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Category Management and supplier relationships

November 17, 2015

Category management is now a widespread approach within supply management. For some, it is about aggregation of spend and achieving lower prices. For others, it is about increasing the expertise and value delivered by their procurement function. As with so many initiatives, it is often hard to tell what precise benefits have resulted.

One concern that is often expressed is whether a category approach limits perspectives and creates a narrow focus. In this context, I was interested in a conversation today with a team from a company called New Information Paradigms (NIP). One of their projects contained the term ‘category leadership’, which they defined as ‘aligning capabilities through relationship assets’. The project had involved collaboration across a portfolio of suppliers, in which they had worked together to identify efficiencies and deliver savings to their customer. For example, they explored opportunities to align transportation and warehousing – even, in a few instances, to switch product lines.

The NIP approach had caused organizations to explore their relationship as a potential asset and to examine their mutual partnering capabilities. It led to key questions, such as:

  • are we both prepared to adjust the way we do business to better align processes?
  • how well do we share and manage information as a joint resource?
  • how well do we understand relationship risks?
  • how well are we leveraging the relationship asset to do business in a new way, to innovate and to protect or grow mutual value?

It strikes me that there is a further step in this approach – and that is to achieve ‘category integration’, where there are specific initiatives to develop collaboration across inter-dependent supply networks and to establish opportunities to optimize performance. We see this to some extent in approaches to relational contracting, where facilitated workshops establish common procedures, discuss relationship risks and generate a shared commitment to continuous improvement.

My belief is that category management in isolation delivers limited benefits. As with any segmentation, it needs approaches that offer incentives for integration and cooperation.

One Comment
  1. Whilst in the indirect procurement team at Rolls Royce, just before the millennium, I saw the change towards category specific buyers. However, they also realised at the same time the challenges with ensuring the projects did not suffer at the detriment of this, where aggregated demand into volume contracts can interfere with the necessary project specific needs.

    Thus the cross functional team was born where the buyer had both category and project responsibilities. This is where the relationships and need for cooperation becomes very important.

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