Here’s How Category Management Solutions Can Improve Procurement In Your Company
The procurement process can get pretty messy, especially as your organization grows. If your company has a lot of orders going through the procurement department its very easy for things to get disorganized. One way to help combat this problem and take back control of the procurement process is through category management.
Category management solutions help break down procurement into more manageable sections. It can also give you increased control over the whole process. This often helps your company save money and procure better quality goods.
Adopting category management in procurement can be useful in all types of companies. No matter what types of goods you’re purchasing, category management lets you tap into more opportunities to turn the procurement process into a valuable asset. Keep reading to learn more about category management and get answers to your questions about how it can improve procurement.
What Is Category Management?
Originally, category management referred to grouping products into categories based on how they’re used to make marketing them easier. Today, we still use the term to refer to a process for grouping items but it’s not just about marketing.
In the context of procurement, category management is used to improve efficiency in supply chains. Category management organizes procurement so you can focus on specific areas of spend group-by-group. It lets category managers conduct market and pricing analysis that are specific to each item category. Leveraging this detailed, specific information when making procurement decisions can give purchasers better ROI than you get with traditional purchasing models.
Why Bother with Category Management?
Category management is becoming a popular part of procurement. Some even see it as essential. In the book Supply Chain Management Process Standards, The Council of Supply Chain Management Professionals and APQC suggested that category management should be seen as a minimum process standard in procurement.
Category management is about more than just sorting what your company purchases into groups. It involves taking a strategic approach to developing, assessing, and monitoring procurement in specific supplier categories. Since each category requires individualized market intelligence, sourcing strategies, and supplier management, breaking procurement into categories makes things more manageable. It also makes it easier to monitor seller performance and to develop a two-way relationship with suppliers. Getting this sort of deeper insight into your suppliers also helps with assessing and managing supply chain risk.
How Do You Manage Categories?
Categories are managed by a category manager, who plays a specialized role within procurement. In large organizations, you might have several product managers or even management teams working in different categories. Here’s a sample of what the category management process can look like:
- Define – Group similar types of items you need to procure together. Examining spend trends, business goals, forecasting demands, and stakeholder analysis can help with this.
- Analyze – In this step, it’s time to look at data across your market. Examine trend analysis, procurement market analysis, and cost structure analysis related to each category.
- Evaluate – Here’s where you evaluate potential suppliers and define key performance indicators you’ll use to measure supplier performance. You’ll also evaluate risks in your category’s supply chain.
- Plan – Make a plan for your procurement activities, evaluate time required, and document your proposed strategy. If necessary, put together a team to handle category-specific procurement.
- Implement – Put your plan into motion and continue monitoring sourcing activity progress. Evaluate current category management practices against success measures and savings initiatives in your department.
Where Does Category Management Help?
Studies show that category management within procurement speeds up the whole purchasing processing. According to APQC’s Open Standards Benchmarking in procurement, organizations using category management have “have a median supplier lead time of only six days compared to 14 days for those organizations that have not initiated category management programs.”
Implementing category management also gives you several benefits that come from consolidating and centralizing spend. It’s easier to track, log, and report spend data. You’ll also have the data you need to make more strategic spending decisions and long-term plans.
Category management also makes it easier to get an in-depth understanding of each vendor. That can improve your relationships with suppliers. It also helps you identify any operational risks associated with a supplier.
Another advantage is that you can leverage the expertise of category manages more effectively. For example, putting someone with IT experience in charge of managing the IT hardware and software category means tech purchasing decisions are made by someone who knows what they’re doing.
How Can Do You Implement Category Management?
Category management is a fantastic tool to use in your procurement system. It is not, however, a way to fix all the problems that might come up in a procurement department. If your company is dealing with any of the 10 most costly procurement mistakes (click here to read about how to avoid them), you’ll need to address those issues. It’s a good idea to get things running as efficiently as possible in the procurement department before implementing category management.
One of the best ways to create a purchasing system that really works for your company is through business process automation software. A really good BPA system can help you define and solve procurement problems. It also gives you the foundation that you need to successfully implement category management.
Using category management to improve procurement works a lot better if you already have a strong procurement system in place. NextProcess’ Purchase Order Module can increase the accuracy of your procurement, provide better oversight into spend, and make the entire process more user-friendly. Plus, you can configure our flexible system to fit your company’s exact needs. To learn more, contact us today. We can answer any questions you have and schedule a free demo.