Jonathan O’Brien is CEO of Positive Purchasing. He has been promoting the discipline of category management (CatMan) as a practitioner, author and consultant for many years. When we spoke with him several years ago on the subject he told us: “By making just small changes in our approach to buying, we can expect to see significant value and benefits as a direct result … a dramatic increase in profit, greater competitive advantage and higher brand value can be achieved through a modernized and more strategic approach to buying.” He then shared five key benefits that effective buying can deliver.
More recently, as part of our current series on category management as a central procurement discipline, we spoke with him again about what CatMan means today and where it is going. We also wanted to know what challenges and misconceptions he had encountered in the organizations he has worked with. On that, he makes two distinctions: the challenges associated with applying CatMan activities and the challenges of digitizing them.
Digitizing category management is about changing the basic philosophy of what you do
“Thirty years ago,” he says, “companies realized that if you implemented category management well, with well-trained people, good governance and executive support, they could achieve astonishing breakthrough benefits. For example, one company with $9 billion spend took $1 billion off the bottom line in terms of savings.”
“The problem today,” he continues, “is short-term organizational memory. Many CPOs who championed category management have retired. New people have entered the business, have considered category management but don’t have the organizational memory of what is possible — they lost its potency.
“So we find ourselves in a two-tier system: those that do it well and achieve great results, and those that say they are doing it, but are really just contracting and tendering strategically. That’s one of the challenges. Many people don’t really understand what true category management is or what it involves. And part of the misconception is that people often think that simply buying a little bit better qualifies as category management.
“Another is that people often see digitizing category management as automating what we do today: take a process, digitize it, and something magic happens. But that is just the starting point. Digitizing category management is about changing the basic philosophy of what we do. The fundamental principles of category management should be powering what a digital solution does. If you understand a market, understand the supply base and engage with an organization, you can work out the optimum strategy. Then it’s time to couple that with AI and algorithms that can connect all the information points to help you make decisions, get better data, analyse better data, understand the market better and understand the opportunities. Tech can help ease that burden, but …”
… There is no shortcut
The discipline has a reputation for being workload-heavy, with many steps involved to do it well. This deters some organizations. However, solutions can help here, because they provide that step-by-step guidance, like Positive Purchasing’s Capella, which has gone beyond the one-size-fits-all approach to tailor, streamline and simplify the process. Positive Purchasing offers both a lightweight version, for a category that is less strategic or a practitioner who is starting CatMan and is not ready for a more complete or deep approach, and a full-fledged version, which is very structured and detailed.
“Many customers really like the idea of category management,” he says, “but they want to strip it back somewhat. People feel they don’t have time to do it (hence our response of introducing a lighter version). But the reality is that there is no shortcut. If you are going to do category management well, you have to do it properly, strategically and involve the stakeholders. While Capella can be customized to customer requirements, it is simply responding to the fact that organizations want everything quicker. This also applies to training. Some organizations ask whether a three-day advanced training course can be condensed to two hours. The answer is no, it can’t.
“Requests like this are due to the low attention span that is driving today’s lives and business. So, there is still an appetite for category management, but only if it can be done more quickly. Automation is helping to achieve that by reducing the number of steps. Algorithms and intelligent agents are taking away some of the analysis tasks. But while this helps you get there quicker, tech still has a way to go.” And that brings us to evolution.
Evolution of category management: It is not a procurement process
Even when the discipline is just applied to the most strategic categories, it still requires a full approach. But in today’s world of immediacy, there is a paradox. The reality is that the business world is now much more complex, so you need more steps because a) you need more depth and b) everything is more interconnected and dynamic. So how is this discipline evolving with the world around us?
“The hard reality is that to get the best outcomes, you have to put in the hours. If you want to reduce risk, for example, and drive change with the right strategy, you must thoroughly understand your supply base and the market. And that takes effort. This is why I believe category management has taken a step backward. Many companies are not prepared to do the hours, and society has driven that. In our early days of training, we taught the importance of commitment from the business. We brought the cross-functional teams together, and they spent half a day each week for six months developing a category strategy. However, today, organizations will not commit to that level, and without that, you are going to get suboptimum results.
“Again, tech will help with some of this because things like market analysis, which used to take a long time, can now be done quickly. Some of the collaboration work can be done online, rather than getting people to a physical workshop. Tools like Capella facilitate that. But a really good strategy takes effort.
“So in terms of evolution, strategic procurement has been with us for about 50 years. Kraljic’s work was pioneering, as was Porter’s. It became a hallmark of strategic procurement. Category management emerged from that around the late ‘90s, when it was at its peak in terms of how you drive change, but it has declined somewhat in stature since then.
“However,” he says, “category management is not dead. When you look at what category management is, and where it came from, you can’t see it as a procurement process. It is a set of economic principles and tools to understand economic laws. It is a means by which to understand your leverage. It is a means to be able to determine the right strategy and use that leverage in the marketplace. It is basic economics, basic change management, and basically about optimizing the right procurement solution. Now, that in itself is not going anywhere, but the way in which we do it is.”
AI and the category manager
We are entering a world of digital category management, and the AI aspect of it is still a fledgling. Today, organizations rely heavily on accessibility to data. AI is going to transform how we get that data, and in real time. Not only will it help us apply a category management strategy, but it will also adapt it as world, marketplace and business events happen.
“This flexible CatMan strategy will help us adapt to the way the rest of the business works and to how they use transactional tools,” says Jonathan. “We will be able to adapt to how the organization is buying because the category strategy has been flexed by AI-powered tools that have worked out that we need to make a change. And all of that will then be connected to the way in which we are contracting with the supply base. But that’s the future.
“It’s the same strategy, just using a very different set of algorithms enabled by AI to bring it all together. However, you will still need procurement people. They may not be flying the plane anymore, but they will be making sure its systems are working well and enabling it to fly itself.”
This begs the question of the future of the category manager. Given the digital tools, AI and data that have emerged since the early days of CatMan, is it possible that the category manager will no longer be the orchestrator of the CatMan process or that any buyer could become a category manager? Jonathan believes not — not yet anyway.
“What we will see is AI-powered tools working alongside people, and they will become the architects of the system rather than carrying out the tasks. What’s important is getting under the hood to really see what’s working or not with day-one analysis. We had that in mind when we designed Capella, because the time will come when dynamic, agile strategies are connected to all the data we could ever imagine, and the role of the category manager will become less essential because the system is doing much more. Eventually, category management will be a self-serve system, with procurement overseeing how it determines category strategies. The business will then be able to use that to get what it needs. So the days of functions with teams of category managers will be gone. We are more likely to have a commercial hub of procurement experts that make sure all of the category spend is executed really well using the best systems.”
Adapting for an uncertain world requires agility — and deflated expectations
In today’s environment of volatility and uncertainty, it is more important than ever to make sure systems are fit for purpose and up to date, especially for world-changing events. Take tariffs: many people still don’t understand their impact, how duties work and who pays what.
“Yet,” says Jonathan, “it is one of the biggest geopolitical changes that has many ramifications for business for the next few years. It changes the economic landscape globally to a scale not seen since the Second World War. But we have not really seen the impact of tariffs yet on businesses, the supply chain and the economy. So from a category management perspective, you have to work on the principle that it’s about delivering the goals of the organization and working out the best category strategy for the organization’s needs. Whatever the goal, a business that was sourcing from one country is now having to plan to source domestically. Suddenly, that market size has changed and may be over capacity. So we come back to running basic PESTLE analysis, which means using tools, like Capella, to help determine strategy. The beauty of category management done properly is that regardless of what is happening at a macroeconomic level, the tools allow you to respond. So you need a system that is agile and clever enough to work out how to change the parameters of the strategy.
“For the category manager, it’s a two-part role. On top of strategy creation, they have to keep a watchful eye on whether the actors have changed: the business requirements, the market, etc. Because the moment there is a change, you need to act. That might be right down to checking the news. A good category manager knows their commodities and the things that influence them, they will be checking the triggers and will be able to respond. Which is why today you need people and AI together. Tools will begin to do that for us, automatically make the connection between an event and a category and work out what to do, but it’s not there yet.
“Expectations are inflated. People tend to think there is a magic button that will find all the data they need and present them with a category strategy, without having to do any work. But no tech does that. That is because it needs a lot of data, and that data exists in warehouses, in companies, on laptops. So today, you still have to do the hard work, pull the data together and put it into or connect it with the system.”
The future
Category management is still very much about the people. Even with the best tech, you cannot get the results unless you put the effort in.
“But the future is very exciting,” says Jonathan. “I believe there will be a natural convergence with how category management connects with how we do supplier relationship management, how we use negotiation tools, how we do sustainability, and so on.
“That is going to be an incredible thing for business — a new kind of procurement expertise, probably not sat within a procurement function but within a commercial hub that will manage it all. So if procurement people can pivot to have the skill set to do that, which is about strategic knowledge of tools like category management and being able to work with data and AI, then they have a great future, because those people are going to be in demand.”
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