The Category Management Process

Divide and conquer, or unite and grow? Does an effective procurement strategy rely on segmentation or consolidation?

The answer is both. Category management begins with a divide-and-conquer approach, but within your spend categories and sub-categories lie exciting opportunities for consolidation and savings.

For organizations that haven't yet implemented a formal category management process or are looking to get more out of the one they have,  this guide covers the six steps of a typical category management process, how to know when it's time to bring in additional support, and how a group purchasing organization can extend your reach into categories that don't get enough attention.

The Six Steps of the Category Management Process

Below, we explore the six steps in a typical category management process, along with some best-practice tips for procurement success.

1. Define Categories

Just like a household budget or a to-do list, organizational spend is very difficult to manage as a single unit. Splitting your spend into categories (and even sub categories) makes them easier to manage, analyze, and improve.

A helpful start is to put your categories under two headings: direct and indirect spend.

Direct spend categories refer to the goods or services your organization procures that are vital for the core operation of your business. If your business makes toothbrushes, direct spend includes plastic and rubber for the handles and nylon for the bristles. As direct spend usually involves a large chunk of total spend and is crucial for business continuity, it is typically managed directly by the central procurement team.

Indirect spend categories are usually decentralized as anyone in the business can do the buying. Indirect categories include anything necessary for the day-to-day running of an organization: staffing costs, energy, IT, office supplies, travel, shipping and logistics, facilities maintenance, and more.

Pro tip: Where possible, assign people with relevant backgrounds to complex categories. For example, assign a procurement professional with a computing degree to the IT category. This improves understanding of the ins and outs of the category and enables more productive conversations with stakeholders and suppliers.

2. Understand the Market

The next step is to gather market intelligence for each category. This involves understanding the supplier landscape (who the main suppliers are, where they're located, whether there are local options), the trends and long-term outlook for the category, average prices, and any factors such as seasonal demand.

Market intelligence can be gathered through online searches, news articles, company reports, Google alerts, and from your supplier ecosystem.

Pro tip: Market intelligence gathering can be outsourced to syndicated or custom intelligence providers.

3. Analyze Spend

Spend analytics is about identifying opportunities to add value. As with all analytics, start by making sure there is a single source of truth for company spend data like a central software platform or database.

Using spend analytics software, category managers can identify opportunities for consolidation, spot duplication, flag areas with high maverick spend, and identify risks.

Too often the spend analysis phase is cut short as focus shifts to negotiations or scoring RFPs. A GPO can help by providing a full-picture view of what you're currently spending and where and how your current pricing compares against pre-negotiated contract rates. If pricing is favorable, connection to that contract can happen within weeks, dramatically cutting down the time it takes to realize savings compared to a traditional RFP process.

Pro tip: Don't gather spend data for data's sake. Make sure all insights are actionable and support better business decisions.

4. Create Your Category Strategy

Now that you have defined your category, gathered market intelligence, and conducted spend analytics, it is time to create a category strategy.

• Define category objectives and milestones. 
• Make sure objectives can be tracked and measured through KPIs. 
• Ensure every objective is linked to your overall business strategy.

Pro tip: Create a strategy that is flexible and adaptable to changing business conditions.

5. Implement Improvements

While all previous steps involved planning and intelligence-gathering, step five is finally about applying the learnings you've gained to make improvements and add value. Depending on what you've uncovered through spend analytics and market intelligence, this could involve:

• Building better relationships through Supplier Relationship Management (SRM) and stakeholder management.  
• Educating/engaging with maverick spenders.
• Changing or consolidating suppliers. 
• Negotiating better deals with existing suppliers. 
• Build digital capability in your category.
• Connecting indirect categories to pre-negotiated GPO contracts to unlock immediate savings without a sourcing event

 Pro tip: Expand your definition of value beyond cost to include factors such as risk reduction, brand-building, sustainability, and social benefits.

6. Review

Category management is not a set-and-forget exercise. Objectives should be regularly reviewed to ensure your strategy stays relevant against a background of ever-changing business priorities. Category strategies will also need to flex in response to disruptive forces such as new technology or materials shortages.

Collect feedback and drive continuous improvement by surveying your category’s key stakeholders and suppliers.

Pro tip: Use a voice-of-the-supplier survey to uncover opportunities to work better with critical suppliers in your category.

The spend analysis phase is too often cut short as focus shifts to negotiations. This is where the most overlooked savings live.

Five Signs It's Time to Manage Categories With Group Purchasing

Through experience with hundreds of member organizations, Una has learned to recognize several signs that indicate it's a good time to explore GPO-assisted category management. Here are the top five:

1. You've Picked All the Low-Hanging Fruit in Procurement

You're running out of ways to keep driving cost savings and don't want to squeeze your suppliers for every last cent. Group purchasing offers an additional strategy that can unlock average savings of 22% through the power of collective buying — in categories you're already purchasing.

2. You Run a One-Person or Very Small Procurement Team

You simply don't have the resources to drive value across every category. A GPO can act as an extension of your procurement team, working within your existing strategy to cover the categories that don't get enough dedicated attention.

3. You're Getting Frustrated With Lengthy RFP Processes

A group purchasing organization like Una has pre-negotiated contracts and established supplier relationships ready to go. All you have to do is pick your suppliers and start saving — no RFP required.

4. You Know There Are Savings in the Spend Tail But Don't Know Where to Start

Outsourcing tail spend management to a GPO can identify and unlock immediate savings in categories that would otherwise remain unmanaged indefinitely.

5. You Don't Have the Volume Needed to Drive Deep Discounts

Small and medium-sized businesses can join a GPO to supercharge their buying power and access savings that are usually only available to the very largest companies — without needing to grow their own purchase volume to qualify.

A GPO doesn't replace your category management strategy — it extends your reach into the categories that would otherwise stay unmanaged.

Choosing the Categories Most Suitable for Group Purchasing

Horizontal GPOs like Una offer supplier catalogs with thousands of pre-negotiated contracts across key indirect categories like corporate services, office supplies, shipping and logistics, facilities maintenance, food service, IT, uniforms, and more.

What makes these categories most suitable for group purchasing? Being indirect, they're common across thousands of businesses. Banding together under the umbrella of a GPO offers strength in numbers, boosts buying power, and provides access to discounts that wouldn't be available through independent negotiation. Most procurement teams prefer to keep direct and strategic categories under their centralized team's immediate control and a good GPO respects that entirely.

Procurement teams may choose to outsource the management of one category, several categories, or all their indirect categories to a GPO. There are no minimums and no requirements — it's completely up to you.

For a full breakdown of the category management framework and how to build a category strategy that delivers consistent results, see: The Complete Guide to Category Management.

Getting Started With GPO-Boosted Category Management

It begins with a conversation. At Una, the first step is a 30-minute discovery call with one of our Senior Sourcing Advisors where both parties discuss goals, problems to solve, and what success looks like. Knowing your goals helps set the timeline and identify the categories with the most immediate opportunity.

The next step is a cost analysis that entails gathering your historical spend data category by category and benchmarking it against Una's contract portfolio. We usually start with common categories such as office supplies, packaging, or MRO. Where Una has contracts that will yield additional cost savings, we can connect you to suppliers within days or weeks.

After initial savings are unlocked, Una works with members to continue analyzing spend, understand which contracts are being utilized, and identify additional savings opportunities across the category portfolio so no money is left on the table.

Ready to get more out of your indirect spend categories? Contact our team of Sourcing Advisors to get started. Membership is always free.