stakeholders in order to deliver business strategy. It is a methodology to manage categories for the whole life-cycle of goods and services, directing procurement activities such as strategic sourcing and supplier relationship management.

What is a category manager?

Simply put they are category management practitioners with specific responsibilities for certain areas of spend known as ‘categories’. These are wide and varied and at the top level generally split between ‘directs’ and ‘indirects’. This strategic approach allows for in depth analysis of a particular market in order to inform procurement decisions. The results are significantly better than traditional transactional purchasing methods. More here: Building high-performance category management

We hope you found this article on Defining Category Management useful. We welcome comments and feedback.

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