Sourcing Strategy - 5 Steps to Effective Category Management

Category Management is a process that enables you to source more effectively and then to get even more value from continually optimising the resulting contracts. You do this by grouping together products or services that have similar characteristics and are bought from similar supply markets. But that is just the starting point. To succeed with a category management approach you need an effective process to do it. Here is a five step process for category management. The first letter of each step forms the memorable acronym DISCO.

Step 1: D for discovery. This is the step in which you agree a mandate with the budget holder for looking at the category, forming a category project team, agreeing the current status of the category, agreeing the business requirements and setting a target for what you are trying to achieve. It is also the step in which you determine the data you need and put in place a data collection mechanism.

Step 2: I for insight. At this point you will have collected the data set out in the Discovery stage. You now need to turn it into meaningful business intelligence by using analytical tools. This can include price and cost analyses, supply market positioning, supplier preferencing, Porter's Five Forces, supplier capability analyses to name just a few.

Step 3: S is for strategy. Now that you understand your spend data, the supply markets that you use, the suppliers in those markets, commercial risks, your business requirements and trends in technology and capability, you are in a position to develop sourcing strategy options that meet your needs and at the same time reduce costs. Each of these options is analysed against the requirements and a preferred option agreed with the budget holder and other stakeholders.

Step 4: C is for contract. You now need to go to market with the preferred option using your standard contract letting processes.

Step 5: O is for optimise. The one certainty in life is that there will always be change. This step puts in place both contract management processes that enable the contract to meet the demands of any change in a way that continues to offer best value. It is also the step in which you put in place a supplier relationship management programme. This works with your major suppliers on continuous improvement opportunities that are outside of the contract and also promotes good practice that has been developed with one supplier to other suppliers who could also benefit.