4-step framework for developing category strategies

The tide is turning toward buyers, and this framework can help you develop category strategies to improve your bottom line and operational performance.

Strategic sourcing is one way to help your business improve operational performance, create more resilient supply chains, and improve costs. But in the spectrum of spending, you might be more focused on a purchasing or procurement model. The move from purchasing to sourcing means not focusing just on the transaction, but on the category strategy. Once you have visibility on more than what you are spending – like on whom you’re spending, when it began, and what your contracts include – you’ll be in a better place to understand where you have leverage versus where you might be more pigeonholed because of a specialized need. As shared during Crowe Expertise Week, this four-step framework can help businesses understand which approaches make the most sense for various categories.

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1. First, anchor on the category. Understand on a deep level what you purchase from a particular supplier. For example, if the purchase category is packaging, break it down into specific segments. It could be corrugated or rigid, plastic-based packaging. Maybe you have some packaging that is specialized for specific customers and some that is generic. For each segment, consider the relative trends with respect to pricing. How are you buying this packaging? Are you buying direct from manufacturers or through distributors? These nuances matter to get to the heart of what you really need to know. If you were to start from scratch and organize this spend, would you manage it the same way it’s currently being managed? More often than not, the answer is no. It’s likely that you got to your current sourcing situation organically, without strategic and specific thought behind each part.

2. From there, look at the commodities themselves to try to understand the external market. Are there a lot of suppliers for this item, or is it a fairly constrained space? Are you buying something very niche or something more readily available? Once you know the answers to these questions, you can determine where you have leverage. You won’t have the opportunity to renegotiate in every category, but you might in some. Your understanding of the category and the degree of leverage will help you shape the right category strategy to move forward with. Finally, within those categories, determine which vendors you want to grow, which you want to hold, which you want to shrink, and which you want to exit.

Four-step framework for developing category strategies: 1. Category spend review, 2. Commodity market assessment, 3. Commodity positioning, 4. Commodity supplier segmentation. Four primary strategies: 1. Category sourcing event 2. Direct negotiations 3. Demand Management 4. Supplier development

3. Once you have a plan, it’s time to organize and execute. The best results are achieved when the execution progress is transparent, and the initiatives have the support of your management team. Visibility and metrics not only drive accountability and set the momentum – they also help you know when it’s time to involve leadership to address any challenges or bottlenecks.

4. Finally, keep in mind that your customers are going to be coming to you to do the same thing – so work to organize a defense. The combination of effective strategic sourcing and your defense can help drive operational performance improvement and dollars to your bottom line.

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If you’re looking for how to implement this framework in your business, our team can help. Contact us to see how we can help you implement strategic sourcing in your business.