3 Practices for Better Category Management

Mature category management can lead to improved negotiation capabilities because it provides greater visibility into spend across suppliers.

Pexels Brainstorming

Category management involves strategically developing, assessing and monitoring procurement and supplier performance in specific supplier categories. In leading organizations, teams responsible for supplier management collect market intelligence, develop sourcing strategies and plan supplier relationship management programs for each category. These teams then create strategic road maps to outline strategies and initiatives that address both short- and long-term challenges. Strategic road maps tie back to business goals to ensure that procurement is aligned and delivering what the organization needs.

A mature category management program enables organizations to better manage supplier relationships, ensure alignment with organizational needs and execute more efficient procurement. There are at least three practices that organizations should carry out to ensure that they achieve these benefits:

1.      Leverage a consistent process for documenting category plans,

2.       Make plans easily accessible to all stakeholders across all categories, and

3.       Frequently review category management plans, especially as market conditions or business strategies change.

These practices enable senior stakeholders in leading organizations to review these reports or plans on a regular basis, use them to guide decisions about resource allocation and modify them in response to changes in the market or business strategy.

APQC research finds that one-third of organizations carry out these practices to a very great extent, while another 58% do so to a moderate extent.

 Apqc Category ManagementAPQC

The benefits of a mature approach to category management come into sharper focus when comparing organizations that carry out these practices to a great extent with those who do so little or no extent.

»        Organizations that follow all three of these practices are more efficient. For example, they use fewer full-time equivalent employees (FTEs) to develop sourcing strategies because those plans are already in place, visible and consistently reviewed.

»        These organizations have lower costs to manage suppliers, spending $18.99 per $1,000 purchases compared to $29.96 for those with less mature category management.  

»        These organizations also tend to have a greater number of staff members with formal training in negotiations (64% vs. 50%).

Mature category management can also lead to improved negotiation capabilities because it provides greater visibility into spend across suppliers, deeper insight into customer and supply market drivers that affect each category and a better understanding of who the top suppliers are in each region. In addition to providing strategic value, there is a real payoff for organizations when they extensively use supplier and category management plans to support negotiations. APQC research has found that organizations that leverage category management plans extensively in their negotiations have significantly lower procurement costs than organizations that do so little or no extent. 

Technology is undeniably a driver of better performance in category management. When compiling internal and external data points, many organizations are now leveraging automated data aggregation and predictive analytics as they set categories and look for optimization opportunities. Some leading organizations have also automated daily reviews of all categories, which enables greater visibility while freeing teams up for more strategic thinking and planning.

While these technologies add an additional layer of sophistication and efficiency to category management, they will only be effective if the organization builds them on a strong process management foundation. The three practices outlined here not only drive better visibility and strategic thinking for category management, but also greater efficiency and lower costs in procurement more broadly.