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Category management in procurement is an approach to managing any kind of spend by aligning business objectives with supplier capabilities. It aims to optimize an organization’s total ownership cost while still meeting custom needs. It is a systematic and collaborative approach that allows an organization to understand its spending patterns across all categories of products and services and analyze supplier performance, category dynamics and market trends.
What are Different Types of Category Management Strategies?
- Exclusive category management: This refers to when a retailer carries products from only one supplier in a given product category. It creates customer loyalty and increases market share for the retailer and the supplier.
- Selective category management: This type of category management in procurement is practiced when a retailer carries products from multiple suppliers in a given product category. This approach helps the buyer get more choices and helps them negotiate better prices with suppliers.
- Non-selective category management: This is practiced when a buyer purchases products from all suppliers in a given category. It provides customers with the widest possible choices but can be more expensive for the retailer.
- Private label: In this category, the retailer creates private label products and sells them under the retailer’s brand name. This helps the retailer create unique products that differentiate them from their competitors.
A combination of these category management strategies can be used to create a custom approach that meets their specific needs.
Key Elements of Category Management
- Planning: This is the first step in category management, which involves developing a clear understanding of the category’s strategic importance to the business. It is all about identifying the goals that the organization wants to achieve by managing the category and the specific strategies used for achieving the goals.
- Procurement: This process is responsible for sourcing and contracting suppliers who can provide the services and products required by the company. This includes working with suppliers to negotiate favorable contracts and ensuring that all sourced products meet quality standards.
- Performance: Once the contracts are in place, the performance of the suppliers is monitored in order to ensure that they are meeting the expectations of the company. This may include tracking their performance metrics like quality levels, on-time delivery, and pricing.
- Promotion: This is the final element of category management, which includes executing marketing plans designed to increase awareness and demand for products or services within a category. This may include activities like public relations, advertising and events.
Implementations for Successful Category Management
- Establish a category management team: Establishing a dedicated team responsible for managing the process is the first step to implementing category management. It should include representatives from all departments, such as sales, marketing, purchasing, and finance.
- Defining categories: Defining the categories is the next step in the category management process. This can be achieved by conducting a needs assessment or using market data.
- Developing strategies for each category: Strategies should be developed for each category once they have been defined. The categories should be aligned with the company’s overall objectives. Some common strategies include price optimization, segmentation, and SKU rationalization.
- Implementing the strategies: This usually involves working closely with suppliers in order to ensure that they provide the products or services needed. It may also involve making changes to how internal processes are conducted.
- Monitoring and adjusting as needed: Monitoring the results of the process and making adjustments as needed is the final step in implementing category management. It includes tracking margins, sales, and market share for each category and involves evaluating the effectiveness of the strategies used in making changes.
How to Adapt Category Management to Market Trends?
- Analyze data: Collect and analyze data from several sources and make it the foundation of category management. These sources may include loyalty programs, point-of-sale systems, customer surveys, market research and industry reports.
- Update strategy: The category management strategy should be updated based on the output of the analysis to meet the business and customer objectives. Make sure you define the vision, role, and goals of each category to identify the growth drivers, target segments, and value propositions.
- Learn from innovation: Category management is a continuous process of experimenting and learning. Make sure you use outcomes and actions to improve performance and customer satisfaction. Also, test multiple scenarios with profit margin, sales volume, customer loyalty and market share. Monitor this feedback and adapt from it.
Summing Up
Category management is a strategic process in procurement. For its successful implementation, it is critical that a dedicated team is established that is responsible for managing the process. This team will also be responsible for defining the categories and developing strategies that align with the organization’s overall objectives. Category management helps organizations improve their bottom line by ensuring that they are getting the right products at the right price.
