A little over a year ago I had an excellent conversation about category management with Sakthi Prasad at Beroe. He asked me, “How many companies are currently using category management?” My answer then was 70-80%, but the answer to this question is more nuanced and is the topic of this post.

Practically every company with a professional procurement function believes they are ‘using category management’. It is the accepted and time proven way of organizing the work of the procurement function. What does effective category management look like in practice? In my experience there are three distinctly different levels of category management.

I’m going to use an analogy with cooking to illustrate three levels of category management. If you ask someone if they cook, the vast majority will say yes. Those who claim to be able to cook, however, range from basic cooks serving preprepared items to expert cooks who make exceptional dishes based on available ingredients, experience, creativity, and tailored to the requirements of the diners. They are all “cooking” at some level, but there are widely varying efforts and results.

Category management is similar—there is not one simple definition. To ‘use category management’ is to perform third-party supply strategy development and implementation on a spectrum of potential approaches.

Basic category management is focused on strategic sourcing and buying performed in a category structure. Most companies align procurement staff with the external supply categories. Strategic sourcing performed in this way is often viewed by the procurement practitioners and their leaders as ‘using category management’. Every company needs this level of category management to align with supply markets. This is category management at the ‘serving prepared food’ level. There is nothing wrong with purchasing a pre-cooked chicken or premade cake, but it is not the same as preparing the item from scratch. Nearly 100% of companies are using category management at this level.

Enhanced category management focuses on active category improvement. This includes the prior strategic sourcing-level structural elements and expands to include activities to drive supplier and SKU rationalization using the existing business requirements. Stakeholder engagement is focused on the SKU and supply-base reductions. This level of category management is deployed by companies in need of greater category results and with a culture moderately supportive of change. This is category management at the ‘following a recipe level’ and the results are substantially greater than the ‘serving prepared food level’. Appreciation for what is required to achieve the results and the pride of accomplishment are much greater. Following the recipe to bake the chicken or make the cake yields a much deeper involvement with the meal. I estimate 60-70% of companies are using category management at this level.

Transformative category management seeks to fundamentally review and prepare the category to meet the future needs of the business and builds on and includes the prior levels. The category leader role expands to leading a cross-functional team, managing executive sponsorship, and presenting results and progress to the category governance council. This category work expands beyond the category improvement elements to fundamentally review, assess, and evolve the business requirements. Extensive stakeholder engagement regarding the current and future needs of the business drives changes to the business requirements resulting in fundamental restructuring of the company offerings and the underlying supply chain. This level of category management results in profound changes and results. Very few companies achieve this level. I estimate 5-10% of companies are using category management at this level. The analogous mastery level of cooking is when a chef can use a limited array of ingredients, understand the diners’ needs and desires, and create a delicious, satisfying meal.

What level of category management is performed in your organization—basic, enhanced, or transformative? Why is this the predominate level? Why are so few companies using transformative category management if the results are so compelling? Understanding the answers to these questions is valuable input for

Question #2 – What are the characteristics of companies successfully deploying category management? which I will cover in an upcoming post.

There is an additional closely related question that I will address in a later post, “Which categories are most in need of category management?”

Thank you Sakthi for asking a very thought-provoking question and thank you reader for reading this post and taking the time to understand the nuances of category management. I look forward to your comments and inputs.