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Understanding the Category Management Process

In the last few years there’s been intermittent discussions about ‘category management’ so what exactly is Category Management? Furthermore, what is the ‘category management process’ and how can it be used to your company’s advantage?

Case Study: Category Management Process

Category Management Defined

Category management is the idea of identifying a group of products or services into a general category. There can also be subcategories of a group where the company segments the products even further by limiting the number of different attributes defining the subcategory.

The Category Management Process

The category management process involves maximizing the benefit from a category to support the company’s objectives and mission.

Defining a Category
It is necessary to separate items into like groups having general similar attributes. For example, a company may designate a Category for Packaging. But in this general category there could be Styrofoam, bubble wrap, Loose Styrofoam packaging, Kraft paper, corrugate honeycombs, inserts, corrugated boxes, etc. I think you get the idea.

It may be necessary to segment categories further into subcategories so that the Category can be better managed due to specifications, manufacturing lead times, cost, etc.

Category Role
The importance of a category to the company must be defined. This can be determined by dollar value, of the products or services, or how vital something may be to the operation.

Category Appraisal
An appraisal is a ‘status report.’ The information should provide the basis for future decisions. You should have information about the usage, projected demand, etc.

Category Scorecard
The scorecard should be composed of and weighted with the elements that make up the category appraisal. For example, using the example above, the company should have a way to measure or track cost, usage, etc.

Category Strategies
The company has a mission statement and objectives. The Category Strategy should be developed that supports the company in achieving its objectives.

For example, if a machining company wants to reduce production downtime due to ‘stock-outs’ of cutting inserts (a consumable), the strategy for the Machine Cutting Tool category would involve safety stocks and very short manufacturing lead times for replenishment of products.

Category Tactics
Tactics, for a category, refers to specific actions the company will take to execute its strategy for that category. From the example above, procurement must take steps to ensure that plenty of stock is available (safety stocks are established) and that manufacturing lead time for replenishment product is as short as possible.

Implementation Plan

At this stage, the company executes its plans to meet the strategy. In the case just cited, the company would obtain a contract with one or more suppliers, obtain agreement on short manufacturing times for replenishment, establish safety stocks, etc.

Review or Evaluation and Control
The Category Management process and results are periodically reviewed to determine if the company is reaching its objectives. If the company is on track, further action is not needed.

However, if the tactics and strategies are not being met corrective action is taken at the corresponding level in the category management process.

The Advantage, Category Management

The category management process is the careful and deliberate segmentation of services and products. This segmentation and analysis allows the company better control and management these products and services to support the company in reaching its objectives and mission.

Related Topics

MRO Items: Organization, Control, & Spend.
It is important to have effective business processes in place. Otherwise it is very difficult to reach high performance levels. For more on this topic, please follow this link.

Reducing MRO Costs.
A company with a revenue stream in the millions, can save hundreds of thousands of dollars each year in this area by applying fundamental purchasing procedures. For more on this topic, please follow this link. Today, procurement is expected to bring value to the entire business enterprise. Some organizations have difficulty migrating their legacy processes to more advanced procurement models. For more on this topic, please follow this link.

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