The Value of Category Management
Identifying and implementing value opportunities is the key outcome of Category
Management. This is what engages and motivates stakeholders and it raises a common
issue for Procurement teams –creating a shared “value” language for Category Management
that describes what has been achieved in terms relevant to stakeholders.
The framework in Figure 3 below shows six types of business value that Category
Management can deliver along with 15 high level value levers that can be systematically
applied to create this value:
reduces prices paid through the use of value levers such as demanding ad-hoc price
reductions and rebates, eliminating penalty payment etc. These are tactical and short-term
approaches that are only available to organisations with power.
reduces prices through value levers such as aligning prices across purchase points,
consolidating volumes across regions and categories and maximising competitive tension.
These levers are valuable, but are likely to be exhausted quickly.
reduces fundamental cost drivers and has a more significant impact on costs. Value
levers such as sharing forecast data, bundling requirements, standardising specifications
and reducing whole life costs can produce major cost benefits.
removes specific cost elements and is achieved by using value levers such as improving
production processes and the supply chain, reducing inventory and capital spend requirements.
These value levers produce step-change impact on costs.
is about using suppliers to impact organisation revenues. Value levers such as improving
product/service quality, reducing time-to-market and proprietary access to key technologies
are used. These value levers require close stakeholder working.
reduces the supply risk that the organisation is exposed to. Value levers used include
improvements to assurance of supply, conformance to specifications and substitution
options. Risk-down value has the greatest potential impact on performance.
You can read more about unlocking value by transforming the partnership between
procurement, business and suppliers in our 2014-15
Management Leadership Report.