Rethinking Category Management: Time to Raise the Bar

In a recent Procurement Foundry poll, the question was asked: Category Management — is it Dead or Alive?

It was, by intention, a contentious question in which the overwhelming response (78 percent) of survey takers said it is alive.

However, there is a critical consideration when answering this question: the proper definition of “management.”

If your definition of a “managed” category is as limited as “we’ve got strategically negotiated contracts in place, and our field is participating in these contracts,” then sure, category management is alive—but this is no useful definition of the word “management.”

On the other hand, if you define a “managed” category as including anything beyond sourcing and contracting—such as ongoing contract enforcement, program management and optimization—then in reality, category management is, within many organizations, as dead as a doornail.

To be clear—it is not the category managers’ faults. They are simply operating in environments where they have no prayer of actually managing their categories; overburdened as their departments have been leaned out through multiple recessions. This—and not some failure on an individual level—is what has killed off much of category management.

But it doesn’t HAVE to be dead.

Instead of viewing category management as a functional position involving the sourcing and implementation of new contracts, the ambition of category management should focus more on actual P&L impact, rather than contracts residing in file folders—and this necessitates viewing the role as a strategic one, involving the dedicated and vigilant management of a wide range of expenses. After all, we are talking about category management, not just contract management. And there is more to a category than a contract.

Upgrade Your Definition of Management

Perhaps the best evidence that effective category management requires more than just smart contracting lies in a phenomenon we see all the time within the indirect services arena: Good Contract / Bad Deal.

A recent article on the subject, “‘Good Contract, Bad Deal’ Explained,” posits that without dedicated and vigilant management, a good contract won’t be worth the paper it’s written on and you will find yourself with a good contract in a file folder on your computer, and a bad deal in reality.

Consider this scenario presented in the article:

A sharp buyer does solid work on a new uniform rental agreement, a 3-year commitment is made, and the deal is rolled out to the field.

However, supplier implementation is flawed, and only 60% of negotiated savings ever hits the invoices. Then, in an effort to reclaim lost margins, commissioned service reps impose and gradually increase discretionary charges. All the while, new products not contemplated in the agreement are introduced to the account at an individual site level (at “book” price, not the competitive margins in your contract).

At the same time: The buyer responsible for the category has moved on to their next project. Operations is slammed as always. Accounting does not match up the contract to the invoicing (and even if they did, it would prove insufficient and ineffective, as more and more “off-contract” spend is introduced).

Savings rapidly erodes. And this is all in spite of the strategically negotiated “good contract” in place—a contract steadily losing relevance.

The clear message played out in this all-too-common scenario: Perhaps you have a strategically sourced category, but if the definition of “managed” actually relates to the management of ongoing costs—i.e. the money going out the door—then you would have to label this an unmanaged category, despite the presence of strategic agreements.

Therefore, it can be argued that the only useful definition of “managed” spend, is spend which is strategically contracted AND monitored to ensure that cost levels deliver on the promises of the strategic contracting.

Time to Raise the Bar

Your answer to the “Category Management: Dead or Alive” question likely boils down to your definition of “management” and your overall expectations for the category manager’s role. If you believe the responsibilities of the role end at contracting, you probably also believe that category management is very much alive and well.

This outlook, however, dooms the role to limited relevance and steadily diminishing status, as departmental efforts fail to hit the P&L as intended, and stakeholders’ frustrations grow.

The bar must be raised.

If you are a category manager, you are responsible for managing the category.

Consider Merriam-Webster’s definition:

Manage:

1: to handle or direct with a degree of skill: such as

a: to exercise executive, administrative, and supervisory direction of

b: to treat with care

c: to make and keep compliant

Managing, by definition, entails so much more than contracting. It requires a level of continuous care and vigilant supervision. As it happens, these are the behaviors which are required to deliver the real, lasting value expected from category managers.

Now, we understand—you are not remotely staffed to do that by yourself. And so, we find ourselves at a crossroads. Give up and declare category management dead? Re-name the role to “category contractor?”

Or do we raise the bar and utilize the capability-augmenting resources today’s marketplace makes available to category managers, enabling doubled and tripled output for lasting P&L value?

This latter approach is obviously the one that wins over shareholders and elevates the status of category managers within organizations; it is the pathway to the survival of category management.

Doing this will require mastering new disciplines and staying on the cutting edge as it relates to the marketplace of innovative category management resources.

We are here to help on this front. In our next Procurement Foundry post, we will provide you with a high-level framework for truly managing your categories on a resource-efficient basis. Until then, check out our recent AMA for more procurement insights.