As procurement continues to evolve from a tactical to a strategic enterprise function, CPOs and other senior procurement leaders are being evaluated on their team’s strategic contributions to the success of the business. Cost control and take-out remain as prime objectives, but procurement’s mission is increasingly seen as impacting both the top and bottom lines, with a direct connection to enterprise growth and competitiveness. How can you start meeting these intensified expectations — delivering impressive savings, yes, but also creating value that indicates progress toward organizational maturity?
Smaller businesses tend to use an informal procurement process and that works well until the business reaches the mid-size level. As spending increases, so does the ability to leverage that spending power. It means changing the procurement process to get better insight into spending. Ultimately, it means using a category management structure. The right time to switch to a category management approach depends heavily on the industry you’re in and the revenue you’re generating. The general advice is that it’s the best approach when you’re earning somewhere in the neighborhood of $200 million and $1 billion in annual revenue.
WHAT IS CATEGORY MANAGEMENT?
Category management is a method of procurement that allows companies to save money by buying their goods and materials more effectively. By understanding your customer’s needs, you can bundle items into categories. Essentially, each category is a group of similar items you can buy under a single deal. By looking at items purchased across the company as a whole, then consolidating the agreements into a single contract and price, you’re able to maximize savings while also simplifying supply and demand.
CATEGORY MANAGEMENT SERVICES
Our category management services deliver higher savings, improve supplier performance, mitigate risks, and drive innovation. MG is home to some of the talented and successful procurement experts. Our category management consultants are commodities and materials specialists, focused on the specific requirements and challenges of diverse global markets.
OUR APPROACH TO CATEGORY MANAGEMENT
Changing business needs, compliance gaps and below-par supplier performance can all erode identified savings. Proactive management is integral to ensure that suppliers and contracts deliver real savings and value. That’s our approach to category management. It gets you:
- Real-time market intelligence on suppliers and commodities
- Best-practice category and industry methodologies
- Precise category planning, encompassing forecasting and budgeting
- Supplier performance tracking
- Improved compliance
- Proactive contract reviews and renewals
- Decreased off-contract (maverick) purchasing and greater spend under management
- Live savings measurement and tracking – identified vs. realized
- Constant annual cost reductions
Before anything else, we conduct a deep dive into your data to determine how much you’re spending and where. This helps us figure out the areas where you have the most leverage. This can be a complex undertaking if you’re running any kind of ad hoc transactional program. If you’re using multiple ERPs, we need to spend time getting to normalize all the data first.
When we have a clear understanding of how much you’re spending and where, it’s time to develop category management program to identify opportunities to be addressed first and how you want to go about it in terms of resource commitment. There are multiple ways you could handle category management with your procurement teams. For instance, you could use a full coverage model, where you have unit level category managers, centralized category managers, or a mix of the two. Or, you could outsource everything to our company, should your budget allow for that.
Alternatively, you could use a flex model, where you cover most of your categories internally and bring in our consultants to handle the infrequent buys where it doesn’t make sense to bring specialized expertise on board permanently.
There are strategic implications for each method, and what works for one company may not work for another. With our platform Mserve, you’ll only have to do that deep data analysis one time when you first start the category management process. When implemented correctly, your category management program will pay for itself in the short-term, and increase profits over the long term.
BENEFITS OF CATEGORY MANAGEMENT
BETTER PRICING AND TERMS AND CONDITIONS
When your spending is aggregated, your suppliers should be able to work with you to get better pricing and terms and conditions. You may see it in the form of better payment terms, better unit pricing, or rebates. Using this along with strategic sourcing can help improve your supply chain.
BETTER SUPPLIER RELATIONSHIPS
With category management, you can establish a single point of contact within your organization. You can also consider using an account management structure to streamline communication. By coordinating everything at the highest level and delegating tasks to the business unit level, you’re improving supplier relationship management because everything is clarified.
FEWER SUPPLIER CONTRACTS
Because you’re bundling items with your suppliers, you can cut down on the total number of suppliers you have. Since you have fewer relationships to manage overall, you can focus more attention on developing quality relationships with the ones you have. You’ll also notice your processes speed up because there’s less to manage in terms of setting up vendors, invoice processing, and risk management.
SHORTER CYCLES FOR PURCHASE ORDERS AND INVOICE PROCESSING
Because category management standardizes your business practices, you’ll notice your purchase orders and invoice processing cycles are shorter. Your category manager has seen SOWs from multiple suppliers, so there’s a better understanding of what they are looking at. Because they understand the pricing, SLAs, and terms and conditions, they’re able to execute everything faster.
IMPROVED SPENDING VISIBILITY
When there’s no category manager in place for a spending category, no one can say whether the reported data is accurate because that manager isn’t seeing all the contracts that are coming in. Without that, they cannot know the full extent of spending.
However, with a category strategy, there’s someone who is paying attention to everything that comes in. They are able to manage suppliers, meet business needs, and develop a long-term spending strategy based on supplier performance.
Give your employees or customers an intuitive online shopping experience. Capture orders, aggregate demand and centrally control local buying from multiple approved suppliers with easy to use, highly configurable storefronts.
CAPTURE ORDERS AND AGGREGATE DEMAND
Our catalog enables organizations to capture orders and aggregate demand for stocked products, configured kits, made-to-order and customized products and services.
Your employees will love the familiar online shopping experience. It’s quick and easy to find and select standardized products or request prices for custom requirements, place orders and track deliveries. Catalogs can profile products and services to individual users, reducing errors and maverick purchasing.
Catalog Managers can brand and configure catalogs and publish selected products and services to highly profiled individual users, locations, brands or territories resulting in greater adoption and fewer errors. Approved orders are routed seamlessly to multiple pre-approved suppliers for manufacturing, production or fulfilment or escalated for checking and approval without manual intervention. Catalogs help to increase revenues and improve margins by capturing orders and aggregating demand across multiple users, multiple sites, multiple customers and even multiple countries.
WHY CATEGORY MANAGEMENT FROM US?
OUR MARKET INTELLIGENCE INFRASTRUCTURE IS PURPOSE-BUILT FOR PROCUREMENT
- A wealth of category experts
- Vast network of subject matter experts
- Vast number of suppliers in our proprietary database
- Access to several third-party research resources
- Rich repository of analytical tools and templates