What Is Category Management? (With Benefits And Steps)

By Indeed Editorial Team

Published 27 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Category management makes the process easier for businesses looking to optimise the products they buy or sell. With a large inventory, this method helps organisations streamline their efforts towards an effective, timesaving and customer-focused approach. Learning about category management can help you successfully use this strategy within a business to grow its revenues successfully. In this article, we answer the question 'What is category management?', list its benefits, outline the steps to execute it and also mention some challenges you may encounter in the process.

Related: Procurement Skills: Definition, Importance And Examples

What Is Category Management In Procurement?

The answer to the question, 'What is category management?' is it is a retailing and purchasing concept in which the range of products a business purchases or a retailer sells gets categorised into distinct groups of similar or related products, which are called product categories. For instance, at a supermarket, you may see product categories like chips, cereal and deodorants, which help simplify the product management process.

It is a centralising process that gives procurement teams a thorough understanding of the entire supply chain while also enabling them to conduct in-depth spend analyses on particular categories to monitor supplier performance, gather market intelligence and take advantage of economies of scale to ensure the highest possible return on every dollar spent while reducing operational risk.

Related: What Is Supply Chain Management? (Benefits And Examples)

Benefits Of Category Management In Procurement

You can align your approach to your category plan with the company's goals for growth, risk and competitive advantage as the procurement team builds its category management strategy to maximise the impact of spend analysis and supplier relationship development. Approaching category management strategically and proactively can offer you benefits, including:

Increased client satisfaction

The price buyers pay gets determined by how much the store pays its supplier for the items. An effective category management strategy enables merchants to make economical bulk purchases and profitable commercial deals with other companies. They can then give their clients a more useful and satisfying purchasing experience by passing these savings along to them.

Related: Client Management Skills: Definition, Analysis And Tips

Enhanced vendor performance

Effective category management implementation enables businesses to collaborate with suppliers quicker and better. This may enable them to manage logistics for commodities effectively and secure the products successfully. In addition, this approach streamlines the procurement procedure, assisting new suppliers in allocating resources to big contracts while also making them more flexible.

Related: What Is Vendor Management Software? Types And Benefits

Improved spending and negotiating contract insights

Owing to proper category management logs and plans, anybody can retrieve the accuracy of expenses, pricing and spending. You can also understand the complete context of expenditure with a thorough list of clearly recognisable vendor contracts. This can help better understand the overall expenses of prospective contracts and how to negotiate them.

Improved connections with vendors

Regardless of size, category management makes it easier to communicate with all organisational hierarchies. When interacting with vendors, this communication style may be useful. You might have more options to work with a wide variety of vendors and strengthen your connections with the ones you already do. You may also find new business ideas by strengthening your relationship with your vendors.

Related: What Does A Vendor Manager Do? Responsibilities And Skills

How To Facilitate Effective Category Management

Here are eight steps to managing a product category:

1. Define the category

Identifying the precise categories you intend to utilise and manage during the procurement process is the first step in category management. You may base the category boundaries on how your consumers often make purchases. For instance, consider how people browse through each category separately and conduct research to identify related or complementary products they buy together frequently. By gathering this information, you may make informed decisions when you choose your segments and products.

2. Establish the category function

Once you establish the categories, match them with the overall mission or vision of the business. Consider the category's overall effect and significance. Find out who or what it serves and how you might make improvements in terms of volume or sales. For instance, if the main objective of the business you work for is to help neighbourhood grocery stores, consider only working with local vendors and suppliers.

3. Examine the category's performance

Review the category's performance during this stage to assess its effectiveness. You might check with other merchants or companies that operate in the same industry and provide comparable goods. To get a more in-depth understanding, evaluate the performance of this category and create comparisons between various business units. With thorough and data-driven information, it becomes easier to make judgements regarding the required objectives and the best way to achieve them.

4. Establish objectives for the category

Set achievable goals to help you in achieving your aims after gaining insightful knowledge about the category you have defined. Make sure your goals are explicit and achievable when creating them, such as sales, market share, or product volume. Set your goals using the SMART acronym, which stands for:

  • Specific: Make sure each goal is specific to ensure you include real-life ideas.

  • Measurable: Ensure that you can measure the goal in quantifiable terms, whether that is monitoring your progress or re-evaluating goals

  • Attainable: ensure your goal is realistic and attainable so you have the means and resources to complete it effectively

  • Relevant: Verify that your goals are meaningful and provide a relevant benefit to your category management strategy and the overall long-term objectives of the organisation.

  • Time-based: Set a specific timeline to reach your goal, whether that is a definitive deadline or intervals where you are to complete a certain part of the objective.

Related: SMART Goals: Definition And Examples

5. Develop a strategy

Start planning your tactics using the objectives you have established as a reference. Think about the different approaches and steps you may take with the category management project of the company you work for, along with the potential in-store experiences for each distinct category. Examine key areas and opportunities for improvement, such as sales, foot traffic and market shares.

6. Select tactics

Your tactics serve as the specific actions in your strategy that can assist you in accomplishing the short- and long-term product goals. Here, you specify the precise steps and ensure these are understandable, doable and repeatable as well whenever required. Consider the factors that may help you enhance the product category, including the particular products, unique promotions, products' positioning and supply strategy.

7. Put your plan into action

Put your plan into action and make sure that each person involved in the process understands how to execute their assigned responsibilities and tasks precisely and on schedule. By outlining the entire project in writing, you may more firmly establish your plan. Include all relevant information, such as methods, plans, goals and category roles.

8. Monitor all outcomes

After putting your plan into action, it is also important that you monitor the results and make any necessary adjustments whenever required. Examine the elements of the category management approach that are effective and those that can improve to enhance sales. You can go back to step one if necessary and start over with a new strategy that can help produce better results.

Challenges To Category Management

Though procurement departments are aware of the advantages and benefits of category management, it may get challenging to explain these to the management who may not always have similar technical knowledge. Sometimes, the management may not always prefer change, especially when it involves a supplier with whom they already have a cordial and understanding relationship, which may cause hesitation to switch from one provider to another. Even though the cost-effectiveness is obvious, the management is required to be convinced that quality and deadlines are uncompromised.

The advantages of category management are more identifiable when technologies are useful in examining data from procurement management. It provides large or international businesses with considerable cost efficiency, which may give them an advantage over their competitors. Firms that have implemented category management have seen significant advantages because of their size and scope.

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