Using Category Management to Increase Cost Savings
By Mackenzie Oakley | March 17, 2022
Category management is a strategic approach to procurement that involves organizing a company’s spend into related or similar groups so funds can be allocated appropriately and managed effectively.
If done right, category management can lead to increased cost savings for procurement teams in both strategic areas of spend, as well as categories that make up a company’s indirect or tail spend.
More often than not, however, the portion of indirect spend is left unmanaged by procurement for various reasons. Depending on the size of the company, this can still equate to hundreds of thousands, if not millions, of dollars funneling out the door without so much as a glance from the purchasing or finance departments.
The potential savings opportunities and value is leaving along with it.
Category management and indirect spend
It’s smart to implement category management tactics to your segments of indirect spend but we realize the resources may not always be available to do so.
Partnering with a group purchasing organization is an effective way to implement a category management strategy in otherwise unmanaged areas of spend. If you find yourself running out of ways to continually deliver cost savings or simply don’t have the resources to dedicate to every category, a GPO can help.
The dedicated staff of a group purchasing organization acts as an extension of your procurement team, giving you instant access to additional manpower, industry knowledge, and in some instances, category expertise, that you wouldn’t have had on your own. The GPO is also able to leverage its buying power to negotiate pricing, offering its members preferred contracts at lower costs.
Finding savings within the category management process
There is a step within a typical category management process that includes identifying opportunities. Too often this phase is forgotten as the focus is redirected to negotiations or scoring RFPs.
GPOs can help you find new savings opportunities thanks to spend analysis capabilities and giving you a full-picture view of what you’re currently spending and where, and how the pricing on the GPO contract compares. If pricing is favorable, connection to that contract can happen within weeks, drastically cutting down the amount of time it takes to realize savings compared to the normally lengthy and drawn out RFP process.
How working with a GPO can improve category management
- It’s an easy way to bundle your contract needs
- You’ll significantly increase your buying power
- The best GPOs offer free membership and give you access to deep discounts
- They also let you select suppliers à la carte and cancel any time
- Contracts are pre-negotiated
- You’ll improve cost containment and decrease indirect spend
Adding savings and value to category management
Taking advantage of the concept of group purchasing to add value and savings into your category management efforts is a good move for your business and it’s an option that is available now, in real time.
Outsourcing category management to a group purchasing organization will achieve savings on indirect spend, and give procurement professionals the ability to rely on additional resources to help reach their goals.
Need help implementing a category management strategy? Contact Una to learn more about our services and how we can help save money, time and effort when it comes to your indirect spend.