Category Management
November 24, 2023
Category Management is an upstream strategic function having “artists” as leaders in their domains, responsible for analyzing, managing, and optimizing spend portfolios within a given category of spend. It governs activities related to spend and contract analysis, market research, leadership, performance reporting, sustainability, and risk mitigation. Often, I like to refer to Category Managers as “knights of the round table” under Procurement Leadership responsible for their specific realm of either direct or indirect categories.?
For the purposes of this publication, I will focus on indirect categories consisting of goods and services which are required to support day-to-day operations or “keeping the lights on” for a company, which makes or sells goods and/or services. Indirect products and services enable business operations and production processes but cannot be allocated to a specific product. Direct category management usually involves the acquisition of raw materials, ingredients, manufacturing, equipment, testing, goods for resale, etc.?which are used in making or developing goods or services sold to consumers.
Category Managers should have a deep and broad range of skills to be successful: Hard analytical skills, such as the ability to analyze large amounts of data to identify trends and gaps in the market, the ability to implement a strategic plan aligned with the goals of the business, as well as soft skills to communicate and negotiate with internal and external stakeholders.?They also need core domain expertise in understanding what goods and services are, and how they are used with in the organization.
Category Management Framework
The framework typically is broken down by various sub-elements responsible for providing direction and oversight for developing the portfolio strategy, sourcing execution, and ongoing supplier relationship management.?
Category Management Coverage
Examples of indirect categories may include: Marketing, HR, Professional Services & Consulting, Facilities & Maintenance, Utilities, Technology, Travel & Expense, Logistics, etc. In larger organizations, not to deep dive too much, there may be subcategories which require specific expertise in groupings of similar products or services and their functions, supply market, pricing models, etc.?
As an example, within the technology category, there may be specific global or regional sub-category managers or strategic sourcing specialists focused on analyzing, managing, and optimizing hardware, software, and network/telecom products and services under oversight of a global category manager or category head. Another example may be in respect to HR, Professional Services, and Consulting as they deal with “people”. They have subcategories of areas like administration, talent acquisition, training and development, benefits, etc. which all require specific skills based on specialization.?
Developing a Category Plan or Strategy
An effective category plan or strategy delivers value well beyond the cost reductions it can provide. It also improves speed to market, avoids or mitigates legal and financial risks, and helps enhance innovativeness and flexibility across the entire organization.?
Before you begin developing a plan, check within the business to understand how the category is being managed historically, today, and what the future needs are moving forward so the strategy is in line to meet or exceed goals and objectives. This is where building and managing relationships is important.?
If you are dealing with mergers, acquisitions, private equities, decentralized or highly matrixed organizations, you may not have to “reinvent the wheel” and leverage any existing materials and information to get started.? Also, it is helpful to check with other category management teams or centers of excellence teams for playbooks to help conduct the diagnostics and develop a baseline.?
These playbooks often have templates to help uniformity and consistency across categories, the only differences in the content between different categories of goods and services. These playbooks help in framing and aiding in the category profiling, strategy development, sourcing execution, reporting and monitoring, etc.??
Back to baselining… Here are questions you need to ask when getting started to understand how well strategies are working now, and what kind of improvements will be necessary.
When developing a category strategy or plan you should follow these steps whether creating a new one or taking an existing one “to the next level”. This involves stakeholder alignment to ensure success and mitigate any pushback in implementing category strategies in close partnership with the business.?
Category Management in Practice
A critical component to be successful as a Category Manager requires leaders with a balanced blend of depth and breadth of experience in his/her domain, coupled with the ability to develop and manage relationships within the stakeholder and vendor communities.
The main focus of category management is the ability to successfully manage the entire category, including subcategories and commodities and services, through the procurement life cycle following these 8 steps:? Spend Analysis, Profile and Prioritize, Opportunity Development, Market Analysis, Requirements Gathering, Strategy Formulation, Strategy Execution, Monitor & Review, ?in a “rinse and repeat” action.?Category management also focuses not just on the supply side of the equation, but also deals with utilization and demand of existing contracts, goods, and services.
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With the adoption and integration of technology within procurement and overall supply chain operations, category managers find themselves focusing on strategy development and decision-making vs. performing tactical functions, which are now being augmented and automated, transitioning from people to technology platforms, creating efficiencies and higher levels of value.??
Category Management Evolution
Category Management today is typically supported by people, processes, and technology integration supporting automation and transformation within the full source-to-pay spectrum (S2P) with resources and tools supporting analyzing, managing, and optimizing category spend portfolios while managing stakeholder relationships and developing strategies.?
Category Managers often sit at the top over strategic sourcing and help set direction downstream to tactical sourcing and purchasing activities in the requisition or purchase-to-pay spectrum (P2P), like the “head coach” of a football team responsible for developing and executing plays on the field. In many companies behind the maturity curve, they have Category Mangers that are in fact sourcing analysts processing requisitions in tactical mode.
It is important that organizations understand the differences in roles and responsibilities of category managers, sourcing, buyers, and purchasing analysts as I have seen titles misused. As an example, Procurement to me is the name of a department and purchasing in an action or function that takes place within an organization.?The roles of Category Managers and Strategic Sourcing Managers help set the direction supporting downstream functions to ensure requests for goods and services get to the right supplier, at the right cost, and the right time. To be fair, in smaller organizations or startups, you may have one or a smaller number of individuals performing many strategic and tactical functions, assuming multiple roles like a “one-man-band”.
Center of Excellence and Support Functions
In many organizations, especially larger ones, there may be a Center of Excellence (COE).? This value center supports overall procurement functions and usually has dedicated, shared, or cross-functional support teams helping carry out these functions and responsibilities along the procure-to-pay (P2P) spectrum.?
This specialized team provides leadership, training, and support to improve procurement best practices across an organization. This team of specialists ensures the organization uses the most up-to-date procurement best practices, keeping the leadership team informed of the latest trends, tools, and research including developing playbooks with standardized tools and templates, and knowledge collateral.?
A COE can also take the lead on implementing the latest procurement tools and platforms. Given that 70% of digital transformations fail, according to McKinsey research, it’s crucial to assign a dedicated team of experts to oversee implementing new procurement technology. Not only can a COE source and vet the best software solutions, but this team can also provide training and support to implement the program successfully.?
Often, introducing a new tool isn’t enough to reduce maverick spending. As one leader stated in a global conference I attended, “A fool with a tool is still a fool”. Procurement centers of excellence can take on the leadership and training role to ensure these changes stick.
Procurement centers of excellence are able to take a strategic, rather than a tactical view of procurement. This team is tasked with constantly seeking new ways to optimize and refine the procurement function to save money, reduce risk, and help the business run smoothly. Category management leaders often play integral roles in COEs, especially the Technology Category Manager, since there are elements of hardware, software, and services that intersect across other categories.?
Historically, I have seen centers of excellence units in consulting, business process outsourcing, and managed services organizations, but now seeing this being internalized and adopted within organizations 1:1? vs. as an external source.???
Future of Category Management
I get the question often of “Will technology replace category managers?”, my viewpoint is no. There will always be a human element in respect to relationships and decision-making. Additionally, with technology enablement this may prove to be a great opportunity for those in downstream tactical roles and function to move up the ladder into more strategic roles with proper leadership and mentoring, or “career pathing”.
Gartner refers to career pathing as the process of aligning opportunities for employee career growth with organizational talent priorities. This process may include mapping their career directions based on vertical, lateral and cross-functional roles. Career pathing is driven by the individual's skills, interests and career objectives.?
If you are starting a new Category Management function, you may find individuals in tactical buyer or purchasing roles you can mentor and coach up to sourcing and sourcing support roles, to potential future category management leaders.
Category Management and Transformation
Transformation involves elevating the maturity of procurement and automating the buying experience by selecting vendors, products and services, and developing catalogs and guided buying capability, empowering and enabling end users requesting and buying what they need in an “Amazon-like” shopping experience.
There are many great tools and platforms to support these functions and more but requires experienced leaders and practitioners partnering with technology teams to aid in the design of processes, procedures, and especially content development for the tools or platforms to be successful.?
Often in this type of transformation there is a lot of foundational work to be done in readiness before selecting and implementing the technology or its “garbage in, garbage out”. This is where category management leadership plays a critical role.
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