Procurement Category Management: Faster PO Cycle Time

Organizations with Category Management Programs Have Shorter Supplier Lead Times
Organizations with category management programs in procurement have significantly improved supplier lead times as well as faster purchase order (PO) processing. APQC Open Standards Benchmarking in procurement shows that organizations that have initiated category management programs have a median supplier lead time of only six days compared to 28 days for those organizations that have not initiated category management programs (Figure 1). For PO processing, those organizations that have initiated category management programs show a median turnaround time of eight hours versus a median 72 hours for those organizations that have not initiated category management programs (Figure 2).

Investment in Category Management and Average Supplier Lead Time

40 Average supplier lead time in days 30 20 10 0 25th Percentile Median 75th Percentile Have not initiated category management N = 71 28 19 14 4 6 30

Have initiated category management

Figure 1

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Investment in Category Management and Cycle Time to Place a Purchase Order

120.0 Cycle time to place purchase order (in hours) 100.0 80.0 60.0 40.0 20.0 0.0 2.0 25th Percentile Have initiated category management 24.0 8.0 Median 75th Percentile 24.0 72.0 96.0

Have not initiated category management N = 73

Figure 2

CATEGORY MANAGEMENT AS A SUCCESSFUL PRACTICE

Category management involves strategically developing, assessing, and monitoring procurement and supplier performance in specific supplier categories. These categories are then more manageable from an organizations procurement perspective because each category requires similar market intelligence, sourcing strategies, and supplier relationship management programs. Category management helps build deeper two-way relationships with suppliers, often resulting in improved supplier performance. In the book, Supply Chain Management Process Standards, Second Edition, The Council of Supply Chain Management Professionals along with APQC suggest category management as a minimum process standard in procurement plans and procurement strategy. Current spend should be understood by individual category, and there should be an assigned owner for each category based on use and knowledge. Potential suppliers for a category may include current providers and new providers.

BETTER SUPPLIER LEAD TIME

A deeper look at APQC data in Figure 1 shows that organizations using category management programs have significantly improved supplier lead times on purchased materials. The top performers using category management experienced average lead times of four days, compared

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with 14-day lead times for top performers that havent initiated category management programs. The gap was also pronounced between the bottom performers. Those organizations that have initiated category management programs experienced average lead times of 19 days versus 30 days for those organizations that have not initiated category management programs.

IMPROVED PO PROCESSING
APQC data in Figure 2 shows that organizations using category management programs have dramatically shorter cycle times for processing POs. The top performers using category management experienced average cycle time of two hours, compared with a 24-hour cycle time for top performers that havent initiated category management programs. The gap was also pronounced between the bottom performers. Those organizations that have initiated category management programs experienced average cycle times of 24 hours versus 96 hoursone quarter the timecompared to those organizations that have not initiated category management programs

CONCLUSION
Organizations that include category management as part of their strategic sourcing and procurement processes and functions demonstrate shorter supplier lead times and faster PO processing. This holds true for top, median and bottom performers. The reasons for these gaps may lie in the organizations discipline in understanding and selecting suppliers within a particular category as well as the organizations collaborative relationships with those suppliers.

ABOUT APQC
APQC is the leading resource for performance analytics, best practices, process improvement, and knowledge management. The organizations research studies, benchmarking databases, and renowned Knowledge Base provide managers with intelligence to transform their organizations. A member-based nonprofit founded in 1977, APQC serves Global 1000, government, and nonprofit organizations. For information, visit www.apqc.org or call +1-713-681-4020.

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