Procurement Category Management: The Art of Balancing the Cost, the Value, and the Demand
Category management is the brain and spine of strategic procurement.
Procurement largely relies on category management in its constant endeavor to transform transactional purchasing into a value-creation machine.
This post analyzes what makes genuine category managers and "separate future physicians from those who wanna play doctor."
Category management is an integral part of the "plan-to-procure" cycle.
In fact, category management is the art of balancing the cost, the value, and the demand. That is impossible without taking the lead early and assuming full responsibility for the procurement process.
There are steps where category management must leverage and balance those three base metrics.
Step 1: Strategic planning and demand management
Any purchase requisition must pass the category management well before the sourcing begins.
In the budgetary planning stage, category managers aggregate, evaluate, and possibly challenge the demand.
It's not an act of additional approval. It's instead an opportunity to engage with end-users to understand their needs and perceptions and complements those with a professional view from a different perspective.
In terms of procurement value, this stage is golden. Any amicable agreement with requestors to defer or downsize the excessive demand delivers value straight to the financial bottom line.
Here no vendor gets hurt, a lengthy and expensive procurement cycle is avoided, and company resources get applied where they're truly needed.
Of course, all of that shouldn't happen at the expense of internal stakeholders by carefully crafting arguments and mastering relationship management.
Step 2: Category management strategy
This crucial document proactively leads the cross-functional collaboration in the category domain.
It balances the procurement cost and value by identifying cost-saving initiatives and setting actionable benefit plans so that the business achieves additional profitability.
Category management strategy must nurture stakeholder relationships, stimulate an agile approach, and foster innovation.
Importantly, it should be the dynamic object, presenting a holistic view of the market, mitigating risks, forecasting opportunities, and reflecting upon achieving business objectives.
Step 3: Source-to-contract cycle
Category managers are to streamline the source-to-contract cycle to ensure the application of efficient spend management tools and enable the delivery of procurement value.
Procurement managers will follow the category strategy script to transform business needs into cost savings and business-process efficiencies.
Nevertheless, any sourcing strategy is to be approved by a category manager to ensure the fulfillment of strategic objectives.
The magic triangle of category management
The following triangle represents the balance that category management must achieve and sustain.
Category management is simple, just like tightrope walking. It only requires courage, composure, and constant advance movement.
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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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