Procurement Leaders
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Category Management Pack - Part 1: The Historical and Current Landscape

Category management is the most important process in modern procurement. Anyone will tell you this. Well, anyone in the procurement space. While the exact process won’t look the same across different organisations the principles remain the same.

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Chapter 1: The Historical and Current Landscape

Introduction

 

Category management is the most important process in modern procurement. Anyone will tell you this. Well, anyone in the procurement space. While the exact process won’t look the same across different organisations the principles remain the same.

 

The implementation of category management often makes the successful transition from a reactive way of working to a more proactive one. It is a banner procurement can stab into the top of the mountain.

 

One of the best outcomes of this is that procurement can begin to initiate projects, breaking away from their usual supporting role and can deliver greater value. Analysing the supply market and the needs of the business should become a source of opportunity for procurement to capitalise on.

 

The majority of the benefits delivered by the function are attributed to category management. Incredibly our research found that 91% of procurement staff couldn’t do their jobs without it. If that fact alone doesn’t convince any lagging naysayers, then nothing will.

 

Benchmarks

 

Category management will, in most a cases, take several years to implement fully. If you want it done right that is. A simple way of testing the progress of your category management plans is to compare the level of deployment with the length of time since deployment.

 

Although a handful of companies have operated category management on a corporate scale since the 80’s this isn’t common place. The average organisation deployed the process just six years ago and companies still only cover around 60% of the organisations spend with category management. Obviously there is still room for improvement.

 

Naturally, the longer category management has been in place, the more spend that is covered. The relationship between time and coverage isn’t linear however. When category management is implemented, day one shows a fair proportion of spend is included. After that it slows down considerably and it is an uphill battle to work towards full spend coverage.

 

There are some aspects of the category management process and its impact that we can measure and report on. The average category plan looks three years in to the future and most commonly it is the CPO who approves the strategy.

 

Like any process, category management isn’t without its challenges. One of the biggest of these is making time for analysis and planning. These is a tendency for urgent day to day matters to compromise the process. The implementation of several strategies can prevent a slip back in to reactive ways of working. On average category managers are able to maintain the majority of time, 63% of their time to be exact, for working on proactive category management.

 

Procurement Leaders Benchmarking Tool contains data on category management, along with all other key areas of the procurement function.

 

The History

 

Over the last hundred years or so many corporations have made the leap from local to global and, by and large, tended to veer towards decisions to buy rather than make (figure 1). This change occurred before the existence of today’s corporate procurement function so whilst some cases demonstrated good procurement practice, the rate of change often proved too fast, leaving the majority of companies with supply bases that were far from optimal. These “sub-optimal” supply bases tended to include too many suppliers, too big a range of products and rather inconsistent contractual arrangements.

 

These issues are where effective category management enters the fray, encouraging procurement to take a holistic view of their supply base and business needs. Although it’s a big leap for procurement to move from simply responding to stakeholder needs as as they arise to optimising the supply base for these neds, both current and future, the benefits can be huge.


Degree of category management integration over time

The Current Landscape

 

Category management has to evolve. Whilst this is initially to sustain the delivery of savings the ultimate goal is to deliver benefits beyond savings. The category management principle can be developed in to a highly sophisticated way of working. The function is aware of this lack of sophistication. If we ask the procurement community how they rate the level of sophistication for their category management, a measly 12% rate themselves as advanced (figure 2). There is most certainly a recognition that while category management is now an old idea, there is still potential to develop the concept to a far greater degree.


Percentage of orangisations by maturity

Through our research we discovered that four persistent themes arose:

  • Talent
  • Investment
  • Business alignment
  • Beyond category management

 

More information about the state of category management, past and present, can be found in our member-only report “Category Management: Part One – The Historical & Current Landscape”. This report analyses data collected over the past few years or research to provide our members with new insights into the continued development of this critical procurement process.


Category Management: Part One - The historical & current landscape

Key findings

 

  • Talent was the biggest challenge in developing category management four years ago. In 2015 it’s a different challenge, retaining the talent we’ve developed.
  • Continued investment is required, benefits taper off without it.
  • Category management is a procurement only process in most companies, limiting its impact.
  • Category management is here to stay, but some are going beyond conventional category management.
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