Using Category Management to Lower the Cost of Supply Purchases

Representation of a Network of a SupplierCompany procurement, especially of supplies, is usually requested through department managers. Seldom do departments have their own procurement system independent of the company.

This usually leads to some inefficiencies and higher cost of items. Industry expert Mutual Marketplace recommends systematic and proactive procurement through a category management plan.

Bundling Items

Category management is a cooperative venture between different enterprises negotiating lower prices for volume sales. This cooperative initiative can leverage their purchasing capability to negotiate for lower costs, and, at the same time, it creates a symbiotic relationship with suppliers.

Having a contractor or a third-party buyer represent the group of companies creates a single point in the procurement process. The buyer can consolidate the different items with different volumes from each company.

This method not only works for small items like stationeries but also for big-ticket items like industrial products or technology. Bigger items mean larger savings.

Methods and Strategies

With large-volume purchases, the buyer can use different strategies. These include auctions and the use of the request for proposals (RFPs) as well as negotiated sales. When negotiating sales, other items can be part of the purchase, with the volume creating leverage for lower total prices.

The aim is to shape the sales to the benefit of the stakeholders. Continuing relationships with suppliers mature with better terms as the contractual obligations also increase.

Due to the nature of the relationship between the buyer and the stakeholders, the companies need to plan for their purchases. The lead time needed to implement an RFP or negotiated sales allow companies to grow their list for succeeding purchases.

The buyer does not control the purchases; these are put on a list of items or a schedule of purchases. The buyer’s task is to ensure that responsible parties act on and deliver the purchases on time. The volume and potential for succeeding sales act as the leverage to lower the total purchase price.