Category management stands for the distribution of goods into various categories based on an audience segment’s needs, buying power, and psychological characteristics. It enables an increased turnover of goods, revenue, and the ultimate profit of a business. As a result, it is widely used in retail. Category managers are also in high demand in procurement: they improve the efficiency of spending money and minimize the company’s financial losses from buying unwanted goods.
Category management in procurement is not so different from comparable work in supply. For example, delivering a shipment of previously bought goods to a destination. The only control you can apply at this stage is increasing a vehicle’s speed during transportation. And even then, it is not always feasible; how can you increase the speed of an airplane, for example? Therefore, we will mainly be discussing procurement as being one of the key activities in category management.
The fundamentals of category management in procurement and supply
A procurement specialist who knows their chosen product categories combines the company’s needs for buying certain goods into a single long list. When working with categories, they must consider the priority of the direction, the volume of potential consumers, and those goods that the store wants to experiment with demand-wise. It is vital to understand that the greater the volume of procurement, the lower the price per product unit. This means that dropping some categories, strange though it might sound, may result in higher costs.
The procurement manager is either outsourced or “grown” within the company. Their primary task will be to secure different categories of goods under a single contract. They are also responsible for selecting suppliers, discussing the delivery details with their representatives, completing the contract, and sometimes managing the delivery until the company receives the goods. All the requirements for buying goods of any kind pass through a single job role. As a result, the company makes a profit, and the specialist receives a higher wage. Sometimes there are multiple procurement managers in the company; everyone oversees individual markets or categories of goods.
How do you work with categories in procurement?
- Define your internal tasks. Based on them, you will have to sort out the categories by priority and estimate how much money you can spend on them.
- Explore the possibilities. Research the supplier market, their prices, their discounts, and consider the possibility of shipping from other countries. Detailed research will enable you to easily make decisions in the future.
- Develop a procurement strategy. It should combine the company’s needs with a share of the most profitable opportunities in the market. Of course, you can work on this together with your colleagues: not every large company with a representative office in India puts all procurements in the hands of just one person.
- Select suppliers. At this point, you will have to negotiate with the top suppliers in the list that you have studied. During negotiations, you have to negotiate the price of goods. However, don’t do it by belligerently knocking suppliers down in price to the bottom of the market. Pay close attention to small suppliers within a country: collaborating with them now might be a more profitable solution than cooperating with companies in other regions. The choice of suppliers can be simultaneously internal (we have already described its structure above) and external. “External cooperation” is a tender to supply goods for your company. Nevertheless, suppliers will present their bids for the tender, so the firms you previously found may not be on the list of participants. However, this state of affairs is unconventional for India: competition among buyers is high because there are not as many tenders as one would like.
- Negotiate the contract. Work together with a lawyer and more experienced colleagues in your company.
- Monitor the performance of the contract. Be prepared for emergencies: they occur to all category managers at some point. Deliveries can be delayed, go in the wrong direction, or not even arrive, and items may be defective or incomplete. You can deal with any problem if you don’t treat it like an obstacle but as a business issue that can be eventually resolved.
Category management in supply: what do you need to know if you work in procurement?
Suppliers also want to make a profit. They want to make money, have regular large orders, and have confidence in the future. So, they are unlikely to cooperate with firms chasing low prices. Such is the danger of tenders: companies often choose the most advantageous offers, which mean the cheapest goods from priority categories.
Suppliers are willing to take risks. In fact, the cost of solving problems can be incorporated into the product’s price. For example, the chance that the shipment will arrive at the wrong time adds a few dollars. The risk that the freight will be incomplete is a few more dollars. You will not find this in a contract, so it is better to clarify the pricing of goods during negotiations.
Category management in procurement and supply constitutes a promising direction allowing you to make money and hone your business skills. It is extremely important for a business that works with the merchandise. Newcomers that are just starting out on their career path are invited to junior positions, so you definitely have a chance of getting a job in this area.