Should CPOs Invest More Time in Developing Category Management Strategies?

A robust category management strategy with the right application of tools and process is often overlooked by Marketing Procurement but is central to it adding value in its developing relationship with Marketing, argues Nick Sparey of illumino partnership.

As we roll into 2024 with the festive hangover and resolutions still intact for the new year ahead, the role and responsibilities for Marketing Procurement teams remain increasingly complex with a myriad of stakeholders to liaise with, sometimes conflicting internal business priorities to address and a fragmented supply base ecosystem to help drive.

The importance of robust category management and supplier relationship management (SRM) strategies cannot be understated in this respect. Both are critical to Marketing Procurement’s sustained and ongoing success, whilst improving the Marketing-Procurement relationship matrix is more relevant now than ever before with CPOs increasingly looking to further develop their strategic thought leadership in businesses.    

Procurement Category Management Best Practices

When considering best practices for Procurement category management, it is important to remember that every business has its own unique and individual approach to both overall the Procurement strategy and the category management process itself. However, every organization can benefit from the strategic implementation of a few essential best practices when developing their category management process.

There remains increasing pressure on the Marketing Procurement category to maintain its competitive edge with a continuously challenged budget. Traditionally, Procurement wants to ensure that money is spent wisely in line with corporate policies within its organisation and that external relationships with suppliers are well-managed.

Marketing wants to work closely with their Agency partners in an collaborative manner and to see results with minimum interference from Procurement. The traditional metrics used to measure Procurement’s contribution to top and bottom-line growth e.g. cost reduction, cost avoidance or merely savings year-on-year, are not always directly relevant when it comes to reporting success and there is increasing pressure on Procurement to explore new forms of value-based KPIs that add value to these relationships.

Procurement therefore needs a slightly different approach to help partner with the business across the Marketing category. Here are three recommendations that can drive mutually-beneficial commercial results and help drive both efficiency and effectiveness across this critical area of spend:

1. Align with key stakeholders

One of the more significant obstacles to successful category management implementations is resistance from internal stakeholders who regard the changes necessary to support such an implementation as less than cost effective. Management may not realize the value created by category management, or they still, sadly, hold traditional views of Procurement as a source of cost savings rather than value.

It is worth the extra effort to educate stakeholders at all levels regarding the benefits of effective category management however, particularly as part of an overarching Procurement functional strategy. By shifting focus to collaborative, proactive, and strategic supplier relationship management, it is easy to develop category strategies that provide demonstrable value through areas such as employing Procurement in areas such as centralized spend data as well as direct involvement in budget planning at all levels. Improving risk management and supporting business processes through the use of data automation, artificial intelligence, and deep data analytics to track and manage supplier performance and compliance is now a prerequisite. Developing a SRM program that allows for a balanced approach when developing highly strategic and mutually-beneficial relationships with key partners whilst simultaneously providing open and clear communication with non-critical suppliers is also now mandatory.

2. Formalize the category management process.

No two category management strategies in an organisation will ever be the same, but Marketing can create one that best suits the business needs and goals by addressing a few key areas: 1) track and measure the spend with tools that add strategic value and have minimal expense, but above all that provide stakeholders with a easy-to-understand spend analysis highlighting those suppliers that are business-critical partners for continuity, growth and innovation 2) provide an in-depth market analysis that outlines the context for each category of spend and the associated risks attached across the supply base 3) demonstrate continuous improvement through process and tools by being flexible enough to adjust the supply base to meet the changing needs of the organisation and yet still maintaining and developing collaborative relationships with key suppliers.  

3. Invest in Procurement tools and software

In this modern age of digital transformation, to fully take advantage of the benefits of category management an organisation needs digital tools that allows it to manage its supply base with a strategic approach to supplier relationships, spend analysis, and the entire sourcing process. Integrating modern Procurement software solutions helps the business set and achieve concrete goals for cost savings and value creation by leveraging advanced analytics, process automation, and artificial intelligence. Using category management and SRM tools, Marketing Procurement can provide stakeholders with a repository that centralizes spend data, supplier data and market intelligence; customizes the approach to category management in real-time based on the data analysis; tracks and measures supplier KPI performance and compliance; works with stakeholders at all levels to improve decision making, and promotes knowledge about and support for digital transformation throughout the organization.

By way of conclusion, perhaps the best yardstick to highlight the success that Marketing Procurement has achieved in the last five years is to draw on the work of the World Federation of Advertisers (WFA) whose members within the Global Sourcing Board tirelessly seek continuous improvement with their Marketing counterparts. Their blueprint for success in Project Spring highlighted many opportunities for improving internal and external stakeholder relationships, but 4 key areas of progress in particular to pursue:

1. Evolution of procurement processes (Process)
2. Improving people’s understanding of Procurement (People)
3. Building new performance KPIs beyond just savings (Performance)
4. Involving external partners to ensure a true perspective (Partners)

Ultimately, for Marketing Procurement to add value it needs to apply a robust process and set of tools to properly consider the importance of key supplier relationships. Procurement must equally continue to invest considerable time in understanding Marketing issues and business priorities across the organisation. A strong relationship between Marketing and Procurement reduces cost, delivers more value against the budget and allows for any costs savings achieved to be reinvested back into the business. To sum up, a joint, structured approach will always lead to better quality Agency relationships provided that there is mutual trust and respect on both sides.

Source: World Federation of Advertiser (WFA) Project Spring.