What Is Category Management, and Why Does It Matter?

Procurement, defined as the activities used to obtain goods and services, is an essential aspect of every business, and the most successful businesses start with excellently planned and well-structured procurement. Having a real-time spend and consumption analytics as part of planning ensures organisations do not miss out on decisive business opportunities.  

Careful planning of procurement activities create opportunities to make value-generating purchases, reduce risk, and save time and money. In recent years, many businesses have decided to utilise category management as a strategic approach to procurement that can help them direct their focus toward appropriate areas of interest, such as segmenting the spending on bought-in goods and services, i.e. arranging goods and services in discrete groups based on the functions of these goods and services.

What is Category Management in Procurement?

Category management in procurement helps businesses categorise a broad range of products, increasing their control over the supply chain while improving efficiency and eliminating unprofitable competition between brands and suppliers.

Category management differs from traditional procurement methods in that it encourages collaboration between various business units, enabling you to not only understand your business needs but also systematically optimise the procurement process to grow your organisation.

How Category Management Helps Your Business

1. Increases Cost-Efficiency

Category management eliminates costs associated with working capital and product purchasing. This strategic process leverages on experienced category managers to gain insight into services and products that will be valuable to an organisation, thus allowing it to attain the best prices from suppliers.

2. Centralises Spend Data

By consolidating a wide range of data into centralised analytics, category management plays a pivotal role in making holistic purchasing decisions. This centralisation provides businesses with complete end-to-end control of their purchases, making it easy to log, track, and report spending patterns.

3. Generates Long-Term Value for the Business

Many organisations find that category management brings them closer to their long-term goals. One of the key benefits of category management is a better understanding of the market, which helps businesses drastically improve procurement quality and savings. Complexities of procurement processes are managed by category managers to maximise the organisation’s return on inventory investment.

4. Gains Better Insight into the Market

Category management is a strategic procurement approach that takes a proactive, rather than a reactive, approach to sourcing goods and services, enabling businesses to gain insight into various factors that influence the costs of goods and services.

This strategy provides retailers with comprehensive information analysing their customers and the market, giving businesses a competitive advantage in gaining more sales in the long run.

5. Improves Partnerships with Key Vendors

Strong relationships with vendors are the cornerstone of successful procurement operations, and it all starts with gaining detailed knowledge about each vendor. Category management makes businesses aware of the risks associated with certain vendors, increasing collaboration with experienced suppliers and improving the overall business environment.

6. Streamlines Business/Procurement Strategy

Category management is a powerful strategy that can significantly optimise your procurement processes. It provides organisations with analytical metrics such as product quality and the number of products needed in order to create opportunities for innovation and growth. Each category of products and services is customised to meet the needs of both customers and the organisation.

7. Purchase to Pay (P2P) Process

It may be necessary to engage with multiple suppliers in a particular category. Once protocols for dealing with a supplier have been established, they can be replicated through category management in order to deal with suppliers of similar goods and services, increasing the efficiency of the purchasing process.

In a Nutshell

Businesses that adopt category management stand to significantly optimise their procurement operations. This powerful procurement strategy adds innovation, transparency, and value to the supply chain. With category management, an organisation can improve compliance with vendors, experience better cash flow management, and above all, increase its value and revenue generation in the marketplace. Category management also eliminates many risks associated with traditional procurement models and reduces cost redundancies. Given these extensive benefits, every business should integrate this strategy into their operations. For more information, feel free to get in touch with us.

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