Category management is a retailing & purchasing concept which involves range of products purchased by business organizations or sold by the retailer which are in turn broken down to a more smaller & discrete group of similar of related products.
The Phrase Category Management was Coined
In category management each category is run like a mini business (SBU) which has its own turnover, profitability & targets. Due to category management all supplier negotiations in turn affects the turnover of the category as a whole not just the sales of the individual products.
As the definition by Neilsen, “Category management is a process that involves managing product categories as business units and customizing them to satisfy customer needs.”
Procurement Process Map in Retailing Category
Category management should be aligned with the business objectives and should be developed along with the key customer stakeholders. Category management influence the sourcing strategies & also improve the contract management initiatives.
Framework of a Category Planning Process
The category planning processes are used to develop a set of category plans that are in a way aligned to the customer’s business objectives with approach to maximize value & risk. The rationale is simple Category diagnostics lead to category plan development & in turn creates a strategy framework for category management.
Category diagnostics analyzes the current market situation & market research to develop category profiling. In category plan development, stakeholders engage to jointly develop category strategies & objectives.Category management involves the sourcing & contract management initiatives in alignment with category plans.
Category Planning Process in Retailing
- Develop category profile
- Undertake market research & intelligence
- Defining the current state
- Setting of category directions
- Developing category plan & monitoring its performance
- Category management
How to develop effective category plans?
All category plans should be aligned with the help of stakeholders in the following process
- Aligning the customer’s business objectives
- Influencing scope of category sourcing projects & strategies
- Providing strategic direction to contract management initiatives
- Requiring a category strategy communication pack
Always note the category plans need to be reviewed & updated periodically
Total cost of ownership analysis
For the suppliers these category of costs are absolutely essential to obtain supplier ownership analysis. They are Product driven cost, Customer driven cost, Order fulfillment cost, Margin. Ownership analysis for customer costs includes Channel Administration cost, Accounts Payable cost & internal distribution cost. Hence these are factors that affect a particular category management process in a procurement & supply process.