Category Management

Have you ever heard that there are advantages to category management as a purchasing method, but wonder how it works in practice? In this article we explain everything you need to know to work strategically with purchasing in your business.

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What is category management?

Category management is a method in which your business’ purchases are categorised to make it easier to find the optimal purchasing strategy based on the specific needs of your business. The work method was developed in the 80’s when it was discovered that it’s more profitable to work on improvements in a certain product category rather than focusing on single products. The method helps purchasing teams identify unnecessary costs and find affordable alternatives – in other words, to make more efficient purchases.

How does category management work?

A condition for category management to yield results is that the company has qualitative data on purchases to base decisions on. For this reason, a spend analysis is conducted, meaning a compilation of company expenses, to lay the groundwork on which purchasing decisions are made. The purchases of the organisation are then divided into various categories, to give those responsible a better overview and more control. Suppliers are compared and analysed with the goal to generate more market knowledge. The purchasing strategies are then tailored based on the categories, to reduce unnecessary costs in the organisation and reach targets.

Related material: For those of you focusing on online trade, don’t miss our articles on e-commerce.

Pros and cons of category management

The pros of category management:

  • Purchases are based on the needs of the buyer.
  • The method can help maximise company profits.
  • It gives you more control of company expenses.
  • It allows for more efficient purchasing strategies.

The cons of category management:

  • It can be resource demanding for a company to change purchasing strategy.
  • For smaller businesses, the method can be costly in relation to the benefits gained.

What should you consider to succeed with category management for purchasing?

1. Clear goals

The organisation will only achieve their goals if everyone involved is working together. Make sure that all employees are aware of the short and long-term goals.

2. Based on data

Base all business decisions on facts – other than implementing more efficient changes, it’s also a way to mitigate disagreements.

3. Consider the overall cost

Remember not to stare yourself blind on price tags, but rather to consider the disadvantages and benefits of various options, like reduced risks or shorter work times.

4. Work cross-functionally

Involve all parts of the organisation to ensure all competences are put forward and to make sure that it’s not the same people who offer recommendations who also make decisions about them.

5. Strategic perspective

Have long-term goals in mind to ensure all business decisions lead to future improvements.

How PostNord can assist you with category management

Are you looking for a tool that provide valuable data on your business? As a business client of PostNord you gain access to Portal Business – a platform which not only helps you manage your delivery flows, but also identify shortcomings in them. You can now schedule shipping, track deliveries, view statistics, manage invoicing and much more – all in one place. All you need to get started is to create a free business account.

For more information, visit PostNord Portal.

Frequently asked questions about category management

What does category management mean?

Category management is a way of working aimed to create value for an organisation by using its needs and expenses as a foundation.

How can the company’s purchases be divided into categories?

There are no general guidelines on how to create purchasing categories. The organisation needs to use its own products and needs to base the categories on, to tailor the model and generate results.

What is a spend analysis?

A spend analysis is a compilation of company purchases. It shows, among other things, where purchases are made in the organisation and at what cost.

Why work with category management?

Category management for purchasing can help your organisation reach long-term goals, reduce costs and create an innovative, strategic purchasing flow.