The Benefit Of Category Management And The Value Levers That Deliver It

Posted 24/09/2015

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:

  • Price-Attack 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.
  • Price-Down Value 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.
  • Cost-Down Value 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.
  • Cost-Out Value 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.
  • Revenue-Up Value 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.
  • Risk-Down Value 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 Category Management Leadership Report.

Tagged by topic: Category Management , Category Management Survey , Cost Reduction

  by Mark Webb

Previous post
Top 10 Epic Fails in Category Management
I am always struck by how easy it is for procurement professionals to…
Next post
Champagne Moments in Category Management
Focussing on the lessons Champagne can give us in areas of market and…
comments powered by Disqus