Category Management: How to Establish the Right Governance

The following is an edited extract from Category Management in Purchasing.

Category Management is a strategic approach that can transform the procurement function of an organization, aligning it with corporate objectives and delivering significant value. However, the success of Category Management hinges on mobilizing a program and establishing the right governance structure. So, here we explore the key components of governance that organizations must put in place to enable effective Category Management.

Creating the right conditions for Category Management

Before embarking on a Category Management journey, organizations must create the right conditions. This involves securing business-wide awareness, support, endorsement and participation. Category Management should be recognized across the organization as 'the way we buy', reflecting a business-wide philosophy.

Securing executive support

The success of Category Management programs often starts at the top. Securing executive support is crucial, as it requires a refocusing of resources across the business. Executives must understand the power of Category Management and see a clear roadmap of the anticipated return on investment. A compelling business case should be developed to demonstrate the potential benefits and the strategic plan for achieving them.

Introducing 5P Governance into Category Management

So, what is governance in Category Management? Governance is at the heart of Category Management, encompassing the realization of philosophy within the organization. The Positive Purchasing 5P governance framework helps develop effective leadership and governance across the procurement function, establishing the systems and processes for success and results delivery. The 5-part framework consists of People, Proficiency, Promote, Payoff and Programme, each playing a vital role in the successful implementation of Category Management.

1. People

The first component of governance is people. It involves creating a structure that fosters cross-functional teams and groups, enabling individuals to lead and manage or participate in Category Management projects. This may require a refocusing of roles or even parts of roles of individuals.

Governance requires an organizational structure for success which typically involves an executive steering group responsible for overall deliverables, and reporting into that, individual Category Managers that head up cross-functional teams who will do the delivery. A program manager and good project management discipline are essential to ensure a strategic program-wide approach to managing governance.

2. Proficiency

Proficiency ensures that the right capabilities and resources are in place to deliver Category Management. This involves selecting the right individuals for the job and providing them with adequate training and tools. A rolling programme of learning and development is essential to equip team members with the necessary skills.

Advanced Category Management skills are key. Both for those leading projects, and key stakeholders. This requires a degree of training, coaching and on-the-job support. The role of governance here is to make sure that the required proficiency and the arrangements to realize it are in place.

3. Promote

Promotion is about internal and external communication and engagement. It's crucial to drive business engagement and manage internal communications effectively. This ensures that the entire business is aligned towards a single cause and adopts and embraces agreed Category Management strategies.

The best projects regard Category Management as a mini -brand. They seek to establish an identity, and promote the value and benefits of the programme internally, which helps secure buy-in.

4. Payoff

Payoff involves measuring, monitoring, reporting, and publishing the benefits secured from purchasing projects. A benefits tracking system should be established to quantify the value added to the organization, including both tangible and intangible benefits.

Different types of benefits tracking and value delivery include both financial and non-financial benefits, and the challenges associated with non-financial benefits, such as sustainability.

5. Programme

The programme component is about planning and managing all initiatives and projects within Category Management. A dynamic programme plan identifies key projects and activities over the short to medium term, with milestones correlating to the completion of each stage and the stage reviews.

The programme should include the prioritised category projects, and at what points in time they are going to have stage reviews. This allows project management to be done effectively at each category project level. Programme also needs to cover learning and development, internal communication, and the sequence of governance events such as steering group meetings and regular reporting.

Setting up 5P Governance

Setting up governance requires a structured sequence, with a checklist provided to ensure all components are in place. This includes defining the programme name, scope and purpose, appointing an executive sponsor, establishing a steering group and developing a programme plan.

Conclusion

Effective governance is the backbone of successful Category Management. By focusing on the 5P governance framework - People, Proficiency, Promote, Payoff, and Programme - organizations can ensure that Category Management is not only implemented but also delivers sustained value. It is a strategic endeavour that requires commitment from the top down and a clear understanding of the organization's goals and objectives. With the right governance in place, Category Management can become a powerful tool for achieving business excellence.