What is category management? A smarter approach to strategic sourcing

Category management isn’t just a useful system for grouping purchases. It can move procurement beyond transactional buying, reducing costs and risk by consolidating purchases and standardising how teams specify, evaluate and procure goods and services.

When treated as a tactical buying tool it provides deep insight into company spending. This enables procurement teams to build stronger supplier relationships and align procurement activities with broader organisational goals.

This guide explores how effective category management uses analytics, responsible sourcing and collaboration to deliver measurable results for organisations.
 

What is category management in procurement?

Category management is an approach to procurement that treats spending categories as business units such as IT, travel and expenses and direct materials. It helps organisations mitigate risk and make informed procurement decisions by analysing market changes and historical spend to anticipate category trends and adapt to shifts in supply or demand.

Instead of managing individual purchases separately category managers group similar goods or services together and tailor their buying in each category. This allows procurement teams to identify spending patterns, improve contract negotiations and achieve greater cost savings.
 

How category management fits into the sourcing lifecycle

In the procurement function category management connects planning with operational work. It has multiple touchpoints within the sourcing lifecycle:

• Spend analysis: examining historical data to understand spending patterns

• Research and identification: analysing marketing dynamics and sourcing potential suppliers

• Strategy development: creating tailored strategies for each category based on spend insights and market research

• Enactment: implementing strategies through sourcing events, contract negotiations and ongoing supplier performance management.

Throughout this lifecycle procurement teams continuously measure performance against business objectives, adjusting approaches as conditions change.
 

Key category management benefits

Done well the category management process offers significant benefits across your organisation including:

• Spend visibility: gain a clear understanding of budget allocation and identify opportunities to streamline fragmented spend by consolidating and analysing purchasing data at the category level

• Cost reduction: aggregate volumes across business units, improve negotiating positions and secure better pricing through economies of scale and mutually beneficial partnerships.

• Supplier risk mitigation: reduce over-reliance on suppliers by identifying alternative sources and building category contingency plans with proactive supplier risk management

• Process improvement: standardise workflows to reduce complexity and ensure compliance with consistent approaches to specification, evaluation and contract management

• Supplier collaboration: create opportunities for working with suppliers to improve quality, share expertise and identify solutions that add value by treating key suppliers as strategic partners in each category

• Strategic alignment: improve sourcing outcomes and support organisational goals by connecting category strategies to broader business objectives (such as meeting sustainability targets or improving profit margins).

The right approach and clear communication of these benefits are key. A 2024 Global Category Management Report from Future Purchasing found that 86% of internal business stakeholders don’t understand their role in category management, highlighting how organisations are missing a wealth of opportunities to optimise their approach to procurement.
 

Category management vs strategic sourcing

Category management and strategic sourcing share common goals, but they differ in scope and approach.

Strategic sourcing focuses on specific sourcing activities within a defined timeframe:

• Conducting market analyses and competitive bidding

• Negotiating contract terms and securing cost savings

• Optimising individual supplier relationships

Category management is an ongoing governance framework for each category:

• Setting direction, priorities and performance metrics

• Managing supplier relationships throughout the category lifecycle

• Aligning procurement activities with long-term business goals

Together, the two functions reinforce each other: category management sets the strategic direction for each category, while strategic sourcing delivers it through targeted supplier engagements and sourcing events.
 

Why organisations integrate both in spend management

Successful alignment between strategic sourcing and category management transforms procurement from a reactive, transactional function into one that creates long-term business value and growth opportunities. By tapping into the full potential of procurement organisations can achieve a sustainable competitive advantage.
 

Build a modern category management strategy

With a structured approach you can develop an effective category management strategy that combines data analysis, performance tracking and alignment with organisational priorities.
 

Conduct a spend analysis by category

Collect all your spending data and classify it by category, business unit and supplier. Look for patterns in your spending. Are you purchasing similar items from multiple suppliers? Does one of your categories represent the lion’s share of total spend? 

Automate this process with Amazon Business Analytics to gain an actionable understanding of purchasing patterns – for instance where you’re using multiple suppliers for the same goods and quickly identify opportunities to consolidate.
 

Set performance metrics and supplier KPIs

Establish clear performance metrics for each category focusing on both cost (savings and price competitiveness) and value (supplier quality and delivery performance). Set supplier KPIs that align with each category’s objectives.

Review performance with your suppliers and internal teams regularly. This provides a window for adjusting your spending approach as business needs and market conditions evolve, ensuring continuous performance improvement across suppliers.
 

Use data to inform sourcing decisions

With data analytics you can benchmark your performance against industry standards and identify new risks and opportunities. Predictive analytics tools help support smart business buying, reducing your total inventory costs without sacrificing service levels.

Modern procurement solutions increase spend visibility through data-driven insights that help you drill down into maverick spend, quantify your losses and take corrective actions.
 

Align category objectives with business outcomes

Connect category objectives to specific business needs. For instance if sustainability is important to your organisation embed socially responsible purchasing into your category strategies by setting clear criteria for supplier selection and verifying alignment with these requirements during supplier reviews.

Work with stakeholders across your organisation to understand their needs and priorities. This ensures your procurement process both resonates with internal teams and supports cross-functional initiatives.
 

Analytics and AI in category management

Modern tools like Amazon Business solutions are revolutionising category management, enabling organisations to work smarter and deliver more value from procurement.
 

How predictive analytics supports smarter sourcing

By analysing historical spending data and market trends AI-powered sourcing tools improve demand forecasting accuracy – transforming category management from reactive to proactive.

Better foresight means better planning. Category managers can anticipate the timing of sourcing activities, lock in prices and predict where supply constraints may emerge.
 

Detecting inefficiencies and maverick spend

Analytics tools use AI to uncover maverick spending patterns, detect duplicate suppliers and identify categories where negotiated pricing isn’t being used. By taking corrective action each of these data points can be transformed into tangible cost savings.

What’s more modern solutions surface these inefficiencies automatically. This increases productivity by freeing category managers so they can focus their attention on activities that support your core business goals – for instance increasing cash flow through more profitable sourcing.
 

Using dashboards to track progress in real time

Live dashboards allow you to measure category performance against targets in real time. This helps you react faster when issues arise or new trends emerge.

Procurement analytics solutions integrate data from multiple sources providing an end-to-end view of category performance. With this information procurement teams can build a compelling case for procurement’s contribution to organisational goals.
 

Collaboration from category insights

Category data reveals new opportunities for deeper collaboration with your suppliers and internal teams leading to performance improvements, better-quality goods or services and new solutions. Done right, category management can become the cement that strengthens your supplier relationships.
 

Consolidating suppliers by category

Category spend analysis can often reveal significant supplier fragmentation, with multiple suppliers serving a single category. This fragmentation reduces your ability to benefit from volume discounts and increases the administrative burden on procurement teams.

When you consolidate your suppliers you benefit from economies of scale that improve your negotiating power and reduce the complexity of managing a larger number of supplier relationships. Preferred suppliers thus receive higher order volumes giving them more flexibility to work on enhancing their offerings and deliver more value to your organisation.

One caveat to this is that consolidation must be balanced against having a resilient supply chain. The goal is to optimise your supply chain, not oversimplify it.
 

Partnering with certified local and sustainable suppliers

Responsible sourcing is becoming the new norm. Recent research shows that 63% of businesses intend to boost their supplier diversity budgets. Category management provides the framework for embedding responsible sourcing into everyday procurement decisions.

Working with certified local suppliers and diverse businesses reduces supply chain risk through geographic diversification while strengthening local communities.

By defining sustainability criteria in your category strategies and using modern procurement solutions for responsible sourcing, you can incorporate environmental and social considerations into supplier selection.
 

Creating shared value through transparent communication

Open, clear communication with suppliers is at the heart of successful category management. To ensure suppliers understand your category strategy, share category objectives, volume forecasts and performance expectations early with them.

Work together with your suppliers to identify market trends, cost-saving opportunities and new ways they can contribute to your broader business goals. This lets them align their capabilities and invest accordingly.
 

Responsible category management

Sustainability is no longer an optional choice but a core procurement priority for UK organisations. Category management provides a reliable structure for implementing responsible sourcing commitments – an essential function given the Procurement Act 2023 now requires organisations to not just consider social value but legally ‘have regard to the importance of […] maximising public benefit’.
 

Embedding responsible purchasing policies

Category management translates sustainability policies into practical requirements for every spend category. For goods-based categories this means establishing environmental criteria for materials, production processes and end-of-life considerations. For service categories it’s about prioritising suppliers with ethical labour practices and a commitment to diversity.
 

Tracking sustainability outcomes by category

Each category should have sustainability metrics for tracking environmental impact, supplier diversity and social outcomes. Monitor KPIs such as:

• Carbon emissions by category

• Percentage of spend with certified sustainable suppliers

• Progress against diversity targets.

Weighted supplier scorecards can help you track sustainability performance against operational goals like cost, quality and delivery. This ensures responsible sourcing receives the attention necessary to meet your objectives.
 

Reporting and governance best practices

Effective sustainability reporting relies on comprehensive data collection and governance. Establish clear ownership within each category and regularly verify the accuracy of your suppliers’ sustainability data.

Best practices for sustainability governance:

• Assign clear accountability with category-level sustainability champions

• Implement regular verification cycles to check accuracy and identify reporting gaps

• Establish tiered reporting frameworks for high-level socially responsible purchasing (SRP) performance

• Integrate SRP into supplier scorecards alongside traditional performance indicators

• Document and share what you learnt across category teams to increase adoption

• Align metrics with external sustainability standards to enable benchmarking.

Strong governance turns your sustainability commitments into tangible actions rather than mere sentimental aspirations.
 

Transform sourcing with category management

Strategic sourcing helps you identify and act on opportunities for improving procurement outcomes. Spend management solutions like Amazon Business automate workflows to control costs and ensure compliance. Category management gives you the direction and continuous governance you need to enhance risk mitigation, strengthen supplier relationships and collaborate with suppliers on innovative ideas.

Procurement technologies maximise this potential. Digital solutions like Pay by Invoice streamline accounts payable processes and improve capital management. AI-powered analytics provide insights into spending patterns and supplier performance.

With the right tools at your disposal category management can give you the oversight and control you need to meet your organisational goals.

If you’re interested in a smart, intentional approach to category management explore how Amazon Business helps procurement leaders move from reactive purchasing to data-driven sourcing with insights and AI-powered automation.