Category spending aids in negotiating prices and sealing supply agreements for a foreseeable future. Classifying the spending is the primary goal of any category management procurement solution platform. It is a data-driven process that bundles products with similar feature types into categories and helps analyse the procurement spending pattern. The right category labeling will match the market classification for easy accessibility and reduced confusion.
With category management in place, it becomes easy to read into the future supply-demand constraints and stock up on the essential products with the least shelf life and more margins in profitability ratios.
Business intelligence tools use third-party integration and API tracking to gauge the possibility of raw material bottlenecks. The auto messages will create alerts for the procurement teams to connect with vendors and to replenish a product that may become short in supply in near future. This step saves the day for the business process both for manufacturing and service-oriented entities.
For instance, a coffee chain realizes that demand for Arabica beans will increase as a hurricane has distorted major vessels carrying the shipment of consignments. It places advance orders with domestic vendors and ensures the supply chain is not hampered. This timely measure was feasible only because of insights provided with effective category management practices.
Project procurement vs Category management
- Different goals
Project procurement is a short-term task with specific goals for a defined single project. It is an extended method of strategic sourcing and does not take into consideration the long-term implications on the business.
Often ad-hoc strategic decisions need to be taken for procurement requirements. Whenever there is an immediate requirement for materials not already in the pipeline of category spending, project procurement methods are utilized to optimise resources within the short timeframes.
Project procurement does not impact the business’s long-term goals and is a cushion point to support business requirements. If ever project procurement for supplies becomes a consistent requirement, then it invariably is moved to category spending to benefit from price negotiations and supply agreement clauses from vendors.
- Not a fair comparison
Category management is more than an organizer of similar products that either has the same features or complement one another. Imagine a furniture store that displays its products.
The arrangement of their products is per the furniture category like living, bedroom, or kitchen. So if a person is shopping for support cushions to match the upholstery on their sofas, they will likely search in the living area. But if a buyer is looking for a bedside table, they will head to the bedroom furniture section.
Category management helps in a two-way process-building exercise. It aids in assessing consumer insights and replenishing the aisles and e-stores with products that are trending and the flavor of the season. This aids in quicker turnaround in sales and enhanced consumer experience specifically in retail and warehousing businesses.
In the second method, category management can assess the future shortfall in supplies and engage vendors to procure the requirements without any pitfalls to the supply chain of the input materials and products. Using categories enables procurement teams to negotiate with suppliers based on the category spending within fixed parameters and bulk agreements.
The vantage point of procuring through category management is spread across the category of products, reducing the absorption of the overhead costs.
Any particular product within a category will not suffer price fluctuations and can be offered to buyers at competitive rates. When sunk costs are minimized, a brand can maintain its competitive advantage in the market.
Implementation of effective category management
- Spending pattern
Identifying the money trail in procurement is important for adapting category management practices. Different touch points will present varied information that can give granular insights that are useful in finding the gaps and coming up with permanent fixes in the category management program.
It is crucial to sync what the brand is advertising and what it is procuring. All the touchpoints inclusive of advertising and content insights, supplier master data, purchase orders, invoice payable, and approved payments will help in covering the gaps.
For example, if a brand is promoting travel merchandise and the procurement is failing to fill in the merchandise at the same speed at which the goods are moving off the stores, then soon the business will be staring at an impending problem. Category management advisory services can prepare a business for such distraught positions.
- Define the structure
The number of categories in a business depends on the business’s nature and the scope of category management that has included only saleable products or is involved in other applications like talent procurement for hiring purposes. The category structure is broadly classified into direct and indirect spending. Direct spending involves procurement payments for materials or goods and services that are directly used in the manufacturing segment or retail sales as per the nature of the business. Indirect spending is usually the support and ancillary functions that play critical roles but are not directly involved in the purchase or sales division of the business.
- Automate category management
Data-centric tasks are best automated for sheer efficiency in terms of reduced turnaround time, lower costs, and minimized errors through digital applications that can steer clear of excel and use transparent platforms that store the information in a central repository that is accessible to all the concerned employees. Digital tools help in flexibility with easy integration with existing enterprise software. Automation platforms are designed to handle the future scale of increased operations without increasing input costs or risks to the business.
Dynamic tools that create a single unified truth and help in transparent operations in tasks like category management are essential to managing procurement. Project procurement is a necessary task but has a limited scope. It is not ideal to compare the methods with category management that involve end-to-end lifecycle for long-term procurements. With efficient digital tools, a data-centric job like category management is easily integrated into the existing business platforms for futuristic organizations.