Category management is the process of segmenting the main area of organisation spend of goods and services into discrete groups of products and services according to the function of these goods and services and most importantly to mirror how individual market places are organised.
Using this segmentation an organisation works across functionality on individual categories, examining the entire category, the market place and the individual suppliers. A category has been identified as a group of products or services which are purchased from the supply market and which are used as an element of value proposition that the company offers to its customers or which are to be used in internal company’s operations.
Category sourcing plan is a formal plan for certain product categories that explain how the company will deal with the certain supply markets and its key supplier relationships.
Category sourcing as a concept
It includes three stages i.e.
- Category planning
- Category sourcing
- Category implementation
Category sourcing plans need to have a strong link to the overall business goals and strategies. Understanding the company’s supply market and competitive priorities is important since it will reveal the companies opportunities for competitive advantage. It is important to understand who are the most important stakeholders in order to be able to involve them effectively and in a timely manner in the category management process.
Purchasing vs. Sourcing
There are numerous functions in the procurement process. Some of those are purchasing and sourcing. These two activities are very essential to the procurement process and they make the procurement process more efficient.
Purchasing is a subset of procurement. Purchasing generally refers to buying goods, works and services. Purchasing often includes receiving goods and making payments.
Sourcing is the process of identifying potential vendors, conducting negotiations with them and agreeing supply contracts with these vendors. It generally refers to allocating sources of goods, works and services that the organisation needs. It is a subsection of the procurement process.
Difference: while procurement is concerned with logistics and acquisition of goods, works and services, sourcing focuses on finding the best and least expensive supplier for those suppliers.
Sourcing often includes identifying the suppliers, negotiating, testing for quality and market research. Sourcing is an essential step since the profits of the business can rely heavily in finding the best source of supply.
Examples of categories in an organisation
- Travel services
- Legal services
- Fuel and lubricants
Reasons for category management
- Better management of
- To manage and exploit changing business
- To enable one to leverage resources e.g. people, knowledge, expertise
- Minimize supply chain
- Improved quality and
- Leverage presence in the market
- Drive commodity and service
Benefits of category management
- To raise the profile and competency of procurement across the