Complete Guide to Category Management
How to utilize an effective category management strategy to simplify procurement and increase cost savings.
Introduction to Category Management
Between deciding which kind of strategies to implement that will make the biggest impact, forming and hiring a qualified team to carry out sourcing initiatives, and ultimately adding value beyond just cost savings, procurement professionals are inundated with many different ways to structure their procurement function.
This guide focuses on one particularly important piece of the puzzle: category management.
In This Guide:
Una’s Complete Guide to Category Management will highlight the importance of using an effective category management strategy to simplify the way you do business while increasing the cost savings procurement professionals seek every day.
We’ll discuss the elements of a successful category management process and hash out the differences between category management and strategic sourcing, along with ways the two concepts work together.
Finally, this guide will explain ways a group purchasing organization can help ensure the success of your category management efforts.
What is Category Management?
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.
This concept can easily be related to creating a household budget.
Typically, a budget is formulated by dividing your total monthly spend into different categories, analyzing how much you purchase within each of those segments, and seeing how it relates to the total amount of money available within that time frame.
When funds are tracked and managed appropriately, adjustments can be made where necessary to stay on budget. It allows for visibility so you can see where your money is going, when purchases are being made, and whether or not a specific category needs more attention.
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Benefits of Category Management
One of the main benefits of category management in procurement is spend visibility. Once your spend is divided into categories, it’s easy to decipher key pieces of information, like where your biggest areas of spend are, which expenditures must be paid, which costs can be reduced or avoided altogether, and where spending is perhaps out of control.
Visibility can lead to significant cost savings thanks to the category manager’s expertise when it comes to creating value from each dollar spent within their segment. Other benefits include the chance to develop custom strategies for each category of spend, prioritizing spend across the organization, and breaking each category into sub-categories to reveal more insights.
Category management also provides a way for procurement to effectively tackle maverick spend and tail spend within your organization, and if eventually applied to each category, helps improve procurement efficiency across the board.
The Category Management Process
An effective procurement strategy relies both on segmentation and consolidation. When it comes to category management, the process begins with a divide-and-conquer approach. Once categories are identified you can begin the process of consolidating spend within that category (or sub-categories) to achieve savings.
The typical category management process can be broken down into six basic steps:
Define Your Categories
Divide these into two separate types of spend – direct and indirect – in order to get a clear picture of where the money is going.
Understand the Market
Gather market intelligence for each category to understand the supplier landscape and trends happening within each category.
Use analytics to identify opportunities that add value.
Category management in procurement is an on-going task. Objectives need to be reviewed regularly and updated to stay relevant as to what’s happening within the business.
Category Management vs Strategic Sourcing
While category management is a procurement strategy that organizes spend into focused areas like HR, IT, and marketing, strategic sourcing is a procurement process aimed at selecting the right suppliers and negotiating the best pricing to meet business goals.
Other benefits of strategic sourcing include regular contract analysis and deep supplier audits to determine which suppliers best meet organizational needs. This can lead to stronger supplier relationships thanks to the additional attention that’s been placed on strategic selection.
Strategic sourcing can actually become an element of a category management strategy, with category managers looking to optimize spend within their category and provide value, and using a strategic sourcing process to identify vendors and select suppliers.
Both concepts put an emphasis on research and analysis and both can be considered part of supply chain management, aiming to reduce costs within the supply chain (strategic sourcing) and analyzing each step within the supply chain to increase efficiency and optimize spend (category management).
When both concepts work together, a laser focus is put on finding suppliers who offer value and allow the organization to either spend less or spend smarter, and gives way to a closer alignment of organizational values, shared objectives, and increased collaboration.
How Group Purchasing Organizations can Help with Category Management
Certain categories within a company’s indirect spend or anything that constitutes as tail speed are oftentimes left unmanaged by procurement. This could be for a myriad of reasons including lack of resources and insufficient visibility of spend, but there is still value to be found within these areas.
When it comes to getting a handle on these particular categories, outsourcing some procurement activities to a group purchasing organization is a viable option for most businesses.
Group Purchasing Organizations, or GPOs, leverage the collective buying power of their members to obtain volume discounts from suppliers.
Once you join a GPO, you’re able to take advantage of pre-negotiated contracts and receive discounted pricing on the goods and services needed to run your business, saving you money, time, and effort.
The Una Difference
A GPO like Una acts as an extension of your procurement team, helping you sort through and analyze your spend data in categories that are currently left unmanaged.
Popular categories that are outsourced to a GPO may include corporate travel, office supplies, shipping and packaging, logistics, and more. Enabling the help of a GPO allows you to consolidate your supply base and establish which vendors are the best fit for your business.
At Una, our team of Sourcing Advisors work with you to identify high-risk or high-cost areas within your indirect or nonstrategic spend supply base to establish which categories would most benefit from volume-driven initiatives and pre-negotiated supplier contracts.
With this additional category management expertise fully accounted for, your team will have the capacity to focus on other areas of strategic spend.
Una is a sourcing accelerator on a mission to increase organizations’ profitability quickly using our group purchasing platform. Our sourcing advisors and member experience team are passionate about helping procurement and business leaders save big.
When it comes to helping with indirect spend management, our team will approach each category the same way:
Our Sourcing Advisors will work to conduct a cost analysis one category at a time, comparing your current pricing to the value of our contracts.
Members can start buying on Una’s pricing right away and have full access to the supplier catalog.
Repeat the Process
Una’s seamless process allows us to facilitate savings across multiple categories quickly and efficiently.
GPO Membership Details
Not all group purchasing organizations operate in the same way when it comes to membership. Some charge membership fees or require a certain volume when purchasing so it’s important to understand all of the details before joining.
With Una, here’s what you can expect:
Free Membership - Always
At Una, our pricing structure is set up so membership is always free to join and free to use.
We use supplier administrative fees to finance our services, allowing us to make and keep membership free for members.
No Membership Exclusivities
Una does not require members to purchase from certain suppliers or commit to a specified purchase volume.
You are free to pick and choose the suppliers that will best suit your needs, remaining in control of your spend categories.
Speed to Service & Responsiveness
Una’s “keep it moving” mentality means our team delivers at a pace that sets us apart.
We have implemented tools to speed up the process and remove bottlenecks so our members can reach us when they need us.
Add Value to Your Category Management Strategy
We like to think of group purchasing as procurement’s best-kept secret. Being able to obtain savings on products and services you need to run your business is an incredible advantage. And while the cost savings are key, the value a GPO unlocks in terms of effort and time saved is just as important.
Outsourcing category management to a group purchasing organization not only helps achieve savings on indirect spend, but gives procurement professionals the ability to rely on additional resources to help reach their goals.
Una’s one-on-one advisory approach means we’ll define what success looks like together and take the time to understand your goals.
Schedule a consultation with one of our expert Sourcing Advisors to learn how to unlock cost savings and other benefits through indirect spend category management.