What is Category Management? A Complete Guide for Businesses

In this highly competitive and ever-evolving business landscape, only those businesses that focus on supply chain management and strive to adapt modern strategies to optimize their procurement processes can succeed. Supply chain and procurement are getting increasingly complex with time and businesses are required to navigate solutions to simplify them. Category management is one such solution that can help a company proactively overcome supply chain challenges. 

What Is Category Management?

Category Management can be defined as a management approach in which the supplies (products or services) that a business needs to procure are divided into various categories based on similar properties or features. These properties can be:

• Value
• Vendor
• Type
• Risk
• Location
• Department

So, category management arranges procuring supplies into various categories, making it easier to understand and figure out which category requires more attention. It also makes it easier to analyze the ownership cost of a specific type of product. Category management empowers businesses to maximize savings and focus their resources on those categories that are more challenging to procure at a competitive price. In simple words, category management is an approach to optimizing the supply purchasing process, improving spending analytics, reducing procurement costs, and boosting supply values. 

How does Category Management work?

The category management process varies from business to business. However, a typical process consists of the following procedures:

• Determination of categories (category profile creation)

In the first procedure, the category management team conducts an in-depth analysis of spending data and determines factors based on which the categories will be created. As mentioned above, these categories can be type, value, supplier, etc. Once the categories are made, their profiles are created by using a taxonomical approach. Each category must have a distinct name and designation. 

• Implementation of optimization strategy

Once the category profile process is completed, the implementation of the optimization strategy starts. The team evaluates each category based on its ownership cost, procurement process, supplier relationship, and demand. After that, the team optimized the category to boost its value and reduce its impact on the company’s spend. By using the insights and knowledge obtained from optimization procedures, the team formalizes a master strategy that determines goals and objectives associated with each category and methods to achieve them. 

• Strategy Execution

In this procedure, the strategy is executed with consistent monitoring of outcomes, impacts on spend, and value enhancement. The category managing team also analyzes how effective this strategy is proving to be in meeting the procurement needs of the business at the lowest possible cost. 

Each business can use a tailormade taxonomical approach for category creation and management. You can also rely on UNSPC (United Nations Standard Products and Services Code) for category determination as it is an international standard used by companies all across the globe for category management. 

Advantages of Category Management

Category management brings effective optimization and transparency into your procurement operations. It improves the insights and information you have regarding different categories of products you need, thereby, empowering you to boost savings, mitigate supply chain risk, ensure compliance, and achieve maximum procurement efficiency. 

What factors make a Category Management service best?

Outsourcing your category management to a specialized indirect spend management service provider like Procurement+ is always the right option as it saves you both time and money that you can spend on more important aspects of your business. Here are some of the important factors that make a category management service best:

• Digitalization and automation 
• Consistent guidance
• In-depth spend analytics
• Real-time monitoring
• High-level strategy execution
• Use of modern technologies

The good news is that Procurement Plus has all these features and is ready to offer you “full-service” category management services to optimize your procurement sources, streamline your supply chain, and better spend analysis.