The Ultimate Guide to Category Management
Procurement is an extremely broad field—and rightly so. After all, given that procurement operations are concerned with making available the supplies that make an organization work, a lot of subdisciplines come under that umbrella. From vendor management, all the way to invoice processing, it takes a lot to build and maintain a functional supply chain that can sustain an organization now and in the future.
What is category management?
Category management is one process that brings sense into the procurement operations of any organization. Category management is the process of segmenting and arranging the supplies an organization needs into different categories to simplify the process of planning for their procurement and usage.
Maybe you’re at a crossroad where it’s getting harder tracking inventory making its way into your warehouse or you’re looking to get more concrete figures on where exactly your money is going. Category management will help you plan out your procurement ops and accurately determine where to zero in your efforts for maximum outcomes.
The category management process
Category management isn’t a single task you can do and cross off your to-do list. Rather, it’s a process you undertake to organize supplies into segments and leverage the data it provides to make your procurement operations more efficient.
Here’s how it works.
- Definition: What types of supplies are going into this category? Why? What criteria are you using to organize different types of supplies into the same category?
- Spend analysis: How much are you spending on each supply category? You can define this by taking stock of the individual supply figures and factoring them as a percentage of your overall procurement budget.
- Market analysis: Based on market performance, are we spending our budget dollars efficiently? Can we do more with less? Are there suppliers willing to offer us the same quality for lower prices?
- Improvement: The improvement stage is where the insights from your market analysis are applied to make your procurement operations more efficient.
- Continuous application: As you improve your procurement operations, continue segmenting, and researching, continuous application is about improving even further to achieve and maintain an efficient procurement engine.
Benefits of category management
Categorizing the products you acquire from suppliers might seem like just another attempt to keep lengthy records. Until you read between the lines. Good category management holds the key to unlocking speed and efficiency across your procurement operations and can make or break your efforts.
Acquire actionable insights to guide decision-making
As the management axiom goes, ‘what gets measured, gets managed.’ And what’s the first step of measuring procurement? If you guessed category management, you’d be right.
Category management empowers your procurement team to carefully segment supplies into smaller divisions where they can be grouped together. Now, what this does is break down larger, unstructured data so you can get to the smaller details that’ll affect your organization in no small way.
With supplies divided into clearly defined segments, it’s easier to get the bigger picture of what needs to change and where to get the most out of your procurement operations.
Identify potential supply chain blockers and proactively eliminate or mitigate their impact
When you lump all your supplies into one big, all-inclusive bracket, it’s easy to assume everything is going according to plan. Generally in statistics, this is a bad idea since a few unusually good areas can produce so much upside to obscure the losses you’re incurring across other branches of your procurement operations.
Category management divides the supplies your organization depends on into homogeneous groups and helps you monitor them closely and resolve any ongoing or emerging issues before they become catastrophes.
Give specific vendors and categories the attention they require—in order of importance—to drive organizational goals
All supplies are not made equal. From office supplies to the core raw materials needed in the production process of whatever goods or services your organization renders, there are generally some supplies that contribute more to the success of your organization than others.
Take, for example, a host provider that helps businesses get their websites online. They may buy a few packs of stationery every few months, but placed side by side with the servers the company needs to run its core business, it’s 100% clear what is more important and what should be given the most attention.
Category management makes it easier to pinpoint essential supplies and take steps to secure your supply chain, source for alternatives proactively, and make sure that your organization’s needs come before the wants and nice-to-haves.
Improve the customer-supplier relationship
All win-win relationships last long, especially with suppliers who hold a stake in your organization’s continued welfare. Category management serves as an avenue for uncovering your organization’s core suppliers who’re critical to your operations and building even stronger relationships that’ll move them from the seller and into the partner bracket, unlocking a world of possibilities.
Category management helps improve the relationship between you and your suppliers from simply exchanging supplies and cash to being invested in each other’s success.
Cost savings opportunities via economics of scale
One of the most significant fields where category management features prominently is in the procurement budget.
Category management provides an easy way to look at different categories of supplies and even closer to the actual supply items themselves and get accurate figures on how much money and what portion of your procurement budget is being spent on them.
Knowing how much business your organization is bringing to your suppliers, you can leverage to demand volume discounts and tailored offers.
Improved vendor risk management
Vendor risk management deals with reducing your organization’s exposure to shortcomings coming from your suppliers’ ends. Or, in plain terms, cutting back on the chances of your organization being impacted by any unfortunate choices your suppliers may make.
For the record, wherever most of your procurement dollars go is often the most critical part of your procurement operations. As a result, by looking at the breakdown of procurement spending, you can easily identify some of the core areas of your procurement where you can’t afford any mistakes.
For example, if your procurement figures point out that 25% of your procurement dollars went towards purchasing machinery from a certain manufacturer, you can determine that this manufacturer is critical to your operations and that any disruption to their operations will cause yours to grind to a halt.
The fix? Create alternative supply channels you can fall back on and hold them to stringent requirements that’ll make them a net positive to your organization—should you need their supplies in the future.
The significance of modern tech in category management
There are two ways you could approach category management. Open a huge spreadsheet in Excel, document all your supplies, and start trying to fit them into brackets.
After you’re done, send them over to Doug, your Procurement Lead, to confirm the details there. After that, keep the ball rolling by sharing this file over email to make sure everyone gets their input in. For every correction that needs to be made, circulate this spreadsheet over email to get everyone to agree to it, slowing down your efforts at category management to a crawl.
After 3 months, that rickety spreadsheet is duly forgotten, to be remembered again during the Q4 procurement meeting where the CEO asks where the document went.
Here we go again…
The thing is, category management is a must-have if your organization will survive and thrive in the rapidly changing world of procurement. And outdated tools like spreadsheets are proving incapable of keeping up the pace.
On the other hand, tools like Kissflow Procurement Cloud will not only simplify your category management but will unlock your procurement with simple controls and powerful automation.
- Communication and collaboration to keep everyone on the same page, using chat, @mentions, and notifications
- Powerful workflows that eliminate the need to share spreadsheets over email endlessly
- Organization tools like Kanban and Gantt to get more visibility into your data
- A secure platform where your data can stay safe
- Streamlined vendor management to onboard, maintain and manage suppliers in an easy-to-use platform
- Actionable analytics that tells the story of the data in detailed terms
- Integrations with the rest of your tool stack
Kissflow Procurement Cloud offers an all-in-one procurement software for businesses of all sizes looking to get more clarity into what they need to win in their fields.
Learn more about how Kissflow can transform your procurement here.