Authored by Fayaz Haq
In the last post we discussed what Category Management actually is and how adopting a strategic approach can maximize business profitability and result in competitive advantages for an organization. In this post we look more at the effects on the organization and focus on the benefits associated with Category Management.
When well executed, the development of category strategies and resulting sourcing plans will result in dramatic value and benefits. “Value” might take the form of leveraging dramatic reductions in purchase price but it could equally be about reducing the whole-life cost or total cost of ownership, mitigating price increases in a rising market, reducing supply-chain risk or securing increased innovation from the supply chain. In addition to increased value, a formalized approach to managing strategic categories will also provide organizations with a view into spend data resulting in opportunities to manage demand, extend cash-flow and promote greater compliance to contracts.
Research conducted by the Procurement Strategy Council suggests that even for their most strategic categories, procurement organizations often deploy basic techniques, focusing on the 'usual suspects' such as leveraging spend and rationalizing suppliers, competitive bidding, demand management or setting policy. Contrast this to mature procurement organizations which undoubtedly use basic techniques for basic (instead of all) projects but at the same time, consciously drive projects where more sophisticated techniques such as joint cost reduction, low cost country sourcing, supplier sourced innovation and brokering of strategic alliances are deployed. The point, like any reasonable financial investment advisor would recommend is to always ensure one has a balanced portfolio. And in this case, a balanced portfolio of procurement led projects that comprise of both basic and sophisticated techniques.
The results speak for themselves- mature procurement organizations outperform others in the key areas of business unit/ internal customer confidence in procurement, higher year over year savings and significantly more applied supplier innovation.
Do I now have your attention? Well, unfortunately none of this is possible without a properly developed and fully adopted category management program!
Stay tuned for the third and final part on using Category Management to ensure a successful program.