Learn how to source

Category Management (CM), a concept originating from the retail industry in the late 1980s, is a strategic approach to procurement that aims to increase business value by grouping together similar areas of external spend. This method allows organizations to identify opportunities for consolidation and added value. Initially designed for project-based sourcing, CM has evolved to encompass spend management, market intelligence, sustainability, and risk mitigation, focusing procurement efforts on leveraging agreements across different market segments.

CM differs from strategic sourcing in its systematic, holistic management of categories for the entire lifecycle of goods and services. While strategic sourcing focuses on developing a supply channel with the best supplier at the lowest Total Cost of Ownership, CM covers the entire procurement cycle, including managing supplier relationships and directing procurement activities. This comprehensive approach involves developing category plans that include targets, stakeholder requirements, opportunities, and prioritization. It requires a high level of specialization, especially for large or strategic categories.

Key benefits of CM include cost efficiency, improved quality, efficient resource use, better market understanding, streamlined business strategies, and enhanced collaboration. It is widely applied in businesses, government, and non-profit organizations, aligning business strategy with sourcing initiatives and supplier relationship management.

Success factors for implementing CM include a long-term investment perspective with early result delivery, focusing on realized value, establishing a new way of working, adding specialist roles, enabling cross-functionality, and creating an understanding of the change process. These factors are relevant for both private and public sector organizations, with the potential in the public sector being particularly significant due to the opportunity for more efficient procurement processes.

The process begins with categorizing spend using a spend analysis tool and assessing potential across categories. Organizations may seek external expertise for spend analysis to minimize impact on daily business and gain fresh perspectives. This analysis forms the foundation of category management and helps determine which categories to include in potential sourcing waves.

EFFSO, a company specializing in category management, offers services ranging from spend analysis to potential assessment, and structural analysis of procurement functions. Their approach includes training and coaching internal resources and providing resources to boost the procurement function for quick results.

To succeed in category management, turning data into insights through spend analysis is crucial but not sufficient. Effective category managers spend considerable time understanding stakeholder and end-user needs to support organizational goals. This involves active collaboration, networking, benchmarking, supplier relationship management, performance development, sustainability management, and effective communication. A category manager is a value-adding partner with extensive market knowledge and promotes deeper collaborative relationships between suppliers and internal stakeholders.