Successful category management can help supply managers be more strategic with goods and services, align to the business, and leverage resources. Preparation – the ideal first stage in your playbook – sets the groundwork for excellent category management governance and accountability.
The previous post in this series, 7 stages to business-aligned strategies, outlined the category management playbook for supply chain management professionals to develop or improve their category management framework, from a recent CAPS whitepaper, A Playbook for Category Management.
7 Stages of Category Management
- Internal Analysis
- External Analysis
- Category Strategy Development
- Negotiation and Contracting
- Supplier Relationship Management
- Category Performance Management
We're exploring each stage individually to reveal the steps necessary to help organizations create value through robust category management. Let’s start with Stage 1.
Diving into Category Management Preparation
Without a clear roadmap with buy-in from key stakeholders, a category management system won't deliver maximum value to the organization. The Preparation Stage should:
- Develop category hierarchy by deciding which products/services will be included in which category.
- Establish the governance structure for category management and identify the teams, including the key stakeholders.
- Engage with internal stakeholders.
Diving into these initial activities requires commitment and thorough buy-in from the departments and parties involved. Putting vendors and relationships under the magnifying glass may lead to complex questions about priorities and resources that must be resolved before you can proceed.
Develop a top-down classification system that organizes a company’s spend into distinct categories and subcategories that are meaningful to both internal users and vendors. The hierarchy is important because it helps determine the scope of a category, describes the products or services that are included in a category, and identifies how these products or services are used in the market. Categories can be further segmented into subcategories to improve management oversight.
Common hierarchy sources:
- United Nations Product and Services Code (UNPSC)
- Industry benchmarking & standards
- Stakeholder input (internal customers & suppliers)
Companies must decide on priorities, so they know where to focus initial efforts. Categories can reflect total spend on direct and indirect purchases, types of services, and subcategories based on similar characteristics. Risk management, contract timing, and stakeholder interest may also play a role in prioritizing categories.
We have to find the balance between categories that are too granular and not granular enough to meet the needs of business partners and interact with suppliers. After several years, companies may want to re-align the process to reflect supply market opportunities rather than internally focused categories and metrics.
Organizations must determine the purpose, scope, and objectives of category management to identify the right governance structure. The governance structure ensures 1) cross-functional integration, 2) buy-in from internal stakeholders and upper management, and 3) the category strategy aligns with business requirements.
The governance structure should include:
- An executive team that sponsors the initiative, provides the resources and approves the category strategies.
- Category teams that are responsible for managing the categories and the sponsor for the category management effort.
- Project teams that represent the stakeholders.
To promote cross-departmental engagement, some organizations give supply management teams control of the spend activity while budget oversight resides with the internal stakeholders.
A category management initiative will be successful only to the extent that stakeholders are involved in the development of the strategy.
- Groups within the organization, such as executives, managers, users, or volunteers for non-profits.
- Those with contractual or commercial relationships such as suppliers or customers.
- Secondary or indirect parties such as governments and regulatory agencies, special interest groups, and society at large.
The purpose of developing the stakeholder groups to identify stakeholder needs and their readiness for commitment to change --- it’s an important step to know how to navigate forward.
One popular tool to help identify stakeholder roles and activities is the RASCI model:
The RASCI model lays out the responsibility assignment matrix and participation required by different parties for completing a project or tasks.
Organizations can use activities such as stakeholder advisory boards, executive steering committees, and category summits to facilitate alignment, allowing the category strategy to be shared, deliberated upon, and signed off by key stakeholders.
Once the preparation phase is complete, it's time to move onto Stage 2: Internal Analysis in the next post. We’ll look at the activities and tools used to analyze data that’s internal to the organization, such as business requirements, the current category status and supplier relationships and agreements.
Looking for more?
CAPS members can access the full playbook now, including a detailed category management framework and tools in the CAPS Library now.