Is There a Difference Between Strategic Category Sourcing and Strategic Category Management?

And if there is, should there be?

Category Management is an approach to supply management where the range of products and services sourced by the Supply Management organization are broken down into discrete groups of similar or related products and services. The idea is that a systematic, disciplined approach is applied to the category which is treated as a business unit. Strategic Category Management is simply category management in a strategic context.

Category Sourcing is the process of sourcing a category designed to be treated as a business unit. It is generally treated as part of the category management process. Strategic Category Sourcing is category sourcing in a strategic context.

So, technically, there is a difference. But should there be?

Study after study has shown that, on average, 30% to 40% of negotiated savings never materialize. Why? Because most organizations treat category management and category sourcing as one in the same, and simply do the sourcing. In order to realize the full savings potential of category management, you can’t just focus on the sourcing. You also have to focus on the procurement, the logistics, the inventory management, and the accounts payable.

While strategic category sourcing can identify savings potential and value generation above and beyond regular strategic sourcing because similar products / services are often provided by the same suppliers who will offer greater volume discounts and / or who can customize the value added services to maximize profit potential for all parties, the savings are only realized if the sourcing strategy is followed through. For example, let’s say part of the strategy was to insure that stock was ordered just in time, but the warehouse decided to keep the old schedule and always maintain a buffer stock of 45 days when delivery only took 15 days. In this case, the value negotiated wouldn’t be delivered. Or, let’s say the supplier agreed to an additional discount of 10% off of all negotiated prices once 5 Million in orders had been placed (on an expected contract value of 10 Million over 3 years), but never actually deducted the discount on the invoices when the threshold was reached after 18 months. If a close eye wasn’t been kept on the total spend, there’s 500,000 down the drain.

In other words, for strategic category sourcing to deliver value, the strategy has to be followed through over the life-time of the award. Failure to do so will result in lost value. In other words, the category has to be continually monitored as part of a strategic category management effort for the value to be realized. And this means that while there is a difference, treating the processes as separate and just doing one or the other will result in lost value and strategic category sourcing and strategic category management should, for all intents and purposes, be treated as one and the same.