Category Management in Purchasing: A Strategic Approach to Maximize Business Profitability

by Jonathan O'Brien

Overview

Category Management is a technique used to understand markets, analyze spending, and make purchasing decisions that save money. It can mean the difference between accepting mediocre goods and services at high cost and effective supply management that delivers real value. By altering how goods are categorized and supplied, this management tactic helps shift purchasing from being an error-prone transaction to lowering costs for the business.

Using case studies and practical examples, Jonathan O'Brien provides a step-by-step guide to category management implementation and use that companies can readily apply to their overall business strategy.  The third edition is updated with pragmatic advice for smaller businesses, details on how category management can work together with other approaches (such as Supplier Relationship Management), revised sections on supplier management, and new information on governance, supplier and supply chain tools.  This practical book allows readers to analyze complex sourcing situations quickly and develop innovative and creative solutions.  Category Management in Purchasing is the perfect companion to Jonathan O'Brien's other books, Negotiation for Purchasing Professionals and Supplier Relationship Management, both published by Kogan Page. Used together, they provide a complete and powerful strategic purchasing toolkit.

Product Details

ISBN-13:	9780749472306
Publisher:	Kogan Page, Ltd.
Publication date:	10/28/2015
Edition description:	Third Edition
Pages:	504
Product dimensions:	6.40(w) x 9.10(h) x 1.30(d)

About the Author

Jonathan O’Brien is the CEO and a founding member of Positive Purchasing Ltd., and international purchasing consulting firm and training provider.  He is the author of Negotiation for Purchasing Professionals and Supplier Relationship Management (Kogan Page).

Table of Contents

List of figures
List of tables
Foreword
Preface
Acknowledgements
About the author

Introduction

01 Introducing category management
Category management explained
Category examples
How it all started

The relevance of category management today
Technology as an enabler
The world is a smaller place
You don’t have to wear sandals to talk about 'sustainability'
Our love affair with brands, bargains and something just for me!

It’s all about value
Securing the value the organization needs
Value and the virtual brick wall
The value of maximizing profit

Determining categories
1 Identifying spend
2 Directing resources to addressable spend
3 Directing resources where there is opportunity
4 Identifying market boundaries so categories become market facing
5 Most appropriate level to work at
Defining category segmentation

The benefits possible
Scale and nature of benefits possible
Surely someone has already thought of this?
Chapter 1 summary

02 The principles of category management

The three foundations of category management
Foundation 1: Sourcing strategically
Foundation 2: Managing the market
Foundation 3: Driving change

The four pillars of category management
Pillar 1: Breakthrough thinking
Pillar 2: Customer focus
Pillar 3: Cross-functional teams that work
Pillar 4: Facts and data

Category management in the public sector
EU procurement legislation
Adapting category management for the public sector

Purchasing category management in retail
Chapter 2 summary

03 Laying the groundwork for success

Before you start
Creating the right conditions for category management
Category segmentation and opportunity analysis

The 5i category management process
A circular process
Moving through the five stages
Reviewing progress
Realizing the benefits
The full process

Applying the process
Process duration
Knowing what to leave out
Working through the process
Chapter 3 summary

04 Stage 1: Initiation
The initiation toolkit

Kicking off the category management project
Scoping the category project
Opportunity analysis revisited
Securing the executive sponsor
Recruiting team members

Planning the project
The STP tool
Team formation and the team charter
Stakeholder mapping
Communications planning
Project time planning
Securing quick wins

First insights and direction setting
Gaining first insights into the category using day one analysis
Value levers
Defining the business requirements
Chapter 4 summary

05 Stage 2: Insight
The insight toolkit
Developing category insights

Introduction to data gathering
Supplier conditioning
Internal data gathering
Supplier data gathering
Market data gathering

Price and cost analysis
Understanding the supplier’s pricing approach
Developing a cost vs price breakdown

Understanding the external environment
Supply and value chain network (SVCN) analysis
Technology mapping
PESTLE analysis
Understanding market competitiveness

Developing strategic direction
Determining potential sources of leverage
Understanding how the supplier views the relationship/account
Portfolio analysis with supplier preferencing
Chapter 5 summary

06 Stage 3: Innovation
The innovation toolkit
The steps towards innovation

Creating the sourcing strategy
Summarizing the insights
Strategic option generation
Strategic option evaluation and selection
Building the chosen option

Finalizing the sourcing strategy
Risk and contingency planning
High-level implementation planning
Cost–benefit analysis
Creating the strategic source plan
Source plan sign-off
Chapter 6 summary

07 Stage 4: Implementation
The implementation toolkit
Turning the future sourcing strategy into reality

Implementation planning
Detailed implementation planning
Project management
Managing change

Implementation execution
Running an RFP, RFQ or tender process
Using e-auctions to support a category strategy
Supplier selection
Negotiation with suppliers
10 Top tips for negotiation within category management

Contracting
Contract planning
Contract exit planning
Contract execution and management
Chapter 7 summary

08 Stage 5: Improvement
The improvement toolkit
The concept of continuous improvement

Capturing learnings
Lessons learned review

Supplier Relationship Management
Introducing the Orchestra of SRM
Determining what supplier intervention is required
Implementing the appropriate SRM approach(es)
Supplier management
Supplier performance measurement
Driving supplier improvements and developments
Supply chain management
Strategic collaborative relationships

Driving continuous improvement
Attracting innovation, value and breakthrough ongoing
Ongoing alignment with business requirements
Ongoing market analysis

Starting again
Determining when to start the process again
Chapter 8 summary

09 Making category management happen
Creating the right conditions
Securing executive support

Introducing 5P governance

5P governance: People
Creating the right structure
A 'virtual structure' to foster cross-functional working
The steering group
The category manager role

5P governance: Proficiency
Ensuring the right capability
Establishing common language and ways of working

5P governance: Promote
Driving business engagement
Managing internal communications
The stakeholder brochure
Getting the wider organization on page
External communications

5P governance: Payoff
Developing a benefits tracking approach
Accuracy in benefits tracking
Project reporting

5P governance: Programme
Defining the programme plan
Agenda for steering group reviews

Setting up 5P governance
Chapter 9 summary

10 Guaranteeing success-now and for the future

Two inspirational success stories
How Cardiff Council used category management to drive procurement transformation
Learning from GSK-one of the all-time great examples of a quality category management implementation

Factors and considerations for successful category management
The key success factors
Developing category management 'black belts'
Avoiding 'tick box' category management
SMAC and category management
Scalability for small businesses

What the future holds
The challenges facing organizations over the next 20 years
Future implications for purchasing
The role of category management for the future
Chapter 10 summary

Appendix: Tools and templates
Glossary
References and further reading
Index

Editorial Reviews

"The definitive guide to strategic category management in modern organizations."

Global L&D Manager, Procurement Supply Chain Mgmt, BP Plc - Patricia A Whitehouse

"Jonathan O'Brien has managed to encapsulate everything that organizations must put in place to deploy effective category management. A quality read and a great reference manual to keep on hand."

Senior VP Global Outsourcing, KONE Corporation - Marc Magistrali

"Category Management in Purchasing fills a need in the literature available on this topic and provides the reader with a thorough insight into the principles and application of category management."

former CEO of the Institute of Purchasing and Supply - Ken James

"With this fifth Edition, Jonathan O'Brien has further refined one of the foundational texts in procurement thinking over the last two decades. His updates on sustainability are exactly what the procurement industry needs."

Guy Strafford

"Having worked with many organisations across a broad spectrum of industries, this latest edition of Category Management in Purchasing is as relevant today as a practitioners' go-to handbook as it ever has been. Updated to embed sustainable procurement, how to navigate the digital evolution, key success factors and more, this edition serves those new to category management as well as the experienced amongst us."

Rachael Legg

"Jonathan O'Brien's book is one of the most important resources for every procurement professional or student's library. The fifth edition incorporates the latest thinking on digital category management, and how sustainable and purposeful procurement should be built in to Category Management. Category Management in Purchasing remains a useful, significant and vital benchmark text for global procurement thinking and practice."

Peter Smith

"Category management will continue to be relevant to procurement organisations, but it's changing fast. The tech revolution and influence of AI on our profession is a game-changer. Get all the knowledge you need for best practice category management from Jonathan O'Brien, one of the most respected thought leaders in the industry, in this new and revised edition."

James Meads

"I've always loved this book as a foundation for procurement practitioners. This new edition has been progressively updated to reflect our ever-changing time and the evolution of procurement that's required. This new edition puts category management at the centre of what procurement is about today."

Procurement Protagonist and author of Procure Bite Tom Mills

"This impressive fifth edition of Category Management in Purchasing keeps pace with procurement's increased maturity and sophistication. This book emphasizes the latest digital trends and sustainable practices while reinforcing proven practices and frameworks that continue to stand the test of time."

Kelly Barner

"By reading this up-to-date masterpiece, you will understand why category management is still an essential topic."

Stéphane Morel

"Category Management in Purchasing is the cornerstone of comprehensive procurement improvement, including up-to-date approaches to category management that deliver organizational value."

Erik Stavrand

"Our Global Procurement organization has enjoyed great success in large part due to Jonathan O'Brien's category management principles and processes. We believe that Jonathan is the foremost expert on category management and his book provides the roadmap for sustainable long-term Procurement-generated business value."

Tom Walsh

"I've been in procurement for 25 years and have found this latest edition of Category Management in Purchasing to be quite simply the most comprehensive, practitioner-focused reference and how-to guide that I've encountered. It's an accessible and pragmatic knowledge base filled with solid frameworks, techniques, tools, case studies and advice from a leading practitioner and expert on the topic."

Pierre Mitchell

"This edition is a siginificant step forward. O'Brien's widely acclaimed and established exposition of category management is further complemented by rich new insight from leading practitioners into how organizations can realize an effective implemention of this approach. Another essential tool for the modern strategic procurement leader or practitioner from one of the leading authors in our community."

Philip Ideson

"This book has quickly established itself as the essential reference book for category management and a practical guide for practitioners. With its thoroughness and insight, it is valuable to both the category novice and the experienced manager and should be on every senior procurement executive's bookshelf."

Spend Matters Peter Smith

Praise for the previous edition: 

"[C]omprehensive. If your organisation has decided category management is worth considering then this is a must-read." —SupplyManagement.com

"[I]t is required reading for anyone who wants to understand Category Management at the highest level. It is an invaluable addition to the professional literature." —Eric Stavrand, eXegy Partners

From the Publisher