Sell Category Management benefits to Senior Management

Sell Category Management benefits to Senior Management – Thinking of introducing Category Management into your Business? We discuss the benefits and business impact of category management.

What is Category Management?

Category management is a continuous procurement led process of managing categories as strategic business units, producing enhanced business results by focusing on delivery to key business goals and objectives. Categories group products and services together based on the organization of the supply market not on the basis of organizational boundaries. The category management process is managed on 5 key principles:

Cross functional approach
Strong supply market knowledge
Make change happen
Stakeholder engagement
Facts and data

These principle sit on a foundation of organizational governance.

Key Factors

It is an organizational design for businesses where the procurement function is organized in to category management teams responsible for developing category business plans both internally and with suppliers. These category-based plans are aimed at improving the overall performance of the category.
The main aim is to produce an interactive and collaborative business process in which the business and suppliers work together to create and manage business-focused category plans.
Businesses have to focus on the category as a whole rather than concentrating on just one particular purchase. Categories for a number of products are often grouped together into sub-categories.

Business benefits:

Driven by business needs
Inclusive – involving key stakeholders
Shifts the focus from price to cost and value
Drives strategic sourcing to extract value from supply markets
Sustains benefits through structured supplier performance management
Extends benefits through structured supplier development programs

Business impact:

Category Management can have a positive impact across all areas of the business whether measured by profitability, cash management or balance sheet ratios, reducing cost or supporting growth, category management can deliver appropriate strategies whatever the business cycle. Upturn or downturn. Breakthrough business results are possible with savings as much as 30% on under managed categories of spend.

Other business benefits will be seen in:

COGS/COS
EBITDA
Liquidity & cash Flow
Return on Net Assets (RONA)
Return on capital Employed (ROCE)
Earnings per share (EPS)
Headcount & Revenue per Head
Brand Strength

Whether it is supporting EBITDA by optimizing price and TCO or reducing capital employed in the supply chain to increase liquidity category management can deliver.

How does category management work?

A Category Manager develops a Category Plan in conjunction with the cross functional team.
The Category Plan gathers all relevant data to identify, quantify and prioritize improvement opportunities in conjunction with service lines/stakeholders.
Category initiatives are prioritized by the business to ensure alignment between category initiatives and business priorities.
The prioritized initiative are launched as a portfolio of individual category initiatives that are typically delivered into the business via a strategic sourcing project
When the sourcing project is completed and the new supply arrangements are implemented into the business the category continues to be managed via the SRM process to ensure the anticipated benefits are captured and opportunities to add further value are identified and captured.

What is the impact on organization structure?

1. The category is managed as a business unit and crosses organizational and geographic boundaries
2. Category teams reflect defined categories
3. Category teams are cross-functional and often span geographic boundaries

The category manager leads the team to make change happen
Other team members will include representatives of the business who will be strongly affected by the outcome plus those with relevant specialist expertise.

4. Governance arrangement must ensure endorsement and ownership at an appropriate level:

sponsorship
decision gates
visible commitment

5. Collaborative working

Support breaking down organizational silos
Greater business involvement and ownership

Summary

Category management is about achieving breakthrough business results. Savings can be found as high as 30% on under managed categories of spend.

Closer and more constructive relationship with key business stakeholders
Focuses attention on the planning phase which offers the greatest scope for improved performance and ground breaking solutions
Enables realistic targeting of savings and other benefits which are agreed with and owned by the business.
Maximizes contract compliance through stakeholder ownership and business sign off
Enhances procurement capability within the procurement function and across the organization

Nuff said…

Purchasing Practice has a wide range of tools to help you develop your team combined with practical How to Guides and Templates to guide your them through a proven robust Category Management & Strategic Sourcing process.