Sourcing Strategies for Category Managers—Demand is King
When it comes to procurement, have you thought about the big picture? Too often, it’s focused on segmented demand and fails to account for overall demand. That’s why progressive organizations are making the shift to category management.
To understand the category manager, let’s discuss goals.
One of the constants in procurement has always been the goal of cutting costs. That’s been at or near the top of the list for sourcing professionals for centuries. Another consistent priority on the list is ensuring that suppliers deliver—on budget, on spec, and on time.
It makes sense that these goals haven’t changed over the years. Companies that don’t keep their costs in line don’t succeed, at least not in the long term. Those that fail to effectively manage their supply chain are also in trouble.
Nothing new there. However, what is new is a growing recognition in the procurement world that demand is an often overlooked element in the equation. Big picture demand.
Strategic sourcing has been the preferred approach to deal with big picture demand as companies modernize their approach to procurement, but even this strategy leaves money on the table and fails to go far enough in avoiding delays. Category managers can help with that.
What is a Category Manager?
Utilizing a category manager is a better approach to procurement. It’s a fundamental change to the way companies undertake sourcing and requires buy-in from the entire organization.
The key to category management is looking at demand across the entire organization instead of focusing on the needs of individual business units. A company may have a wide range of products, each operating within a silo, each with a business stakeholder who files requisitions for materials and supplies. Traditional procurement methodology often results in multiple suppliers delivering the same component to the same company because each contract was negotiated for a specific business unit.
Category management looks at the entire organization’s needs—regardless of business unit—and manages the supply process based on the whole. For example, two different product lines run by two different stakeholders might both require batteries. Traditionally, each would negotiate a separate contract with two different suppliers (or even the same supplier).
With category management, procurement negotiates a single contract covering the needs of both business units. This gives the company more leverage for favorable pricing. The volume also makes the contract more attractive to top-tier suppliers who have a better reputation for quality and meeting deadlines.
However, to make this work, category managers are required. These are the key procurement team members who interact with the various business stakeholders along with functional groups like finance. Category managers must understand the market dynamics at play within different product categories. They need to be able to pick up on signals that demand might be increasing or decreasing. They work with the business stakeholders and functional groups and also with the purchasing team. This requires all data related to the procurement process to be accessible, with the ability to generate reports.
It sounds intensive, but the payoff is significant. Fortunately, a new generation of procurement software is making the adoption of category management easier and even more effective.
Demand is King to Category Managers
While category management has the potential to deliver considerable cost savings by combining the collective requirements of multiple business units, there is also a very strategic element to the approach. Because the category manager has a finger on the pulse of overall demand—past and present—they can forecast future demand. That is a game-changer. If the category manager concludes that a current supplier will not meet future demand, this gives the company time to time to put a strategic plan in place.
Maybe that’s meeting with the supplier to discuss expanding their production capacity to meet demand. It could mean beginning a cycle of seeking out alternative suppliers who are better positioned to meet that future demand.
The category manager provides the early warning so the company can deal with the issue strategically instead of having to react when the current supplier runs into delivery challenges. Being able to act strategically will save money compared to scrambling and adding new suppliers while under the gun. It also works to the advantage of business units, which avoid disruption in their production.
To be effective in their role, category managers don’t just need organizational buy-in. They need an unprecedented level of data access, with the ability to generate demand forecasts as needed. To accurately forecast demand based on all the variables in play, AI and machine learning are a requirement.
In addition, category managers need a solution that is designed specifically for procurement professionals, with full support for their processes. Ideally, this will be a system that offers full visibility into the sourcing process, with KPI dashboards, predictive procurement capabilities, and collaboration capabilities (hint, it’s Arkestro).
Demand is king, but unless the category manager has the tools to track, process, and forecast demand, then the strategy of category management is going to fall flat.
Next Steps: Get an Arkestro Demo
Too many sourcing category managers find themselves in a difficult position. They are tasked with delivering the cost savings and strategic advantages of the category management approach to procurement. But they are stuck using outdated software that is ill-suited for their needs. Trying to “make it work” is a recipe for frustration and failure.
Think about the big picture in your organization. Tools that can help you source more effectively across the entire procurement process will help you meet goals, just like category managers help with the big picture of procurement. Instead of trying to make do, visit Arkestro for a demo of AI-powered, predictive procurement software that’s designed to support category management.