Applying both strategic sourcing and category management results in an optimized procurement strategy. Using each concept - and in the right way - ensures you're taking a holistic approach to sourcing.
Define each concept through a purchasing lens as a first step. Procurement will soon begin to understand how the concepts are similar, detect differences, and determine how they work together.
What is strategic sourcing
Strategic sourcing is a procurement process. Businesses use it to select the right suppliers and negotiate the best pricing to meet business goals. The primary objective of strategic sourcing is cost reduction and focusing on spend optimization throughout the supply chain.
The steps to implement strategic sourcing are fairly universal but can be customized:
- Evaluate sourcing needs
- Analyze current spend
- Perform market research to identify potential suppliers
- RFP process and supplier selection
- Contract negotiation
- Evaluation and optimization
Benefits of strategic sourcing
In addition to cost reduction, another benefit of strategic sourcing relates to supplier audits. Taking a deeper look helps determine which suppliers best meet the company's needs. This type of strategic selection can also help strengthen supplier relationships.
Strategic sourcing also allows for regular contract analysis. Revisiting the RFP process often ensures the contracts in place have the most competitive and lowest pricing.
Frequent audits allows you to stay aware of the latest supplier advancements and new suppliers coming to market. Without strategic sourcing, any contracts that automatically renew often have an "out-of-sight, out-of-mind effect." This means your organization might be missing out on opportunities for innovation.
Una's playbook, How to Implement a Strategic Sourcing Process, details the concept further:
Both strategic sourcing and category management should be utilized to ensure you have a cohesive sourcing strategy working in your favor.
What is category management
Category management is an important procurement strategy that helps procurement professionals better understand spend and how to optimize it. This lets organizations analyze spend data and identify the best opportunities to save money, improve quality, and increase efficiency.
Common spend categories include organizational departments (think HR, IT, and Marketing) or functional themes such as facilities maintenance, technology, travel, food, and office supplies.
Once the organization identifies the categories, they can create a tailored strategy to meet their objectives. An analysis of current spend, pricing, and supplier performance will determine the best way to optimize the category.
The category management process is highly fluid and often simplified to expedite results, but generally follow this framework:
- Analyze current spend to identify categories
- Define business objectives and KPIs for each category
- Develop a master strategy to achieve each category’s goals
- Break the strategy down into specific tactics and phases
- Launch and implement strategy
- Evaluate and optimize.
Benefits of category management
Category management immediately segments corporate procurement resulting in a laser focus on individual spending types rather than corporate spending as a whole. The long-term effect of this segmented focus is a greater impact on overall spend optimization.
The breaking down of procurement silos through the assignment of dedicated category managers is another major benefit. Category management is a group effort and more minds at work means more ideas and solutions.
Additionally, category management results in the development of improved processes to produce faster results. Without addressing it, companies often broadly overlook specific areas like tail spend or maverick spend. Examining individual categories in their entirety with a narrower lens allows us to uncover all stones. As Deloitte states, "Consider category management as a primary pillar in a broad operating cost reduction strategy."
For a detailed look, download a copy of Una's Complete Guide to Category Management:
Utilizing category management and strategic sourcing within your direct procurement strategy is usually a given. Are you putting the same amount of thought and consideration into your indirect spend?
The difference between strategic sourcing and category management
Category management is considered a strategy and strategic sourcing is considered a process. Strategic sourcing can actually become an element of a category management strategy. Category managers looking to optimize spend can implement a strategic sourcing process during the vendor and supplier selection phase.
Another difference is the area of focus. Strategic sourcing focuses on spending less within supply channels. Category management focuses on value and goal-based objectives that may include buying less or buying smarter.
The differences also appear in the results of these concepts. Implementing a strategic sourcing process leads to overall spend optimization; category management leads to overall supplier optimization.
Similarities between strategic sourcing and category management
An important similarity of both category management and strategic sourcing is the emphasis on research and analysis. Both processes start and end with an evaluation stage. As a first step, consider the current state of spend. Then, analyze your results after implementing the strategies and processes.
Category management and strategic sourcing can also both apply to supply chain management. Strategic sourcing aims to reduce costs within the supply chain. Category management analyzes each step of the supply chain to increase efficiency. In turn, this optimizes supplier and product selection.
Lastly, there is a similar indirect benefit of category management and strategic sourcing when these tow concepts work together. Focusing on working with suppliers who offer this kind of value causes a ripple effect. The result will be a closer alignment of organizational values, shared objectives, and increased collaboration across the board.
How to bring the two concepts together
Utilizing category management and strategic sourcing within your direct procurement strategy is usually a given. Are you putting the same amount of thought and consideration into your indirect spend? For most companies, the answer is probably no thanks in part to limited resources like time and manpower.
Partnering with a group purchasing organization is an effective way to bring these two concepts together. Your GPO will help focus on these unmanaged areas of spend and facilitate indirect spend best practices. Working with a GPO also means connecting with top-tier suppliers who deliver value and cost savings.
Outsourcing category management to a GPO reduces indirect spend. It also allows procurement to rely on additional resources to help reach their goals.
As for strategic sourcing, GPOs facilitate strong relationships with suppliers and identify potential improvements within the supply chain. Additionally, GPOs have an increased understanding of supplier markets. A GPO partner can help identify potential supply chain risk factors and develop plans to help mitigate them.
Many consider the GPO an expert at contract negotiations, supplier selection, and performance management. A true GPO partner works to maximize the value of your indirect spend.
The GPO's collective buying power gives organizations access to competitive pricing and improved terms and conditions with suppliers. They're an invaluable partner for organizations looking to reduce indirect spend and maximize the value of their procurement processes.
The Una Difference
Una’s mission is to empower procurement leaders to optimize your procurement strategy. Our goal is to provide a path that leads to increased cost savings, reduced risk, and better overall spend management.
This includes helping you implement strategic sourcing and category management best practices.
Businesses of all shapes and sizes can thrive by adopting a strategic sourcing framework tailored to fit their needs. Outsourcing some procurement activities to a group purchasing organization is a viable option for most companies. A flexible Una membership means you can use our resources as you see fit.
Remember, GPOs alone don’t provide a comprehensive procurement strategy. It's important to take a holistic approach and work in a GPO where it makes sense. Our team can help work through that process during a discovery call.
Una has several resources to help you with strategic sourcing and category management. You can use them in your procurement plan:
Complete Guide to Category Management
This guide details how to utilize an effective category management strategy to simplify procurement and increase cost savings.
How to Implement a Strategic Sourcing Playbook
This playbook serves as a manual for implementing a strategic sourcing process. It shows ways to create a process that aligns with business goals, optimize spend and create long-term value.
Una membership is zero cost and free of contract obligations or purchasing requirements. Our onboarding process is simple and streamlined which means savings happen quickly.
Schedule a consultation with one of our expert Sourcing Advisors today.
