Shopping Strategy: 10 Reasons Why You Should Use Category Management
Category management is a purchasing approach that is gaining ground in both the public and private sectors. In category management, products or services that have similar characteristics and are purchased from similar supply markets are grouped together and treated as a discrete group or category.
These categories are then more manageable from a procurement perspective because items in a category require the same vendor market intelligence, sourcing strategies, and vendor relationship management programs. Although these activities are not new, their application may require a change in the structures, roles and responsibilities of the current organization. Like any successful change, the benefits must be sold to the rest of the organization. Here are 10 reasons you can use to do this.
1. Link customer requirements with supply market capabilities. Once you know which top vendor capabilities meet your customers’ requirements, you can identify and work with those vendors that are “best in class” in that capability.
2. Allows the business requirement definition or specification to be developed so that it provides the best value. Defining your business requirements is a team game, identifying both user requirements and business expectations. A balance between the two is what offers the best value.
3. Ensures that the correct skills and experience are applied to the correct activity within the category management process. Category management creates the critical mass needed to have experts for each of the activities in this process rather than generalists who have to do a wide range of them.
4. Ensures that all relevant expenses are included in the category to maximize your leverage. Without category management, there is a danger that individual item purchases will be distributed throughout your organization in quantities too small to reap volume-related benefits.
5. It allows you to anticipate and plan for technological changes. By knowing how customer requirements may change (and what that means for the technology) and what your top vendors are planning, you can identify any gaps that may arise in the future between the technology needed and what is available. Do it as soon as possible and you can encourage your suppliers to do something about it. Identify vendor innovations early enough and you can help shape the offering to your customers.
6. Reduce risk. Creating categories and putting them under proper expert management allows you to spot any trends or developments that may create business risk and do something to prevent or mitigate them.
7. Develop adequate supply capacity for both today and tomorrow. This is similar to the reason for technology. If you can understand what capabilities are going to change in the next few years and what plans vendors have, you can influence both.
8. Help build good communications throughout the value chain. We must not forget that value chains are made up of people. Category management gives you the visibility and opportunity to communicate the right message in the right way to the right people to get the result you want.
9. Build trust and collaboration throughout the value chain. Trust comes from keeping your promises and not being unfair. Understanding your categories means you can set goals for everyone in the value chain that meet their needs, as well as your own, and are within your capacity.
10. Ensures many supply options are considered rather than just the obvious one. When someone is responsible for developing a business sourcing solution for a user need but doesn’t have the right expertise, it can be all too easy to jump to the first solution that comes to mind. The category management process ensures that options are taken into account.