Applying category management in procurement in manufacturing companies

Abstract

Category management is a common tool of retail trade which implies product margins to be effectively run through an integrated approach to product category, i.e. control over procurement, pricing, promotion and marketing is centralized. However, category management tools, if borrowed to control procurement in manufacturing companies, cause numerous problems due to some specific restrictions: one part of goods purchased by a manufacturing company is modified during the production process, and the other part is oriented towards the internal customer, rather than external one. The paper develops the method for applying the tools and the introduction algorithm of category management to run procurement in manufacturing companies. The methodological basis of the research includes a system-based approach to forming a logistic system in a company and project approach in management. Through comparing value chains in different sectors, we introduce a fundamentally new concept of category approach to procurement management. Cost analysis helped justify the need for using the category approach within the framework of multi-link technologies so as to reduce procurement costs and solve the problem of increasing the competitiveness of companies. The case studies show that there are two ways to introduce category management in Russian manufacturing companies: category strategy and category team. The use of category team comprised of the representatives from the procurement office and related departments helps overcome cross-functional conflicts of interest and take a fresh look at purchases of familiar products. The team members develop and record a category strategy that describes the current situation in the market for product suppliers and possible optimization options, and regulates further actions on managing the category. The paper specifies the tools and algorithm for adopting the category approach, particularly when choosing a procurement strategy and formalizing it in the documents.