The Business Case for Category Management
FP are global leaders in category management and we often help procurement teams
to create a compelling and bespoke business case for category management optimisation.
Most procurement professionals are aware that category management has huge potential
to deliver value way beyond traditional sourcing approaches. However, the practices
that really make it work have remained elusive until now.
From our recent Category Management Leadership Report 2016-17, we have now identified
top 19 category management practices
of the value from best practice category management. Focusing on these practices
allows procurement teams to put improvement plans in place to accelerate category
So why improve category management?
Category management - remains a top 3 priority for more than 70% of procurement
However, only 5% of respondents report that they are doing it well. So, there is
considerable opportunity to deliver additional value from category management – for
both leaders and followers
Procurement Maturity - only 28% of Procurement teams are mature in category management
For many organisations the focus is still on RFPs and negotiation - engaging stakeholders
and working collaboratively with them to unlock the value available from each category
is a running theme in our report.
Top 19 Category Management Best Practices – account for 68% of CM value
From the survey results, the top 19 best practices accounted for 68% of category
management value which in turn equated to 15% of company financial performance. So,
the direct impact of category management on company performance should encourage
a serious focus on improving category management performance.
The opportunity for improvement in category management is confirmed by the fact
that, on average, these top practices are implemented by only 58% of leaders and
36% of followers.
Stakeholder Collaboration – Procurement need to increase collaboration with stakeholders
Leaders have made good progress in connecting category management to their organisation’s
broader strategic objectives.
In contrast, both leaders and followers fail to secure sufficient time from stakeholders
for category management. This restricts the ability of procurement to work with technical
stakeholders to identify and validate all available value improvement opportunities
for a category – resulting in missed opportunities.
In the few organisations where category management is optimised, it is often considered
a business, rather than functional, process and this reinforces the need for stakeholder
Savings Potential for Leaders and Followers:
The survey shows that leaders achieve higher savings rates than followers from their
category management projects - 11.1% compared to 7.7%. Yet, even leaders recognise
they are missing opportunities and leaving value on the table – a further potential
5.2% by their own estimates.
Leaders also have a higher proportion of their spend covered by category strategies
64%, compared with 34% for followers.
The survey results demonstrate that a third of leaders are achieving greater than
75% category strategy spend coverage and a
potential target of 80% is reasonable.
The diagram below shows the combined impact of savings rates and strategy spend
coverage for followers, leaders and the full potential. It also includes the total
savings achieved at each of the three levels per €1 million spend. Followers achieving
the potential will
boost their current savings performance by 400%,
compared with an 83% performance boost for leaders achieving the full potential.
Savings Potential for Leaders and Followers per €1m spend
Take a look at the additional value that can be achieved:
How can we help you to build your business case for Category Management Investment?
As global leaders in category management, FP uses latest benchmark data and best
practice analysis to help Procurement teams create a compelling and customised business
case for category management improvement. We aim to help CPO’s and heads of category
management who wish to create a business case and improvement plan for category management
that has a genuinely ambitious financial return on investment (ROI).
We can compare you against “category management leaders” and confirm the detailed
changes required to advance your category management performance to the next level.
We can profile your organisation’s category management performance against our recognised
top 19 best practices.
What would be included in the business case for Category Management
Explain the current position of Category Management in the business and why there
is a need to take action. This should have a clear scope of the issues to be addressed
and the limitations of the current approach.
Current Situation - Diagnostic (Build/Learn/Lead/Apply/Deliver)
Use the Build/Learn/Lead/Apply/Deliver model and the top 19 best practices checklist
to determine your self-assessment score against FP’s Category Management benchmark
criteria and compare your score to where you want to be.
3.1 Scope & Objectives
What is in and out of scope? What will be delivered?
3.2 Outline Approach
Define the new Category Management approach and how the objectives will be delivered?
3.3 Key Milestones
State the key dates when the project will deliver its objectives and where there
may be any conflict with other corporate initiatives.
3.4 Options Considered
Explain the alternatives that are available and why they have been rejected.
Describe the main customer benefits/value (internal and external) and explain how these benefits will be measured.
Describe the anticipated financial benefits that will be delivered by optimising category management.
Describe other non-quantifiable business benefits that may influence the investment decision.
3.6 Costs / Budget / Investment
Identify the costs (financial and non-financial) that will have to be incurred to
implement the recommended solution.
3.7 Major Risks and Dependencies
Describe the major risks relevant to the investment decision and the corresponding
actions that will be taken to mitigate them.
3.8 Assumption Made
Outline the assumptions (financial and non-financial) that have been made that,
if incorrect, affect the return on investment.
Barriers To and Key Enablers of a World Class Category Management Programme
Highlight the likely barriers to successful implementation of the solution e.g securing
buy-in from the BU’s
Identify the key enablers to delivering a successful solution e.g. obtaining senior
business executive support.
Summary of Proposal and Recommended Next Steps
Summarise the key factors supporting the business case and a clear explanation of
the next steps.
for more information on how FP can help you transform your category management performance.
Call Simon Brown on:
+44 (0) 7961 110529
Category Management for Procurement Professionals
The Business Case for Category Management
Implementing Category Management
Category Group Planning
Track8 Procurement Software
Global Category Management Leadership Report 2017