Wed May 10 2023
4 IT Category Management Best Practices
Information technology or IT companies make money by providing various services and products related to information technology. They typically generate revenue through a variety of business models such as subscription-based, advertising-based, or transaction-based models.
IT procurement has a significant impact on the business model of tech companies. Procurement involves the process of acquiring goods and services from third-party suppliers, and it can affect the overall cost structure, revenue streams, and competitive advantage of tech companies.
Tech companies must carefully consider their category management procurement strategy to ensure they are getting the best value for their money. The project heads spend days that involve exhaustive negotiations and discussing contract clauses with suppliers to reduce costs, partnering with suppliers to co-create new products or services, or implementing supply chain management practices to streamline operations and reduce waste.
Effective IT procurement can also enable tech companies to innovate and expand their product offerings, as they can access new technologies or expertise from suppliers. On the other hand, poor procurement decisions can lead to increased costs, supply chain disruptions, and a loss of competitive advantage. Therefore, tech companies must have a well-defined procurement strategy that aligns with their business objectives and supports their overall business model.
What Is Category Management?
Category management is a strategic approach to procurement that involves grouping similar products or services into categories and managing them as a single unit. The goal of category management is to maximize value for the organization by identifying opportunities for cost savings, improving supplier relationships, and driving innovation.
The process of category management involves analyzing spending patterns, identifying potential suppliers, and developing a sourcing strategy for each category. This may involve conducting market research, negotiating contracts, and implementing supplier performance metrics.
Effective category management can help organizations reduce costs by consolidating spending and negotiating better prices with suppliers. It can also improve supplier relationships by fostering collaboration and encouraging innovation. Additionally, category management can help organizations stay competitive by identifying new products or services that can be introduced to the market.
Category Management Practices That Benefit IT Procurement
Category management is a powerful tool for IT procurement professionals to optimize their sourcing activities and achieve cost savings, improve supplier relationships, and drive innovation. Below are several ways that category management can benefit IT procurement, along with examples of how each benefit can be carried out.
Professionals can identify opportunities for cost savings by consolidating spend, negotiating better prices, and implementing cost reduction strategies through IT procurement enabled by category management. For example, by grouping all hardware purchases under a single category, an IT procurement team can negotiate better pricing and terms with their hardware supplier, leading to cost savings for the organization.
Improved Supplier Relationships
Relationships with suppliers by fostering collaboration, communication, and trust are critical for maintaining a healthy supply chain. This step is feasible through automated category management that can help IT procurement professionals in reaching out to the vendors. For example, by grouping all software purchases under a single category, an IT procurement team can work closely with their software supplier to co-create new solutions, identify new business opportunities, and improve overall quality.
Driving innovation by identifying new products or services that can be introduced to the market will help IT companies stay relevant in a world where software and digital tools get obsolete within a season and upgradation and change seems to be the only constant. Category management can help IT procurement professionals in designing the innovation arm of the IT company. For example, by grouping all cloud computing purchases under a single category, an IT procurement team can identify new cloud-based solutions that can help the organization become more efficient, secure, and flexible.
Managing risk by identifying potential supply chain disruptions and developing contingency plans to mitigate them will help companies secure their assets and cover against mishaps. Category management can help IT procurement professionals through data mine and the use of predictive analytics to identify external threats. For internal security grouping all cybersecurity purchases under a single category, an IT procurement team can gauge potential threats and develop a robust security framework to protect the organization's assets.
IT procurement professionals need to ensure compliance with legal and regulatory requirements by implementing strict procurement processes and supplier performance metrics. Category management can help in this regard. For example, by grouping all data center purchases under a single category, an IT procurement team can ensure compliance with data privacy laws and regulations by selecting suppliers that adhere to strict data security standards.
To reap these benefits, IT procurement professionals should follow a structured approach to category management. This may include the following steps:
- Spend Analysis - IT procurement professionals should conduct a spending analysis to identify all IT-related spending across the organization. This analysis should group similar products or services into categories and identify areas of potential cost savings or supplier consolidation.
- Category Strategy Development - IT procurement professionals should develop a category strategy for each IT spend category. This strategy should identify the optimal sourcing approach, supplier selection criteria, and performance metrics for each category.
- Supplier Management - IT procurement professionals should work closely with their suppliers to develop collaborative relationships that foster innovation, quality, and cost savings. This may involve negotiating contracts, implementing performance metrics, and developing joint development programs.
- Category Performance Measurement - IT procurement professionals should track the performance of each IT spending category to identify opportunities for continuous improvement. This may involve monitoring supplier performance, tracking cost savings, and benchmarking against industry standards.
Impact of Ignoring Category Management By IT companies
While category management can technically be ignored by IT companies, doing so can result in missed opportunities and potential inefficiencies in their procurement processes. Ignoring category management can lead to fragmented procurement, where IT purchases are made individually or without considering the larger picture. This can result in redundant purchases, missed savings opportunities, and a lack of visibility into the organization's IT spending.
Furthermore, category management can help IT companies identify potential suppliers that may not have been considered otherwise, and help them negotiate better prices and contracts with existing suppliers. Ignoring category management can lead to missed opportunities to optimize procurement and achieve cost savings.
IT companies may find that a lack of category management can lead to a dead weight in innovation and a failure to keep up with industry trends. By grouping purchases into categories and working closely with suppliers, IT companies can stay on top of emerging technologies and ensure that they are using the most innovative and effective solutions.
While it may be possible for IT companies to ignore category management, doing so can result in missed opportunities and inefficiencies in their procurement processes. It is therefore advisable for IT companies to implement a structured approach to category management to optimize their sourcing activities and achieve their business objectives.
If management is skeptical, then the problem can be countered by conducting a cost-benefit analysis as an essential step for IT companies to effectively implement category management. This step aids IT companies to evaluate the potential benefits and drawbacks of implementing category management and to make an informed decision on whether or not to proceed with implementation. In most cases, the answer is affirmative if all the parameters have been evaluated properly.