Introduction to Category Management

An organisation may spend a substantial part of its budget to fund the acquisition of supplies, IT services, equipment and transport. Accordingly, appropriately skilled staff and suitable operating systems should be used to ensure the organisation may obtain value for money through the procurement system.

One such system is category management which helps procurement entities to buy products more effectively and is likely to result in cost savings and other potential benefits. This system enables an organisation to direct its resources into specific areas of expenditure and deliver improved benefits.

By reviewing the variety of products and supplies procured across the organisation, it is possible to divide them into different categories of similar items. By aggregating these items into groups, it will strengthen the bargaining power or leverage of the procuring entity in the supplies market.

Category management is frequently viewed at executive level as a strategic procurement tool that seeks to manage suppliers more effectively by combining the following:

• organising resources to focus on the most significant areas of expenditure;
• linking the organisational strategy to sourcing initiatives;
• delivery of significantly greater results than conventional, transactional-based procurement;
• combining conventional sourcing approaches and strategic sourcing to deliver overall results for a specific category of supplies;

A key specialist in category management is often described as a category manager and will take charge of a specific type of commodity or service.  They will handle the tender procedure(s) for the selected category(ies) and manage implementation of any resulting contract(s).

With sufficient skills to review the current supply market and assess potential suppliers, these specialists will be able to work with cross-functional teams and stakeholders to deliver value to the organisation.

Successful category management can replace a plethora of existing contracts with a limited number of category agreements that provide benefits in terms of prices, payment terms, delivery schedules and the opportunity to introduce innovation in the specific categories.