M+E Daily

While previously viewed as just a sourcing process or administrative function, category management is now becoming a strategic way for companies to prepare their organizations for an uncertain future, open up new channels of supply and adopt differing approaches, according to SAP and Procurement Leaders.

On Sept. 7, during the webinar “Managing Risk, Priorities and Talent with Strategic and Digitalised Category Management at the Core,” Bernd Thannheiser, director-Intelligent Spend Solution Advisory at SAP, and speakers from Procurement Leaders explored three common mistakes (or misconceptions) procurement makes in category management and how best to remedy them.

The speakers provided a deep dive into: how category management has been viewed as only an administrative function, why some organizations fail to prioritize digitalization, and the opportunity cost of not adequately upskilling talent.

A recent Economist Impact report highlighted the increased impact, finding that 32% of CPOs want strategy identification to be improved by technology for category management.

“We’ve explored the merits of more effective business planning to look at how we increase supply collaboration, new approaches to direct sourcing, and also [looked at] how we refresh our talent and workforce strategies,” moderator Ian Lawless, head of content partnerships and events director at Procurement Leaders, pointed out.

But he said during this session, “we are going to be looking at how to manage risk, priorities and talent.”

While Thannheiser noted he had been with SAP for a little over two years, Niko Nurmi, executive advisor at Procurement Leaders, said he was with his firm for almost six years.

Turning to data, Nurmi pointed out there were “loads of numbers there on the slide, adding: “The headline starts here: The average cost savings that procurement organizations in our survey reported were 3. 9%. I guess, an even more interesting finding is that, on average, the return on investment for procurement functions stands at 6.3 times the cost to operate the function, which essentially means that for every one dollar, euro, pound, whatever the currency spent on procurement, businesses can expect 6. 3 times of that in return.”

Also as part of the latest survey, the company has been able to “separate the leading organizations from the rest of the pack,” he said. Therefore, “despite all of these difficult macroeconomic conditions, all of the geopolitical crises, inflation has been around quite a bit [and] the survey results essentially highlight that.”

His company also found that, “the higher the share of spend that procurement has under its control, then the better they are able to kind of embed category management into their activities as well,” he said. “And then, once category management becomes much more embedded, then the teams are able to perform much better on savings and on ROI and the ratio of operating to spend.”

Therefore, he added: “There’s a clear kind of causality link there.”

Meanwhile, “from the perspective of SAP and a recent economist impact report that it conducted,” Lawless said 32% of chief product officers (CPOs) indicated that they wanted “strategy identification to be improved by technology” for the capital asset pricing model (CAPM).”

Therefore, “it’s pretty clear that formally viewed as a bit of a sourcing process or admin function, we are very much looking at this more now as a strategic way for companies to prepare their organizations for that uncertain future.”