Category Management & Strategic Sourcing - How they should coexist

Strategic sourcing is a process, Category management is a strategy.

But I’ve seen many large Procurement Teams create a structure as follows:

• Category Management

• Sourcing (Strategic)

• Supplier Relationship (SRM)

There’s nothing wrong with the structure.

The problem is. there’s not a clear handoff between the teams. The CPO hasn’t defined roles and responsibilities.

Where does the Category Management strategy define the Sourcing approach and how does Sourcing interact with SRM?

To simplify this further, let’s consider the basic objectives of Procurement.

Now, tell me which of these 5 objectives does not lent itself to Category Management, Sourcing or SRM activity?

All of them do of course.

But a Procurement team without clear accountability will drift.

What’s more, the internal friction caused as team members look to shape borders, define boundaries and fight their own cause, will be detrimental to Procurement’s standing within the organisation.

Here’s a Practical Example of effective Coexistence

Category: IT Equipment

1. Category Management:

   • The IT category manager develops a strategy focusing on total cost of ownership, quality, and innovation. This strategy includes understanding internal requirements, analysing market trends, and building long-term relationships with key suppliers.

2. Strategic Sourcing:

   • Based on the category strategy, the sourcing team initiates a project to select a supplier for a new line of laptops. They conduct a detailed market analysis, issue RFPs, negotiate contracts, and select the supplier that best aligns with the strategic goals of cost efficiency and technology advancement.

3. Ongoing Collaboration:

   • Throughout the sourcing process, the category manager provides insights on market conditions and supplier performance. Post-sourcing, the results, such as cost savings and supplier capabilities, are reviewed and integrated into the broader category strategy.

   • The strategic sourcing project might reveal new supplier innovations or changes in the market, prompting a review and update of the category strategy to capitalize on these new opportunities.

4. Supplier Relationship Management:

   • The SRM team optimises the value driven through Category Management and Strategic Sourcing, focused on ‘managing the contract’, driving efficiencies, developing partnership and looking for additional value.

The problem for many large organisations that create a structure like this though, is they’ve not defined the roles, or explained how the cycle should work

Accountability is lost and without Category Managers being the overall guardians and drivers strategy, Procurement can too easily morph into the tactical.

Sourcing teams looking to define overall strategy and SRM becoming tactical firefighters.

Worse, the internal team land grab and ill defined responsibilities, can make it impossible for functional stakeholders to even know who does what.

A good Procurement leader will define the cycle in these simple terms:

• Category Management provides the strategic framework within which Strategic Sourcing activities are planned and executed.

• The category strategy sets the long-term vision and goals for each category, identifying areas where Strategic Sourcing can contribute to achieving these objectives.

• The focus of strategic sourcing is on spending less at each stage of the supply chain.

• Supplier Relationship Management (SRM) drives the value from the supplier partnerships once the sourcing activity is complete

• SRM then feeds into the Category Management Strategy and the cycle continues.

And once that’s been embedded effectively within the team, the path to Procurement Maturity is so much faster as all the cogs will spin together.

It should be, by design an iterative process of improvement.

There’s no start or end date to the activity, it’s a continuous cycle of value creation throughout the chain.

But a fundamental for a Procurement function to evolve and for the Procurement Maturity of an organisation to be dynamic, the ownership (trigger point) for change has to be driven by Category Managers.

This isn’t to undersell the role of Sourcing or SRM.

Category Management (strategy) can’t be implemented without Sourcing and Sourcing cannot deliver full value lifecycle management within SRM,