Category management (purchasing)
Category management is an approach to the organisation of purchasing within a business organisation. Applying category management to purchasing activity benefits organisations by providing an approach to reduce the cost of buying goods and services, reduce risk in the supply chain, increase overall value from the supply base and gain access to more innovation from suppliers. It is a strategic approach which focuses on the vast majority of organisational spend. If applied effectively throughout an entire organisation, the results can be significantly greater than traditional transactional based purchasing negotiations, however the discipline of category management is sorely misunderstood.[1]
The concept of Category Management in purchasing originated in the late 1980s. There is no single founder or originator, but the methodology first appeared in the automotive sector and has since been developed and adopted by organisations worldwide. Today Category Management is considered by many global companies as an essential strategic purchasing approach. Category Management has been defined as “an evolving methodology that drives sourcing strategy in progressive organisations today”.[2]
Definitions
The Chartered Institute of Procurement & Supply (CIPS) defines Category Management as:
- "Organizing the resources of the procurement team in such a way as to focus externally onto the supply markets of an organisation (as against having a focus on the internal customers or on internal ... departmental functions) in order to fully leverage purchasing decisions”.[3]
Writing in 2007, CIPS argued in favour of a level of specialisation and precision which at the time it considered to be a "less fashionable" approach to the use of limited procurement resources, and similarly CIPS Australia notes from research undertaken in 2010 that " Category managers struggle to focus and specialise when their portfolio has too much breadth (they are managing multiple categories with few, if any, synergies) or too much depth (they are tasked with end-to-end procurement responsibility including strategic, tactical and operational requirements).[4]
Jonathan O'Brien, author of Category Management in Purchasing, defines Category Management as:
- "the practice of segmenting the main areas of organisational spend on bought-in goods and services into discrete groups of products and services according to the function of those goods or services and, most importantly, to mirror how individual marketplaces are organised. Using this segmentation organisations work cross functionally on individual categories, examining the entire category spend, how the organisation uses the products or services within the category, the marketplace and individual suppliers."[5]
Mark Webb of Future Purchasing makes three statements in defining Category Management:
- "It is a strategic end-to-end process for buying goods and services; it aligns business goals and customer requirements with supply market capability and it maximises long-term value for the organisation."[6]
Peter Hunt, partner at ADR International, writes
- “the term category management can mean different things to different people, so a working definition is needed. A ‘category’ is the logical grouping of similar expenditure items, such as spend on advertising agency services or IT hardware. Category management is the sourcing process used to manage these categories to satisfy business needs while maximising the value delivered from the supply base”.[7]
Kay Bayen of the European Institute of Purchasing Management (EIPM) has identified category management as a skill deficit area, with more procurement professionals being required to step into the role.[8]
Public sector usage
Many public sector organisations have adopted category management as a strategic transformation tool. Sir Philip Green, in his “Efficiency Review” of UK government spending, recommended that “centralised procurement [should be] mandated for common categories to leverage ... buying power and achieve best practice”.[9]
In the United States, the federal General Services Administration, working with the Office of Management and Budget's Office of Federal Procurement Policy (OFPP), adopted category management as an operational tool for purchasing under the leadership of Thomas Sharpe, Commissioner at the GSA's Federal Acquisition Service, in April 2014.[10][11][12]
References
- ^ Whitaker, John (May 2013). "Category Management in Purchasing". Supply Management. 18 (5): 50.
- ^ "Five Best Practices for Category Management", Justin Falgione et al., Inside Supply Management, August 2008
- ^ CIPS Knowledge Works: Category Management, July 2007
- ^ Perfect, M., The state of the art of category management - CIPS Australia, published 2019, accessed 23 December 2021
- ^ O'Brien, J., Category Management in Purchasing, Second Edition (2012), Kogan Page, London, ISBN 978-0-7494-6498-1 E-ESBN 978 0 7494 6499 8
- ^ "Is Category Management More than Just Strategic Sourcing?". July 2, 2014. Archived from the original on January 8, 2020. Retrieved January 18, 2021.
- ^ 'Category management explained", Supply Management, 30 January 2003, accessed 26 May 2011.
- ^ Supply Chain Digest, Supply Chain News: The Category Manager and the New Skill Requirements for Procurement Professionals, published 8 September 2010, accessed 4 January 2022
- ^ Sir Philip Green, Efficiency Review by Sir Philip Green Archived 2010-10-14 at the Wayback Machine, accessed 13.6.2011
- ^ General Services Administration, Guide to Category Management, accessed 27 February 2021
- ^ Clark, C. S., White House Issues New Guidance on Category Management, accessed 27 February 2021
- ^ http://gsablogs.gsa.gov/gsablog/2014/04/09/the-future-fas-categorically-the-right-thing-to-do-for-taxpayers/ Archived 2015-03-15 at the Wayback Machine, accessed 6.3.2015