What business owner isn’t constantly looking for ways to increase productivity and efficiency while still saving money? What if you could save money and manage risk at the same time? Category management could help.
Category management refers to the art and science of streamlining procurement of supplies and inventory for your company. Retail businesses employ it heavily in such areas as market research, store layout, and range planning. But category management is useful for any type of business. No matter what you do or sell, category management can help you save money on supplies, materials, and inventory. Here’s how.
Understanding Category Management
Are you running to and fro trying to procure different kinds of supplies, materials, or products from a range of different suppliers? Have you got a bunch of different contracts for supplies and so forth? Have you got multiple people at your company in charge of ordering supplies and materials for their respective departments? Does any one person in your organization know where all your supplies, materials, and products are coming from, who all is selling them to you, and how much you’re paying?
If any of these sound familiar to you, it’s time to bring some category management into your procurement process. Unless you have a strategy for procuring the supplies and products your business needs, you could easily end up juggling a confusing patchwork of contracts, each with terms that are less than favorable and with prices that are higher than they could be.
Category management involves centralizing all of your procurement processes, streamlining everything so that it’s easy to see and understand who you’ve got vendor contracts with, what you’re getting from each vendor, how much you’re paying, and what your other contract terms are.
Many companies accomplish this by hiring a category management professional, a single person vendors can go through to sell supplies or materials to your company. You’d have a global contract that all your vendors would use, and there’d be someone involved who understands key information like prices and terms, does the contract negotiation, and distributes supplies and materials to the various locations. However, if you’re a smaller outfit that can’t afford to hire another staff person to handle procurement, there are software solutions available for small business owners looking to grow with more sophisticated procurement processes.
Manage Supply Chain Risk
Category management can go a long way towards helping you manage supply chain risk. For example, you might use vendor risk management software to determine vendor risk level and take action to mitigate its impact on your business, such as putting newly high-risk suppliers on hold temporarily while you evaluate their change in status, or reviewing and even renegotiating a contract due to changes to a vendor’s risk profile.
You’ll be able to further reduce supply chain risk by making sure you’re not relying on one vendor for all your supplies — without many of the headaches that can come with supply chain diversification, like struggling to keep track of all your vendors and their contracts. You’ll be able to foresee and head off logistical issues that arise, especially when vendors have problems of their own. All of this will help your business continue to run without a hitch, no matter what’s going on behind the scenes with your vendors.
Reduce Procurement Spend
Organizing your procurement efforts can save your company money in so many different ways. You’ll be able to negotiate more favorable contracts, while saving your company money not just in terms of how much you’ll be paying your suppliers, but also in terms of what value-added services and other extras you’re able to negotiate when you have a strong procurement process. Efficient procurement software is invaluable when it comes to conducting regular spend analysis, which can help you pinpoint and rein in any maverick spending, as well as cutting other costs.
You’ll be able to automate many of your procurement processes, freeing time up for the employee or employees in charge of those processes and improving your business efficiency. Your procurement software will be able to monitor your processes for non-compliant purchases and other sources of spend leakage. And you’ll be better equipped to encourage bidding between suppliers, lowering your overall costs.
Category management is a valuable tool in business procurement, whether you’re buying stationery for the office or inventory for your retail store. The sooner you implement a strong procurement solution, the sooner you can start cutting costs — and that’s money you can reinvest to grow your business.