Strategic Category Management - The Next Step after Strategic Sourcing

Management of indirect spend through strategic sourcing has lead to dramatic cost savings. But, opportunities to cut costs have diminished as the remaining low hanging fruit has been harvested. Strategic Category Management (SCM) is the next evolution that procurement organizations need to undergo in order to continue to positively impact their companies’ bottom lines.


Strategic Category Management (SCM) organizations need to develop skills in six areas in order to reach the next level of success. These are:

DATA ANALYSIS – There is a growing need to better measure and quantify total cost of ownership, and to demonstrate improvements to the CFO. This will require a higher level of sophistication and insightfulness in data analysis to demonstrate the dollar value of SCM efforts.

SUPPLIER MANAGEMENT – The foundation of supplier partnerships involves knowing what the future state of supplier relationships should be, measuring the present state, and then taking the time to build the relationships that will drive toward this mutually beneficial future state.

CONTRACT MANAGEMENT – Advanced contract management will lead to creative contracts that create efficiencies while mitigating risks. The skills needed to do this will need to be developed in both employees and organizations.

TALENT MANAGEMENT – There is a need to identify, attract and retain the first generation of Strategic Category Management professionals. Strategic procurement departments need to identify and develop the right people who have the potential to become leading SCM practitioners.

INFORMATION MANAGEMENT – SCM activity will be fueled by data from a variety of inputs, including suppliers, users, and outside sources. This information is critical for understanding market dynamics and the best strategic direction.

SUPPLIER DEVELOPMENT – Improvements in the total cost of ownership means it is more important than ever to understand your supplier’s business. Understanding the category, and managing the supplier relationship will lead to the identification of savings opportunities beyond price reductions. This should be win-win.

The walls between business leaders, procurement professionals and the CFO need to be broken down so that the knowledge resident in the organization can be shared across functional boundaries and used by all. The CFO needs to understand soft cost savings, regardless of whether they will “count”. This will require a more sophisticated approach than the previous strategy of plain strategic procurement.

The goal of strategic category management is harvesting the fruit at the top of the tree. This can be done by working with suppliers to develop them and increase their effectiveness, the use of creative contracts, and more sophisticated information management and data analysis allowing for the identification and quantification of a new kind of savings.

Adapted from: Approaching Strategic Category Management by David Clevenger. http://bit.ly/lMGKTL