How Do Companies Increase ROI and Improve the Supply Chain?

Category management is a multi-faceted approach for analyzing the supply chain and focusing on key spend areas that drive business results. The ultimate goal of a category management approach is to eliminate fragmented buying and achieve sustainable savings (and performance improvements) across a company’s spend profile.

In our experience, effectively employing category management can save an organization from 5% to 25% of total spend, depending on the specific product or service and current internal and market conditions.

The key steps in a category management approach are shown in the graphic below and can best be described as a fact-based “chain” of analyses, strategies, and decisions.

• Step 1 requires a clear understanding of how money is being spent and which factors are driving business outcomes in your key spend areas
• Step 2 includes the analysis of the supplier and industry dynamics for each spend category and an understanding of your company’s position in the marketplace
• Step 3 consists of the evaluation of market forces that drive success, determination of the benefits, particularly savings, from potential sourcing strategies, and selection of the right approach for your company
• Step 4 encompasses the competitive solicitation, evaluation of proposals, contract negotiation, and, once you have signed an agreement, tracking performance against critical measures of success

Effective category management depends on bringing together the right cross-functional team (supply chain and key subject matter experts who are closest to each category) and following a process that completes the necessary analyses, defines the right strategies, and executes the competitive solicitation and negotiation process in a manner that achieves desired outcomes.

What approach are you employing to procure goods and services, and do you have the capabilities to adopt a category management approach?

To learn more about leading practices in category management, please contact us.

This is the seventh topic in a series focused on the top 10 problematic areas facing utility supply chain managers today.