A simplified guide to making the most of “CatMan”
Many people will say that procurement comes down to just three principles: pay less, buy cheaper, buy less. It sounds simple doesn’t it, almost too simple. In this Industry Trends article, we will focus on what category management (done well) can deliver to your organisation, and how to help make it happen. The goal being to extract greater value from your business strategies and processes. But let’s start with a simple question. What is category management?
Category management is the engine that drives us toward optimal procurement protocols; or as one AI driven search engines tells us, it’s:
“A strategic approach to procurement and supply chain management that involves understanding consumer behaviour and collaborating with supplies to optimise the performance of product categories.”
It’s clear then, that category management, when done well, is far more than merely grouping expenditure line to claw back costs. Settling for simple cost reduction is category management in name only. And this will only serve to win your company some minor P&L skirmishes, rather than winning the war for sustained far-reaching benefits to the wider business.
Again, the goal is to extract value over the long term and that is what needs to be baked into the category management strategy, among other things.
The other things that make up a sustainable category management strategy
Not to rely too heavily on standard dictionaries but purchasers, by definition, are those that purchase goods and services. What is needed demanded to bring a category management strategy to life is a certain amount of:
- Long-range vision – the ability to see beyond the commercial mountains and around fiscal corners, an aerial view that no longer sees the traditional procurement steps as a set in stone imperative. This strategy requires decision makers to abandon the default procurement formula (needs analysis+ funding approval+ project procurement plan+ service provider selection+ contract management+ procurement evaluation = compliant contract) because while certainly safe, our industry is increasingly complex and nuanced. It’s no longer wise to pin every cost reduction hope to this traditional process – especially for every individual purchase.
- Entrepreneurial spirit – related to the previous point, the recommendation here is to allow key personnel to own their business unit/area of responsibility. Yes, this means looking beyond the bounds of a single contract and thinking strategically about:
- Creating, maintaining and growing value
- gaining a competitive advantage wherever that may be
- maintaining a laser focus on long term success
- optimising SOP’s to establish and enhance cost control
- maximising supplier/partner performance
- Rethinking established perspectives – instead of focusing on driving costs down, explore ways to drive up the value of re tooled, optimised processes. Also explore the notion of capability versus capacity. Yes, your organisation may have the capability of securing X number of compliant contracts but is it capable of retooling a process that may exponentially increase value for all parties concerned?
To successfully execute an optimised category management strategy, these elements must be woven into the very fabric of the business. Because there are elements of a cultural shift involved, this won’t be easy as there are some traps and pitfalls.
Avoiding the traps and pitfalls of “traditional and tested category management”
There are three main traps and pitfalls to avoid here. They look simple but embedding processes to sidestep comfortable and familiar thinking is always a challenge, at least initially.
- Avoid relying exclusively on the tried and tested tender process. This is a hamster wheel that will keep you working harder than ever without getting anywhere near your aspirational goals.
- This is not a volume exercise it’s a value exercise. Don’t fall into the trap of simply aggregating volume from multiple sources and tricking yourself into seeing streamlined processes. Yes, streamlined is good, but optimised for value is best.
- Avoid the trap of sliding back into focusing on products and contracts only – focus on long term, sustained value – think strategically.
Some concluding thoughts and next steps towards category management success
Most sources agree that there is a five and sometimes 7-step process that will set you on the track to category management success. It’s quite simple but it does require an investment in time and the cultural willingness to go after the big prize which is sustainable value growth.
- Start by defining your key categories – a closer look will reveal areas for improvements and opportunities to identify and group categories. This is the benefit of mapping your spend.
- Every category is going to be different, some in broad and obvious ways, some differences will be more nuanced. Take the time to examine them closely.
- Make full use of your organisation’s collective acumen. Opportunities are overlooked and lost when an organisation relies too heavily on limited sources of experience and exposure to on-the-ground factors.
- Focusing on supplier management is something that most in our business sector do well however, there is an opportunity to re-examine this area through the lens of achieving long term value. This lies at the very heart of strategy implementation.
- As we’ve often mentioned in industry trend articles, change is the only constant therefore it is imperative to long term category management success that monitoring and improving processes is baked into the culture of your organisation.
To further support point 5, please remember that category management is not a point a to point B, straight-line proposition. When done well, the strategic implementation follows the logic and demands of process improvement, and not by simply playing the short term, cost/price cutting stock market game. Instead, invest in the future by investing in long term category management strategies that work for you.
