Our guide to category management covers what category management is and it’s key benefits. We also offer an overview of information relevant to Delta modules, including how to deliver category management and how the benefits of implementing it can streamline procurement processes for public sector buyers and have a positive impact across the wider supply chain.
What is Category Management?
Category management is a term widely used in business but often misunderstood.
It can be defined as a strategic end-to-end approach to procurement, where organisations segment their spending on bought-in goods and services. The goal is for category management to enable procurement departments to deliver greater value for money to their organisations.
To do this, spend across the buying organisation is divided into ‘categories’, e.g. IT hardware, transport or stationery. Procurement is undertaken and managed according to these categories – rather than, for instance, by department – in order to obtain the best possible outcome for the organisation and to maximise value for money. Often this can be achieved by economies of scale such as having one stationery contract for the whole organisation rather than several.
Managing spend by categories originates from marketing, where managers had to decide how to segment their organisation based on teams, products, geographical location or audience type. By structuring their procurement process into segments, organisations that implement category management strive to work cross-functionally on individual categories and examine the entire category spend, the marketplaces and individual suppliers. The process cannot work successfully without teamwork, and it requires employees to be agile across different areas of an organisation. Category management is a process that can take time to implement and manage, given that different categories need different types of sourcing strategy, yet good quality category management is hugely valuable to the longevity and success of a business.
Developing a successful Category Management strategy
Developing a successful category management strategy can be challenging as it frequently involves getting a variety of stakeholders on board and in agreement with a centralised procurement policy for the purchase of a particular category of goods or services.
The success of category management depends on correctly identifying the requirements of the business and the scale of aspiration, with the objective of getting the greatest value by analysing an organisation’s activities.
The analysis of organisational strategic goals and tying these goals to category sourcing is crucial. Often this can require the appointment of specialist staff with expertise in the category, e.g, an IT specialist to manage the IT category. Obviously, appointments create costs so the savings arising from category management would need to more than cover these for it to be worthwhile.
The analysis of organisational spend vs market data, as well as identifying the benchmarking KPIs for areas of improvement, all also play an integral role in creating and achieving realistic and achievable milestones through category management.
It is necessary to take the time to evaluate the relationship between performance and volume of spend. Supplier performance data, analysis of any savings gained through negotiations, substitutions and compliance, as well as continuous engagement among all stakeholders to ensure that everyone is in agreement with an organisation’s purchasing decisions, are all other important areas that contribute to successful category management.
What are the benefits of Category Management?
There are a number of valuable benefits to implementing category management, especially to streamline larger organisations which can often become fragmented. We explain just a few of these benefits below:
- Set clear business goals – effective application of category management can support organisational goals through responding to organisational drivers, sectors, macro-economic and other market conditions, all in order to improve efficiencies and achieve more.
- Centralising spend data – the benefits of consolidating and centralising spend including easier tracking, logging and reporting are invaluable to understanding an organisation’s short-term and long-term performance.
- Opportunities for cost savings – category management works by leveraging the expertise and experience of category managers in gaining insight into a category and its sub-categories with the objective of generating value from each purchase. This means every purchasing decision is carefully thought out and backed by data.
- Better vendor risk management – category management demands that an organisation continually evaluates the performance of its suppliers in order to calculate the overall value to the business. This means organisations will gain a deeper understanding of how to better manage their suppliers and prevent operational risks associated with each vendor, thereby enforcing greater compliance of standards from suppliers.
- Greater understanding of how your business works – an organisation can gain a stronger knowledge of each category of business and how they work together as well as how they contribute to achieving wider organisational goals.
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By strategically evaluating an organisation and dividing it into categories based on function, category management gains maximum productivity from a limited resource and drives organisations further through effective change. Therefore, any business benefits a huge amount from adopting category management as one of its best practices in procurement. It has the capacity to not only add value in reducing supply chain risk, but also drive innovation and change across different supply chain categories.
Delta eSourcing makes your life easier
Delta eSourcing simplifies the procurement process. It is a web-based service that is intuitive, easy to use and allows seamless management from the beginning to the end of a tender, all in one accessible space.
Delta eSourcing is committed to helping public sector organisations make efficiency savings to improve their procurement processes. Not only does the web-based solution offer flexible procurement packages bespoke to your organisation, you can choose from a range of services which are most suitable to the needs of your business.
Delta’s numerous modules, including Tender Management, Supplier Management and Workspace Manager, allow buyers and suppliers to engage with each other to achieve greater efficiency in all aspects of the tender process. Category management also plays an instrumental role in ensuring this is achieved, by evaluating current practices in an organisation to ensure maximum productivity across all stages of procurement.
The Tender Management module enables relevant users in an organisation to access all tender documentation and information on project progress, no matter where in the world they are. One specific feature of the module effectively streamlines the communication throughout the procurement process by having one place where suppliers and buyers can engage, delegate tasks and track progress through an admin hierarchy. With set permission levels for administrators, supervisors, registered users, evaluators and auditors, the roles determine the varying functions that users can and cannot perform in the tender manager. For example, an administrator can invite users, move assets and publish notices, whereas an auditor’s privileges are set to read-only. This is one example of how Delta eSourcing’s service is intuitive, adaptable and flexible, with every element designed to drive efficient procurement for public sector suppliers.
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