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Category Management with SAP Ariba

Abhijit_Shinde
Product and Topic Expert
Product and Topic Expert
2 weeks ago

Introduction

Category Management is a strategic process of managing goods & services as a group rather than individual units with the objective of aligning the business goals and requirements with operational activities. It assumes great significance while dealing with materials or services which have regulatory compliance or high cost/risk associated with them. Examples could be dangerous goods, precious metals or controlled substances. It is most relevant to spend operations as the management of external spending significantly impacts a company's profitability. It helps achieving cost savings, sustainability goals, stakeholder satisfaction, reduced risk & innovation.

Grouping purchases into categories or groups that share similar characteristics and or suppliers, companies can have a holistic view of their spend to optimize costs, quality, and the supply base. It also helps to identify similar needs across their production units and business functions, aggregate demand, and use the purchasing power to gain better prices from suppliers. It also helps suppliers with larger orders. With rapidly changing business requirements & issues with global supply markets due to geo-political situations, category management has become increasingly essential to help companies proactively manage their supply base and meet spend management goals.

However, it is not that easy as it involves analyzing data, understanding supplier setup and constraints, evaluating consumer behavior, and making strategic decisions to maximize the performance of each category. Historically, category management has been a manual process involving various disconnected systems and time-consuming steps leaving less time for strategizing and value realization. The SAP Ariba Category Management solution is an offering from SAP that digitalizes and streamlines the overall process. It provides category analytics, process guidance, analysis frameworks, and system-enabled recommendations to help the procurement organizations. It can also utilize Artificial Intelligence (AI) & content from 3rd Party market intelligence providers to further assist in analysis & quick turnaround. For a quick 3 minute overview of the solution, refer this link. Kindly refer this link for details of Category Management solution providers from Gartner.

This Blog Post tries to explain Category Management in general & collate details around SAP Ariba Category Management in a summarized way with links to resources from SAP and SAP colleagues. It aims to be helpful to anyone seeking to understand the topic, decide on solution and further implement it.

 

Category Management Process & Challenges

A model to streamline Category Management process was developed by Brian F. Harris in 1997 & was called Brian Harris model. It had 8 steps. The model evolved further & from purchasing point of view, it can be represented in 5 steps as below.

Category Management ProcessCategory Management Process

Category Definition

Categories in purchasing are defined by combining materials or services that share common characteristics, serve similar purposes, or are sourced from the same suppliers. These categories can be set at the local, regional, or global level, depending on the company's structure and operational approach. Direct purchases are necessary for the final product, while indirect purchases support the business but are not part of the final product.

Category Taxonomy refers to the classification of purchasing categories into a hierarchical structure that consists of parent and child categories or main and sub-categories. The hierarchy can be made as granular as it makes sense from a practical & management perspective.

Category Analysis

This involves analyzing historical spend data, identifying trends, and understanding the organization's current and future needs within each category. Data source could be internal systems associated with demand forecasts, sourcing, spend & suppliers performance. This data often requires significant data cleansing. Internal data is then combined with external data, such as public information on suppliers, commodity prices, or currencies. Category Analysis can also be supplemented with commercial data sources such as supplier parentage, credit ratings, sustainability scores or supplier risk profiles.

Category Strategy Development

Category Strategies are aligned with corporate goals of the company. These goals could be diversity, profitability, sustainability, etc. In view of recent events such as the pandemic and rapid market changes, goals like risk reduction and increasing resilience have gained significance for many companies. These goals are passed on to each Functional department (Sales, Supply Chain, Procurement, etc) which in turn can lead to Category Strategy for Procurement. Category Strategy thus aligned with corporate goals can finally lead to action inputs like Supplier selection with say Sustainability as focus. Category Strategy outlines how a company purchases and manages goods, services, and related expenses.

Tools like Kraljic Matrix, Porter's Five Forces & SWOT Analysis can be used here to analyse the details objectively and arrive at a strategy.

Kraljic Matrix

The Kraljic Matrix was developed by Peter Kraljic in the 1980s. It is a strategic procurement tool used to analyze and manage the supply chain based on two dimensions: supply risk and profit impact. It categorizes procurement items or categories into four quadrants: strategic items, leverage items, bottleneck items, and non-critical items.

This matrix helps to segment the materials/services (or Suppliers) in 4 classes against Risk/Complexity on X axis & its Profit Impact on Y axis. Complexity (or risk) of the supply market can cover factors such as monopoly situations, barriers to entry, technological innovation, etc. The importance of the purchases (materials/services) or suppliers is determined by the impact that they have on the profitability of the company. This classification helps the company to define the optimal purchasing strategies for each of the four types of purchases or suppliers. For details, please refer this link or 9 minutes video.

Kraljic MatrixKraljic Matrix

Porter's Five Forces

Porter's Five Forces framework or market dynamics chart was developed by Michael Porter. It is also a strategic tool used to analyze the sources of competition for a business. It examines 5 key forces that shape the competitive intensity and attractiveness of an industry. Category Managers can gain insights into the competitive dynamics of their categories, identify strategic opportunities and threats, and develop informed category management strategies by applying Porter's Five Forces framework.

Porter's Five ForcesPorter's Five Forces

  The five forces are:

  1. Competitive Rivalry: This force is a measure of the intensity of competition in the marketplace. If there are numerous strong competitors, companies attract customers by launching advertising campaigns and reducing costs.
  2. Supplier Power: This force measures the power of a supplier and how much control it has over the prices. The fewer the number of suppliers, the more power they hold. This can potentially lower business profitability.
  3. Buyer Power: This force measures the power of a consumer. Customers have more power when the number of buyers is less when compared to that of suppliers.
  4. Scope for New Entrants: This force measures how easy or difficult it is for newcomers in an industry to enter the marketplace. If it is easy for new entrants to join, it poses higher threat for established companies.
  5. Scope for Substitutes: This force measures the ease with which consumers can find an alternative for the product or service. It examines and compares the competitors, prices, and quality.

For more information, kindly refer this link or this 2 minutes video.

SWOT Analysis

A SWOT (strengths, weaknesses, opportunities, and threats) analysis is a management technique that helps an organization to assess all the factors involved in making a business decision. It can help in category management by providing a structured framework for evaluating the internal and external factors that impact a category's performance,  identify strategic priorities, and define actions for better management. For more details, refer this link.

Sample SWOT Analysis for Product CategorySample SWOT Analysis for Product Category

 

Strategy Implementation

To achieve the planned outcomes, the strategy needs to be implemented effectively. The challenge here is that, often category plans need to be executed by people outside procurement. As an example, there might be a strategy in a chemical category to switch to an alternative chemical to reduce costs. Implementation of this strategy involves trial runs and tests that are run in production or in research centers. Implementation also includes change management making sure that all the stakeholders understand the strategy and comply with it.

From purchasing point of view, there are 3 major tasks here:

  • Sourcing: Assessing existing suppliers and identifying potential new suppliers based on factors such as cost, quality, reliability, and innovation.
  • Contracting: Engaging in negotiations with suppliers to secure favorable pricing, terms, and conditions. This may involve leveraging the organization's purchasing power and establishing long-term contracts.
  • Supplier Relationship Management: Building and maintaining strong relationships with suppliers to ensure ongoing performance, collaboration, and continuous improvement.

Monitoring and Optimization

Monitoring the category performance and value delivery using key performance indicators (KPIs) and other feedback mechanisms. It covers monitoring strategy implementation process, supplier performance review, tracking key metrics, and identifying opportunities for further cost savings, process improvement, and value creation.

 

Typical Challenges in Category Management

Typical Challenges in Category ManagementTypical Challenges in Category Management

 

 

SAP Ariba Category Management

Solution Overview

The SAP Ariba Category Management solution is an offering from SAP that digitalizes and streamlines the Category Management process. Different aspects of Category Management have always been part of SAP's solutions, but, in my view, this is the most comprehensive Category Management solution from SAP so far.

It helps Category Managers with development, execution, and monitoring of category strategies. It provides category analytics, process guidance, analysis frameworks, and system-enabled recommendations that helps to move rapidly towards intelligence-driven category management. It facilitates the collection of pertinent information, such as laws and regulations, company policies, team members, and stakeholders, and stores it in a centralized location. For more details on how SAP Ariba Category Management provides actionable market intelligence and category insights for category managers and strategic procurement professionals, refer - SAP Ariba Category Management Datasheet.

It helps Category Managers as below:

  • Analysis frameworks such as the Kraljic Matrix to analyze their category effectively.
  • As part of the strategic planning process, business requirements, SWOT analysis, and identified risks can be directly documented within the system.
  • The content for supply market dynamics can also be pulled in from a 3rd party market intelligence provider Beroe Inc.
  • The use of generative AI can support managers by providing content for cost structure, market dynamics, and category segmentation.
  • Solution helps in analyzing supply market dynamics with Porter's Five Forces for creation of a robust category strategy.
  • Category cost structure and market dynamics can be populated manually.
  • From a range of value levers, the manager can select the most relevant category goals and key performance indicators (KPIs) for their category.
  • The manager can document specific initiatives, including assigning owners, setting timetables, and estimating outcomes.
  • Category Strategy can also be subjected to relevant approvals.
  • Post approval, if implementation needs running a sourcing project, the manager can turn the initiative into a sourcing activity with SAP Ariba Guided Sourcing.
  • As tasks within the sourcing project are executed, the progress of the initiatives is automatically updated within SAP Ariba Category Management.
  • The monitoring workbench serves as a centralized platform that consolidates all relevant information, allowing managers to easily track the progress of their goals and initiatives at a glance.
  • The calendar view allows managers to keep track of their initiatives, active sourcing events, and contracts.

SAP Ariba Category Management - Home PageSAP Ariba Category Management - Home Page

Technical Features

  • SAP Ariba Category Management is built on the SAP Business Technology Platform & is natively integrated to SAP Ariba Sourcing (Guided Sourcing), SAP Ariba Contracts, SAP Ariba Spend Analysis, and other procurement solutions. It delivers a seamless user experience across source-to-pay processes without requiring expensive and time-consuming point-to-point integrations.
  • It is also integrated with SAP Analytics Cloud solution tenant that enables you to view and analyze category spend data from the SAP Analytics Cloud user interface. The Advanced Analytics tile in SAP Ariba Category Management displays the SAP Analytics Cloud dashboards maintained for the application tenants. This is offered as part of the solution and does not require an additional license.
  • Though not a pre-requisite, through native integration of SAP Ariba Spend Analysis and SAP Ariba Category Management, you can readily access data needed to develop your category profiles, define category strategies, and drill down on data across various dimensions to identify opportunities.
  • The procurement data warehouse (PDW) acts as the source system for the spend data used to represent spend aspects of purchasing categories configured in SAP Ariba Category Management. Data from SAP Ariba Spend Analysis may feed the procurement data warehouse, or you have the option to bring cleansed and enriched data from other sources into the procurement data warehouse.

Integrations to Other Solutions

Integrations to Other SolutionsIntegrations to Other Solutions

Apart from these solution integrations, from setup point of view, SAP Ariba Category Management also integrates with Identity Authentication Service and Identity Provisioning Service, SAP Master Data Integration service & Procurement data warehouse.

 

Process Steps

Category Manager has these 3 steps to follow for using SAP Ariba Category Management solution:

  1. Manage Category Profile
  2. Develop Strategy and Plan
  3. Monitor Strategy Execution

Manage Category ProfileManage Category Profile

Develop Strategy and PlanDevelop Strategy and Plan

Market AnalysisMarket Analysis

Strategy and ImplementationStrategy and Implementation

 ApprovalApproval

 Monitor Strategy ExecutionMonitor Strategy Execution

Above screens from system show the high level activities involved in each of the steps. For details on these, kindly refer the SAP Ariba Category Management User Guide. The complete process with details of each step along with screenshots can be found in Content Discovery demo (refer 'Access Online Demo' & Script 'SAP Ariba Category Management - Information Technology').

System Setup

Setting up system for SAP Ariba Category Management involves setting at first the integrations with IAS/IPS (Identity Authentication Service and Identity Provisioning Service), SAP Master Data Integration service & Procurement data warehouse. You need to have a global account with SAP Business Technology Platform (BTP). You also need to set up two BTP subaccounts (for testing & productive use). Kindly note that, as of now, SAP Ariba Category Management is only available on EU and US datacenters.

Next step is to identify the source system for spend data that you want to use for SAP Ariba Category Management. You can use SAP Ariba Spend Analysis or a non-Ariba app for spend data. In case of SAP Ariba Spend Analysis, please ensure that you have completed the initial spend data enrichment cycle. The Procurement Data Warehouse (PDW) acts as the source system for the spend data used to represent spend aspects of purchasing categories configured in SAP Ariba Category Management. Data from SAP Ariba Spend Analysis may feed the procurement data warehouse, or you have the option to bring cleansed and enriched data from other sources into the procurement data warehouse. Kindly refer SAP Ariba Category Management Configuration Guide for more details.

Once this basic configuration is in place, SAP Ariba Category Management Administration Guide & SAP Ariba Category Management User Guide can be used further to carry out other settings. Kindly do refer these Blog Posts from SAP colleagues @Muthukumar1 & @DevPalanimuthu for more details.

 

Other Related Topics

Beroe Market Intelligence

Market Intelligence refers to the information collected and insights gathered about a particular market or industry. It covers information about competitors, customers, market trends, and other external factors that impact business performance. It helps to understand the market dynamics, identify opportunities, and make better decisions to gain a competitive advantage.

Beroe has partnered with SAP Ariba to deliver procurement intelligence and analytics in the SAP Ariba Category Management Solution. Beroe delivers more than 8 million points of category, market, cost, price, supply chain and risk data to optimize category plans and the insights to navigate increasingly complex sourcing landscapes. It helps you manage market risk, measure category performance, track prices, and source global data to drive smarter category decisions. More info here & in the video 'Get more out of SAP Ariba Category Management with market intelligence from Beroe'.

3 Packages from Beroe

Beroe provides 3 packages to access market intelligence in the context of your category strategy:

  • Beroe Market Intelligence Basic: This includes access to various data sources, cost structure modelling, and category news.
  • Beroe Market Intelligence Advanced: This package includes the topics in the Basic package plus access to the Beroe Data Hub platform with price, forecast, cost structure, and benchmark information spanning over 832 distinct data elements per category and 7.4 million discrete data elements.
  • Beroe Enterprise: This package includes the topics in the Advanced package plus access to the proprietary Beroe LiveAI tool. Features in this tool include market information discovery, category performance, price tracking, supply chain visibility, supplier ESG information, monitoring and forecasting of real-time price changes across products, and chatbot based querying to retrieve relevant information.

Integration

To integrate Beroe with SAP Ariba Category Management, you need a Beroe Connector license, available on the SAP Store. You need to configure the Beroe endpoints, and Beroe will provide provisioning support. For more details on Beroe integration, kindly refer this Blog Post from SAP colleague @DevPalanimuthu on the topic.

Use of AI

SAP Ariba Category Management uses Generative AI with the solution. It allows Category Managers to generate AI content recommendations for Category Segmentation, Market Dynamics, and Cost Structure tools. For more details on the topic, kindly refer these links.

SAP Services

Deployment of SAP Ariba Category Management can be done by Customer on own or by purchasing additional SAP services or partner services. SAP provides three service options to choose from:

  • Implementation of SAP Ariba Category Management: The scope of this service includes provisioning and technical enablement, configuration and delivery, and go-live support.
  • Strategic data-related services for maximizing value: This service includes areas such as data extraction, mapping and transformation, vendor data collection, cleansing and classification, taxonomy management, and commodity enrichment.
  • Category management strategy and definition: This is an advisory service that provides business and value assessment to help you determine strategic direction, define and develop category management, and improve your procurement strategy management.

Partner Enablement

Partners can also try the SAP Ariba Category Management solution. Recently, a SKU has been introduced for Category Management TDD (Test, Demo & Development) system. Due to technical limitations for TDD availability, the solution is currently only available in US datacenter (DC). The connected Ariba solutions should also be hosted in US DC itself. Most Ariba realms of Partners are hosted in Australia (AU) DC. Internal discussions are on to bring the TDD solution in AU DC also. Until then, Partners have an option to buy the Category Management TDD (which will be deployed in US DC) and a new Ariba TDD realm (also to be deployed in US DC) to perform the complete setup for demo purpose. Kindly connect with your Partner Business Manager for more details. Few help links as below.

Partner Learning Resources:

 

Consolidated List of Resources

 

Note: Kindly refer 'Comments' for updates to the Blog Post. Also requesting all to enter Comments with info which can be helpful to all.

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