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It seems that category management has become the default solution for procurement these days. In discussion I am often asked what tweaks should be made to this model and more essentially how it could be improved. What is interesting is that no one ever seems to question whether category management is actually the optimum model. There is a place for category management in professionalizing procurement during a process of evolution. However, in my opinion, it is not an end state. Take a moment to reflect and the flaws in the model become self evident.
Problem 1: Coverage
A category management model typically appoints category managers to those spend groups representing the lions share of total spend. For the rest there is little attention unless something goes wrong. Whilst a category management model may have resources focused on 70 or 80% of spend, this often only covers 40% of the goods and services an organization purchases. Risk is seldom limited to high spend areas and often most of the niggle comes from these ‘tail’ spend areas.
Problem 2: Differentiation
Category management has a habit of applying a standard approach to focused spend areas. It seldom differentiates between the attributes specific to particular areas of spend. As a result things end up being managed in broadly the same way using similar tools and techniques. Whilst language often focuses on strategic suppliers and spend groups, it is often difficult to see differentiation from category to category in approach, technique or philosophy.
Problem 3: Knowledge Management
Advocates of the category management model often justify its need because of the requirement to drive category insight, knowledge and understanding. All very valid. However, what this ends up creating is a consolidation of knowledge in the individual buyer. In effect an organization’s category knowledge becomes vested in the particular buyer. The problem with this is if the buyer leaves. Not only do you potentially lose a good resource but you also lose the accumulated knowledge and insight for the category. This problem exacerbated by recruitment approaches. Too often the focus concentrates on the depth of an individual’s knowledge in a category rather than on the key skills of a buyer whether that be sourcing, cost modelling or relationship management. In effect the model compounds and perpetuates the knowledge problem without ever addressing it.
Problem 4: The law of diminishing return
Category management tends to rely on appointing dedicated procurement resources to particular spend areas. Whilst sourcing techniques applied properly will see significant commercial improvement over time it is common to see the same levels of resource continuing to focus on particular spend categories long after commercial, quality and service improvements have diminished as a result of earlier activity. Like a maturing tree, category management creates rigidity in the procurement function removing flexibility and the capacity to adapt to circumstance.
Summary
Category management does have a place in evolving procurement. It is the natural stepping stone to bringing discipline to the function as professionalism takes hold. Bringing focus and rigor to spend should never be criticised. Where things go wrong though is the perpetuation of the category management model long after the benefits have been secured and step change delivered from focus on primary spend areas. In effect, organizations persisting with the model fall into the trap of diminishing return. The result is an adverse impact on their ability to adapt to circumstance and drive further innovation and improvement. My suspicion is that part of the reason for the continuing dominance of category management as the prevailing model for procurement is the absence of an alternative.
So, I hear you say, if not category management then what? I will give you my perspective on what I believe to be the natural successor to category management in my next drop to the Sourcing Garden. In the mean time good luck with whatever challenges face you and happy hunting.
The Planter.
We need to invest in making sure accelerators can be readily adopted and deployed to drive category management as standard practice and not some complicated and lengthy method or approach.
Accelerators should include standard web enablement tracking for all buyers to have access to and material that ensures the ability to differentitate between those elements which need regular updating and those that remain static based on the type and nature of the commodity.
This will ultimately drive second and third generation sourcing.
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