This content was made possible by a collaboration with the team at JAGGAER.
Category management requires procurement to ‘rise above’ the level of understanding traditionally associated with strategic sourcing. This elevation achieves two critical things at the same time:
- It combines multiple traditionally defined spend categories and groups of incumbent or prospective suppliers into one cohesive analysis of demand, competitive differentiators, and business value.
- It brings procurement’s perspective on results, performance, and ROI closer to that of the executives sitting in the C-suite.
These observations might seem obvious, but the long list of failed category management initiatives would seem to suggest otherwise. In most cases, the issue is not one of intent (where procurement falls short of knowing what needs to be done) but an inability to transcend the transactional pull of individual suppliers, contracts, and transactions.
In a recent whitepaper titled Driving Enterprise-wide Savings with Mature Category Management,, the JAGGAER team and I explored some of the most common category management activities, the ownership of individual tasks, and how technology can improve the processes and business impact of category management. These conversations led us to realize just how much input and insight are required for procurement to elevate their perspective enough to think at the C-level. As a result, we identified three core capabilities that need to be in place for successful category management.
Procurement must understand the business as well as the CEO
Nothing has more broad impact than a decision made by the CEO, and the same is true of effective category management. Procurement knows who owns each contract or supplier relationship but realizing how many teams or processes will be affected by a higher-level change in spend or supplier management is a far more complex task. Being able to anticipate these effects in advance will protect against surprises and direct nuanced decisions as they are made.
Procurement must recognize the difference between suppliers and ‘partners’
A partnership designation has less to do with shared culture or experience than it does the potential value each supplier represents to the business – and its customers. Category management should impact the top line and doing so will require the very best performance from excellent supply partners. Rather than measuring performance against a document, procurement will need to assess supplier capabilities against the expectations of the company’s target market – and then build the legal and measurement-based frameworks to ensure they deliver.
Procurement has to track detailed performance and be able to ‘roll it up’
As Peter Drucker famously put it, “You can’t manage what you don’t measure.” Unfortunately, what you can measure tends to be too detailed for broad management. Procurement has to be able to combine the data they have access to with the business objectives they are trying to achieve and understand how each affects the other. A category management dashboard provides an excellent opportunity to do just that; providing witness to the small adjustments that can lead to large improvements in performance over time.
In order to effectively implement and execute category management, procurement needs to elevate their point of view – but not to an abstract level. Action is still the key. They must have a focused understanding of the business and every team within it before they can deliver against the expectations of category management.
“Category Management provides the ability to manage and process multiple pools of data and apply them to business strategies, at the right time and with the right suppliers, preparing any industry for the future.” - Amen Reghimi, Vice President of Product Management at JAGGAER
Much like a small business owner, procurement has to leverage category management as the way to connect the top line with the bottom, supplier capabilities with customer demand, and operational efficiencies with competitive advantage – never allowing either the big picture or the detailed view to take over.