How do you develop and apply category management strategies for different types of goods and services?

To get started with category management strategy is to develop a good data analysis, to understand your organization needs and be able to identify critical components, services, key suppliers, spend and lead times. Having a good ERP system where information of material and services is well defined will allow you to develop the data analysis. You need to understand what is your start point so you can jump to the next step.

Develop and apply category management strategies for different types of goods and services by understanding market dynamics, analyzing data, setting clear objectives, forming cross-functional teams, and continuously monitoring and adapting your strategies.

This will very much depend on the many factors. Many organisations look at the characteristics of the products and services that are being procurement. This may work fine in some supply chains, but it can be quite narrow to focus solely on this in others. There are many different interpretations of what categorisation is and I've seen organisations classifying at a downstream level where buyers are placed dependent on who the client is. Others focus on the market in which the suppliers and/ or customer are. There will never be a standard way to define and classify as each have their own pros and cons.

Detailed spend analysis with data cleansing and requalification for a start. Then defining the categories, verification, segmentation, consolidstion, defining once more :). Positioning of the categories volume/risk- e.g krajlic matrix. There can be defined process but strategy will differentiate for each type of the categories

Defining the level of granularity is of utmost importance. The aim is to find right balance between the visibility and detailing. Also its not always necessary to stick to standards.

When peeling back those layers in your analysis and assessment, it's crucial to keep an eye on current and future trends. You should consider how emerging market trends, technological advancements, and consumer preferences might impact each category. Are there upcoming sustainability standards, technological breakthroughs, or shifts in consumer behaviour that might affect your categories? Furthermore, aligning these insights with your organisation's goals is like connecting the dots in your investigation. Does that emerging trend in eco-friendly products align with your company's sustainability objectives? Will adopting certain technological advancements help you achieve cost-saving targets?

For the step 2 (analyse and assess the categories) depending on the complexity of the spend analysis, an Kraljic matrix can be a very supportive tool, puting in perspective aspects such as impact on the project (shortage), global or local purchase, competitiveness/profitability...this is key for increase purchase index, cash flow and EBITDA.

In my experience, the contract manager will analyse and assess the categories in order to develop a proper understanding of what the applicable category domains mean in practice and how they relate to market trends. It is important to have a strategic mindset and to be able to build and maintain relations and influence outcomes in this area, as well as the ability to create meaningful and value for money outcomes across related sub-categories.

Once categories are defined, conduct a thorough analysis and assessment of each category. This involves understanding market dynamics, supplier landscapes, demand patterns, and any unique challenges associated with specific categories. Perform a spend analysis to identify the financial impact of each category and assess the level of supply chain risk. This analysis provides insights into opportunities for cost savings, risk mitigation, and performance improvement.

Spend Analysis: Perform a detailed spend analysis for each category to understand where money is being spent, with which suppliers, and under what terms. This helps in identifying major areas of spend and potential savings opportunities.

The following steps can be applied here; 1) Identify commonality amongst different goods & services and bucket them. One can go upto 2-3 levels of categorisation for every good/service. 2) Once you know the commonality, try to develop the strategies from different perspectives such as buying methodology, cost structure, maintaining inventory, logistics etc. 3) Track the complete value chain of a particular product and extrapolate it to the entire category. That would help develop strategies from a short and long term perspective.

The third step is the real action in shaping your procurement strategies. However, this stage isn't without its challenges. Ensuring that your plans are in sync with your organisation's vision and values can be a tricky task. Every category has unique needs, risks, opportunities, and challenges. Developing strategies catering to these diverse requirements can be quite a puzzle. There's no shortage of frameworks and models. The challenge lies in selecting the most appropriate one for your specific category and ensuring it aligns with your goals.

Apart from category strategies, an area that is often overlooked is the importance of developing and implementing strategies related to success planning, acting in roles and job shadowing. These could provide one with better opportunities to grow and advance team members' careers, whilst your department is better equipped to ensure continuity of support.

Transparency is the key to the success of any category management strategy. It's extremely important to involve all the stakeholders from the onset of the process. The strategy (Specially one for a high-stake service or equipment) once developed should be explicit, effectively communicated and ratified by preferably the CPO of the organization.

The process of performance monitoring depends on the maturity of the category strategy / problems you’re trying to solve for. These in turn will influence how you set KPIs. You often have 3 main variables: - Price: How do you improve YoY? How do you measure against the benchmark? How do you handle industry fluctuations? - Service: How do you mitigate risk? How do you reduce lead time for product / service delivery? - Quality: Assessing if goods / services fit within specified categories

It is becoming more and more important to understand how ESG outcomes relate to the applicable category domain areas. Ask yourself- what do these important elements actually mean in practice? -as each category has its own set of dynamic inputs and outputs. And what realistic and effective metrics and indicators can we introduce to measure?

Category management is also offered as a capability of modern procurement software. Utilise best practice methodology, category insights, supplier insights, business and market intelligence data to drive category governance and improvement for your procurement practice. This also provides means to recognise and develop better relationships with strategic suppliers.

In my experience, effective category management requires ongoing monitoring and review: 1) Track KPIs: Monitor cost savings, supplier performance metrics, and stakeholder satisfaction. 2) Analyze Data: Identify trends, opportunities for improvement, and potential cost reductions. 3) Conduct Reviews: Regularly assess category strategies, market changes, and supplier performance. 4) Adapt & Improve: Refine processes, adjust strategies, and implement changes based on insights. This continuous cycle ensures category management remains optimized, delivering ongoing value.

Usually the commodity mangers in large organizations have visibility on a larger purchase volume by pooling the demand across multiple facilities and therefore can better influence supplier decisions when compared to individual sites trying to negotiate their individual volumes. Also supplier performance for one site can influence the volume awarded to that supplier from another location, if the commodity management is actively engaged in those strategy discussions.

Category management strategies for goods and services involve defining categories, analyzing data, setting objectives, selecting suppliers, negotiating contracts, implementing strategies, and monitoring and optimizing performance. These strategies should be flexible and adaptable to the industry, organization, and specific goals. They should include assortment planning, pricing strategies, promotional activities, inventory management, and supplier collaboration. Supplier evaluation should consider factors like cost, quality, reliability, innovation, and sustainability. Contract negotiations should ensure favorable terms and conditions. Continuous monitoring and evaluation of supplier performance can identify areas for improvement.

While procurement theory initially proposes linear frameworks, often referred to as 'sourcing steps,' the reality is that category strategy development thrives within an iterative process. Revisiting earlier stages becomes prudent as new insights emerge from subsequent steps. Adapting the category scope may prove necessary, especially when delving into external market exploration or adjusting internal requirements based on information gleaned from suppliers. This dynamic approach ensures the agility required to navigate the evolving landscape of procurement strategies.

Remember- it is easy to get caught up in "category talk". Don't leave your internal customers wondering what you are on about. Rather focus on how to bring your internal stakeholders on this exciting journey, by avoiding domain or SME jargon. Engage to be understood.