What is Category Management?
Managing the procurement of resources within a business is vital to success as this can help to segment finances into similar categories and ensure that spending remains as low as possible. You may now be wondering “What is category management and how do I implement this process?”. The process of differentiating spending into areas that have similar products and consolidating these different departments effectively is referred to as category management and it is extremely important for any business, no matter how small or large.
There are different ways in which this process can be done, but it is vital that it is completed as effectively and as strategically as possible! Many are under the assumption that managing procurement simply involves making orders, purchasing products and assessing asset management categories, but category management involves creating multi-year plans and approaches based on categorising different products and services. The management of this stock goes all the way up to how certain products or services are marketed to the public!
Why is Category Management Important in Procurement?
Category management is extremely important as it builds a deeper relationship with suppliers and allows your business to gain trust from vendors and for you to be able to trust them as well. Category management procurement also ensures that you are able to negotiate terms and bring down prices, which would only be able to happen if you had a good understanding and relationship with the suppliers that you use! This makes category management extremely important when it comes to the procurement of different products and resources. The person responsible for this would be the procurement category manager and it is important that the person in charge of this has the necessary category management qualifications to get the job done.
What are The Benefits of Category Management?
As you can see from the definition of category management, it is an integral part of any business. The following are just a few examples of the advantages of category management and how this concept and process can help your business to succeed.
- Vendors Perform Better: When you have a level of understanding and mutual trust with the vendors whom you purchase, your strategies tend to work better and more effectively. Open and consistent communication between vendors and a category manager ensures that processes involved in the procurement of goods and resources are completed efficiently and effectively. Your business should have a category activation manager whose job is to maintain the relationships you have with your different vendors and suppliers.
- Better Customer Satisfaction: Another one of the benefits of category management is that a business improves customer satisfaction. With a good category management strategy, your procurement processes should function like a well-oiled machine, leaving you time to better understand your clients and ensure you are meeting their needs and desires.
- Better Understanding of Product Price: If no one is held accountable for negotiating with vendors and securing prices, you may find that your business has little information on the overall costs of products and services. Category management breaks down the prices and costs involved and the overall expenditure on products and services. This allows for a business to have a better understanding of what they are spending on and how much certain products or services are costing them.
What is the Category Management Process?
Category management is all about sourcing products in the most strategic way possible in order to improve how efficient a business is. This more structured approach to procurement helps an organisation in just about every department, aligning the goals of the company with the management of product purchasing. The following are the first steps to consider in the implementation of category management.
Define The Categories
Categories are defined according to customer behaviour and the needs and demands of the market. Categories are an important part of the category management process as they help to better define product selection and ensure that the needs of the customer are being met. Being able to define categories helps a business to better understand how to select certain products and then segment them into different groups, ensuring that the categories defined help to improve the overall effectiveness of the product in relation to the customer.
Assess The Role of Each Category
The best practices of category management involve assessing and analysing how these categories interact and work in the broader scope of your business. This helps a business to better understand the importance of certain products and the categories they fall within in relation to the business.
Assess Current Performance
While you would have assessed the role of each category in relation to the business in the above step, it is also important that you monitor categories in relation to the customer. By looking at the performance of certain categories, you can establish how important they are to your customers. Often, categories are compared with one another to see how each group is doing in relation to one another. Through this analysis, you are able to determine which categories are most important to your customers and which ones may need to be assessed.
How to Implement Category Management
The first step in category management is looking into the categories and examining how they function both within your company and based on your customers. Preparing and prioritising the different opportunities that may exist then follows with the strategy stage of the process. This step involves you taking the information you have gained through the first stages of the process and using this to consolidate the categories determined. While you may think that the process is then done and dusted, you will still have to analyse how these categories function, both in relation to your business and your customers, and make changes for improvement! As each business is unique in the way that they function, what works for one may not work for another, so enhancing your strategy once you have seen the results is vital.