August 7, 2023

6 steps for creating an action-based category strategy

Are you developing a category strategy, but not sure where to start? Follow these six steps to create an action-based category strategy for your company.

Børge Langedal
Co-Founder & CRO
Share

What Does Category Management Mean

Category management is a business strategy that can mean different things to different companies. However, in procurement, it means breaking up spend into areas containing similar or related products to uncover opportunities for enhancing quality and efficiency and reducing costs.



In practice, this can involve data-driven division of direct and indirect products or services by value, supplier, type or volume.



By addressing duplication, waste, and incautious spending, category management intends to restrain overall expenses whilst strengthening relationships with the suppliers.

Category Strategy in Procurement

Procurement professionals, especially category managers, spend a lot of sleepless nights figuring out the most cost-efficient and effective category strategies for their organization.



The problem is particularly perplexing for businesses with multiple direct and indirect categories across business units. Because, most of the time, procurement lacks clarity around how effective their strategy is around each category and what benefit it brings to the organization.



Based on needs and business objectives, the category management strategy differs. However, there are certain elements the strategy must include for higher returns and resilience. And spelling out a detailed spending structure by segment, supplier, business unit, and region arguably is one of the most important steps in the category management process.

Nailing the Category Strategy Process: The 6 Steps

A suitable category structure is a prerequisite for category management and strategic procurement. Learn more on how to create a category structure for your business in this article.

1. Analyze the Current State

Use your spend data to evaluate the current situation for the various categories. Questions you should try to answer are size of spend (value and volume), contract lengths, suppliers and your importance as customer for these suppliers. In many cases, it's also useful to make an assessment of how important the category is to your business and the complexity in the applicable supplier market.

Kraljic Matrix

2. Perform Risk Assessments

List the most critical risks that you and your team identify in the category, and create a risk matrix by scoring the identified risks based on probability and significance.

3. Identify Alternative Suppliers

Get up to speed on the current market situation by identifying alternative suppliers, their location and product/service offering. Remember to comment on any important information for the relevant suppliers.

New call-to-action

4. Consider Applicable Levers

Select applicable commercial and/or process levers for the category and specify the feasible alternatives.

5. Create an Action Plan to Reach the Target

Decide on the appropriate actions you and your team will take. Create a plan by sequencing the actions in the short, medium and long term. The plan should also include responsibilities throughout the team.

6. Summarize the Strategy

Document the strategy on a "one-pager" where specific goals are detailed, e.g savings target, number of suppliers, contract lengths and market complexity.

In need of a template to get started? Download our free, battle-proven category strategy template.

Share
About the author
Børge Langedal
Co-Founder & CRO

Børge Langedal is a co-founder and partner at Ignite and prior BCG consultant​. ​ He has led and assisted projects for clients within oil & energy, FMCG, and construction with a focus on cost reduction and enablement​.

Ready to move away from spreadsheets and work with your suppliers in a responsible way?

Our goal is to empower responsible decision-making by giving you the insights and tools you need to unlock the potential of your supply chain.

Preferences

Privacy is important to us, so you have the option of disabling certain types of storage that may not be necessary for the basic functioning of the website. Blocking categories may impact your experience on the website. More information

Accept all cookies

These items are required to enable basic website functionality.

Always active

These items are used to deliver advertising that is more relevant to you and your interests.

These items allow the website to remember choices you make (such as your user name, language, or the region you are in) and provide enhanced, more personal features.

These items help the website operator understand how its website performs, how visitors interact with the site, and whether there may be technical issues.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.