How Category Management is Different from Strategic Sourcing?

Category management and strategic sourcing are often juxtaposed for their similarities and are essential components of an organization’s procurement process. Any person handling the purchases of a company would like to assess the category management procurement strategies before placing an order. Companies don’t like inventory pile-ups for raw materials or finished goods in the form of dead stock that will find a lower markup in the market.

Among the most popular vendor management techniques used in corporations are strategic sourcing and category management. There is frequent confusion among stakeholders about the use of terms, but both are distinct, with one catering to short-term needs and other long-term procurements.

Considering them to be the same or using the term interchangeably can be wrong. Unless one understands the similarities and differences between the two widely used procurement techniques, organizations cannot strike optimum procurement levels.

To avoid the failure in recognizing the technique that needs to be employed for a given shipment, let us check the what is category management and strategic sourcing wider definition:

Category management

The core idea behind category management is grouping different products under one category. For instance, a dairy in a supermarket refers to all the milk products such as toned and extra fat milk, different varieties of cheese, and butter. It also includes a host of other products that can be made from milk, such as buttermilk and yogurt.

Grouping into a single category allows better administration and commercial viability. A large group of companies can broadly categorize information technology, human resource, administration, and production as examples of categorization. Category management is an ongoing process with long-term organizational goals that frequently focus on:

1.  Aggregating the spending
2. Easing business solutions
3. Cutting costs through effective bargaining
4. Mitigating vendor-risk
5. Improving the buy-to-pay procedure

Category management calls for complete awareness about the purchase demands of an organization, spending, availability of products or services, vendors, and market trends.

Strategic sourcing

A popular procurement technique is strategic sourcing which aims at meeting organizations’ purchase demands with minimum costs and maximum value. It is not an ongoing process and is used only on an ad-hoc basis for immediate organizational goals that can be met through other procurement methods. It still is very useful for meeting some critical procurement goals and aids in:

1. Value-additions to the company
2. Bringing down procurement costs
3. Improving inventory controls
4. Reducing purchase expenses
5. Verifying the quality of goods received

Strategic sourcing involves planning, procurement, and vendor performance measures that ensure project sourcing is completed without hurdles.

Key similarities

• Both modalities involve market research and insight analysis to assess organizations’ procurement demands. Under these methods, the emphasis is on evaluating the current spending patterns and finding solutions to reduce costs.
• In supply chain management, category management and strategic sourcing are utilized. Strategic sourcing improves the efficiency of the supply chain during critical ad-hoc needs specifically during project sourcing. Category management aims at reducing costs throughout the procurement cycle by bargaining for bulk categories instead of single SKUs.
• In terms of alignment of values, goals, and teamwork, both concepts bridge the gap between the organization and the vendor stakeholders. A vendor who is associated for the long term is not willing to lose a long-standing client for a slight margin and is willing to negotiate competitively.

Key differences

• The primary difference between the two methods is that category management is a long-term and ongoing strategy. Whereas strategic sourcing is an ad-hoc tact that is used as a process.
• From a holistic point, strategic sources can be part of category management. Therefore strategic sourcing is a subset of category management. Within category spending, price negotiations can bring the level down by employing strategic sourcing.
• Strategic sourcing aims at reducing costs at every stage of the supply chain to bring the overheads down. Category management’s goal is to add value to vendor relationships and focus on common goal setting between the organization and the vendor for long-term partnerships.
• Cost reductions can be a one-time affair with strategic sourcing. But when vendor relations are in place, there is a guarantee of a consistent supply of material even during market constraints on a priority basis from the vendors.

How and when to use strategic sourcing and category management?

If you make or sell many SKUs, then value-additions and goal objectives through category management will ensure that there is a consistent supply to meet the procurement demands without leading to delays.

Strategic sourcing as iterated can be employed within category spending to minimize overall costs. On its own also strategic sourcing can be used on an ad-hoc basis with the single purpose of reducing costs through better product identification, negotiation parameters, and market research.

Digital tools to enhance category management and strategic sourcing

Technology advancements have been always on the rise for effective tools that can analyze large chunks of data and automate repetitive data recognition patterns for seamless category management solutions.

Any organization aiming for business excellence in the future will depend on its ability to learn, respond, and evolve. It is the same for supply chain management solutions, and techniques like category management can be automated, through digital platforms.

This advanced software provides intuitive decision-making on the fly by scanning large chunks of data and detailing the finding accurately within a few minutes. The insights come with a call to action recommendations that will increase the visibility of the organization just by getting a few functions right.

Conclusion:

If in the market for category management solutions that look into a robust system that can integrate with current enterprise seamlessly while automating the whole data crunching through business intelligence tools.

Automation will take care of repetitive tasks and reduce the time taken and human errors completely. Advanced semantics records changes in the task, and all the collaborators come to know about the changes immediately.

With barriers of communication reduced between the organization and the vendors, one can expect a smooth workflow without hindrance. Any changes in the market trends are captured through sensitive radar reading and market analysis for a deeper understanding of future procurement decisions through automated category management platforms.