Category management is much more than strategic sourcing
By Simon Brown |
Category management is the strategic end-to-end process for managing categories of related supplier spend that aligns business goals and requirements with supply market capability. It transforms the long-term value achieved from an organisation’s total supplier spend and delivers a blend of value including improved service, reduced risk, lower cost, higher revenue and ultimately better organisational performance.
Effective internal cross-functional working is the foundation of successful category management. Joint teams of technical and commercial experts work together collaboratively to create insightful category strategies that use facts and data to create a compelling case for change. Areas to consider would include current performance issues, current and future business requirements, current and future spend, cost structures, suppliers, supply markets, supply chains, technology roadmaps etc
All value levers are systematically reviewed to generate maximum number of improvement opportunities – covering operational performance, sustainability, innovation, through-life costs and risk. Value is usually secured via three implementation routes – internal business change, supplier management and sourcing.
In contrast, strategic sourcing is the process used by Procurement teams to source products and services for the business. It creates cost efficiencies across spend categories and minimises supply risks through improved supplier selection.
Commercial teams take the lead and have intermittent touch-points with business stakeholders. Data gathering focuses on spend analysis and supply market research. Implementation focuses on applying competitive tension through RFPs, negotiation, and contracting. Category scope tends to be narrower, with fragmented activities still taking place in the same category as organisation but not necessarily aligned or coordinated.
Value delivery is achieved primarily through reducing supplier prices and margins, rather than driving out total system costs. It can result in stakeholder needs being overlooked and suppliers withholding innovation. It addresses the known current and future needs but will not always provide a new solution to the category requirements.
Strategic sourcing focuses on the technical aspects of supplier qualification and selection whereas category management takes a much broader view of the category profile, where it fits into the wider business model and how best to fulfil those requirements from both an internal and external perspective. The category strategy outlines how to optimize the value from the category using all available value levers whereas sourcing looks to secure value solely from competition amongst suppliers.
Strategic sourcing is usually undertaken as part of step 4 of the category management process. There is often a “go to market” sourcing strategy that outlines the best approach to the supply market and value is secured by only one implementation route – competitive sourcing.
In summary, category management takes a broader view of the category and finds new ways to manage the category from both an internal and external perspective. Whereas strategic sourcing may often source the category in the same way but maybe from different suppliers.
About Simon Brown
30 years procurement experience in line management and
Previous employment: British Aerospace, British Airways, QP Group
Education: MBA, London Business School. BA (Hons) Business Studies.