Category Management in Procurement means grouping similar types of item together so you can look at them in more detail.
Sometimes we talk about ‘categorising your spend,’ where you look at a full year (or other time period) and review how much money was spent on different types of goods and services.
Category Management in The Real World
Revolut does this automatically if you bank with them – take a look at the picture to see what they think of my spending money.
So how does this help anything? Well, if I want to save money then I could have a deeper look at what I’m spending at Restaurants, because 61% of my money went there. That means I could:
- Eat out less often (a classic make/buy decision!)
- Eat somewhere cheaper
Category Management in Work
The same can be true for money we spend in our businesses. Once you’ve categorised the stuff you buy, you can look at it and ask yourself:
- Why am I spending this?
- Is there a way I could not spend this?
- Can I buy this any cheaper?
In addition, category management is a way to organise the Procurement team. For example, if we had a greengrocers, there could be a Procurement Manager reporting into the senior management. Under their lead, there could be a Fruits Category Manager, a Vegetable Category Manager and a Packaging Category Manager.
The duties within the team would be split along the category lines.
Benefits
So, do a bit of spend analysis and that’s it?
Category management has two other key benefits:
- It enables the Buyer to build relationships with key suppliers in that category
- It enables the Buyer to specialise – how many job adverts have you seen for an “IT Buyer,” “Marketing Buyer,” or (my personal favourite) “Commodity Manager – Beef”?
Tail Spend
Tail spend is the odds and sods that get ignored when the procurement team is focussed on the high spend or ‘important’ categories. Think PPE, stationery, machinery spares, calibrations, facilities management, printer ink…
For me, one of the main downsides of category management is that this tail gets overlooked. There’s so much value to be gained from targeting tail spend. Not just in savings but in making everyone’s jobs more efficient (for example by raising fewer POs or having fewer supply problems) and focusing on the company’s core goals, such as sustainability or innovation.
For more information, have a look at my Managing Tail Spend eGuide.
Do you use category management in your organisation? If you don’t, would you like to switch to it? Or are you keen on organising the Procurement team in another way?