TL;DR

  • Category management is the practice of organizing all organizational spend into defined groups; if you've ever created a personal budget, you've performed the basic version of category management
  • Direct spend covers your largest, most business-critical expenses and warrants the most procurement attention; indirect spend covers operational costs that are frequently overlooked despite representing significant savings potential
  • The five steps of category management mirror personal budgeting: choose categories, identify direct spend issues, identify indirect spend issues, analyze contracts and terms, and resolve spending issues
  • Indirect spend is often ignored because it feels too small to prioritize but optimizing these categories through a GPO can unlock hundreds of thousands of dollars in savings that would otherwise go unmanaged
  • Category management is an ongoing process; as an organization grows, new contracts are introduced and old habits resurface, requiring a category manager to stay involved at every stage

Category management is the organization of spend into categories so funds can be allocated properly and managed effectively.

If you’ve ever created a budget, you’ve essentially performed basic category management. By breaking your total monthly spending into categories, you can take a closer look at how much money you spend compared to how much money you make each month. Once you calculate the difference, you’ll know whether you’re living within your means, have extra funds to put into savings, or end up with a deficit.

Free Download: Complete Guide to Category Management

Resolve Spending Issues

As category managers uncover issues such as overpayment, unplanned spend, or maverick spending, they must resolve them in order to meet category goals. This can be uncomfortable as change isn’t always easy, but the results will be worth the effort.

One common issue that can occur in a large organization is duplicitous contracts that can be consolidated into a single contract to save money with a volume discount. For example, multiple individuals may have a single software license rather than a group contract with many licenses at a volume discount. Consolidation can account for significant savings. This is an area that a group purchasing organization can step in with volume discounts through pre-negotiated contracts.

In our budget example, a spending issue to resolve could be deciding to cancel subscriptions or memberships you aren’t using, such as a gym membership. It may feel counterintuitive to cancel it when your goal is to become more fit, but it can also spur positive changes such as joining a running meetup and making some new friends.

The outcomes of the issue resolution process are the best part of category management.

Ongoing Category Management

Once an organization has completed these steps, the job isn’t over. Category management is an ongoing process. As an organization grows, new needs arise and new contracts are introduced. A category manager needs to be involved every step of the way to ensure old habits aren’t reproduced and goals continue to be met.

The same goes for a personal budget. As you start to see extra funds in your bank account after performing your own spend analysis and optimization, it’s important to stay disciplined and keep the savings to use toward your larger goal.

Una specializes in category management for organizations that may not have the time or the staffing resources to dedicate to this level of effort. Call today for a free spend analysis and learn how Una can help optimize your categories.

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