Before we begin with this recipe comparison, what is soup? It’s a lot of ingredients collected in one pot that complement each other to serve a tasty purpose. Now, let’s extend this idea to categories! A category is a grouping of materials or services that have similar supply and/or usage characteristics. This grouping is created to facilitate business objectives. Just as a popular restaurant in winter may be serving multiple types of soup to meet demand, a company should manage spend through multiple categories to meet targeted objectives.
The following are 7 warm and comforting ways that category management is comparable to making soup.
- A high-quality bowl of minestrone can’t be whipped up in 10 minutes with two ingredients in the back of your refrigerator. Category management also needs a long, slow simmer and numerous elements – its effects are not instantaneous, and must take into account factors such as type of product/service, budget limits, and supplier availability & risk.
- Soup can be made hot or cold. Both serve a unique purpose through varying temperatures. Similarly, category management is concerned with solutions that support both the category & overall business objectives. These objectives will vary widely depending on the nature of the business. For example, a grocery store chain may need to structure their purchasing categories around seasonal availability, perishability, and/or transport routes. Fulfilling category requirements will also satisfy overall business objectives.
- You may have heard the expression “too many cooks spoil the broth”. Ignore that. High-quality soup needs many hands to help stir. In purchasing, the contributions of the entire team (if not the whole company) can add value. For example, if a procurement department coordinates effectively with accounting, there’s a good chance that spend is already separated into categories. How convenient!
- It’s a good idea to decide how you want the soup to taste, rather than blindly chucking in jalapeños and olives with your fingers crossed. In order for category management to be functional, first develop a clear understanding of your organization’s value objectives for the specific category. It’s then possible to develop a set of strategies to meet these objectives. Consider this to be the wisest (and usually most palatable) recipe.
- To be made with minimal effort, soup needs tools: measuring cups, a handheld blender, knives, etc.Category management also requires instruments that facilitate organization. One example of this is the four-step Kraljic purchasing model (www.mindtools.com/pages/article/newSTR_49.htm) – it allows buyers to understand where their products are classified in terms of supply risk and profit contribution. The ability to channel spend data to a particular category on a regular basis is a necessary measurement tool.
- There’s a difference between making a single bowl for yourself and an army-sized quantity. Know the intention of your category. Is it an MRO category? Does it involve the purchase of indirect materials for day-to-day operations? Or is the business nature slightly more complicated, such as a company specializing in the generation of nuclear power? In this case, it is suggested that Modified Category Management (MCM) be used to maximize value through the prioritization of technological innovation and risk management. Knowing the intention of the category can also promote industry best practices.
- The colder the weather, the greater the need for soup. Comparably, the more growth-oriented an organization is, the greater the need for strong category management to ensure future success. Avoid the burn of an unorganized purchasing process. Effective category management is a key step to ensuring procurement control.