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Key takeaways
- Category management is the practice of grouping similar spend into categories and running each with its own strategy, owner and targets.
- It differs from strategic sourcing. Sourcing is the process of running a competitive event. Category management is the wider strategy that decides whether and how to run one.
- Segment spend by risk and by value. Peter Kraljic's 1983 matrix, with its four types of purchase, is still the most used way to do it.
- Start with five categories. A team that tries twenty at once finishes none.
- A category strategy fits on one page. If it takes ten, it is not yet a strategy.
Free PDF: Category strategy one-page template. Get it below
A manufacturing company buys packaging from nine suppliers across four plants. Each plant buyer negotiates alone. Nobody has asked whether the company needs nine suppliers, whether the packaging could be standardized, or whether the price rises are linked to a resin index that could be written into a contract. Moving from nine independent buyers to one person who owns the packaging category as a whole changes the questions asked, and the answers.
The firm is fictional. The shift it shows, from buying to managing a category, is the heart of the method.
Category management is a procurement approach that groups related spend into categories and manages each one with its own strategy, based on market knowledge, internal demand and supplier analysis, under a named owner with defined targets.
How is category management different from strategic sourcing?
Our strategic sourcing guide covers the process of running a sourcing event: gather requirements, invite bids, evaluate and award. Category management sits above it. It decides which categories matter, how to treat each, and whether a sourcing event is even the right move. Sourcing is one tool in the category toolkit, alongside demand management, supplier development and contract changes. If you are looking for software to support the work, see our category management software category, which covers tools, while this page covers the method.
How do you segment spend?
Peter Kraljic proposed in a 1983 Harvard Business Review article, titled "Purchasing Must Become Supply Management", that purchases be sorted on two axes: their importance to the business and the complexity of the supply market. The result is four types of purchase, each with a different treatment.
| Type | Profile | Usual treatment |
|---|---|---|
| Routine items | Low value, many suppliers, low risk | Simplify. Use catalogs, standard terms and fewer transactions |
| Volume items | Significant spend, many suppliers available | Compete. Use bids or auctions and pool volume |
| Bottleneck items | Low spend, few suppliers, hard to substitute | Secure supply. Find alternatives, hold stock, build relationships |
| Strategic items | High value, few suppliers, critical to the business | Partner. Long-term agreements, joint planning, risk sharing |
The table renames the quadrants in plain terms. Use it as a starting point. Your own scoring should reflect your business, because a category that is routine at one firm can be strategic at another.
What are the seven steps?
- Define the category. Draw the boundary. Which items, which suppliers, which business units.
- Understand demand. What do users buy, how much, and why. Ask whether the need is real or habit.
- Understand the supply market. Who the suppliers are, how they make money, what drives prices, how much power each side holds.
- Analyze spend and suppliers. Spend by supplier and item, price variation, contract coverage. Our spend analysis guide shows the first pass.
- Choose the strategy. Decide the treatment from the table above, and the levers to pull.
- Carry it out. Run the sourcing events, change the specifications, renegotiate or develop suppliers.
- Review. Track results against the baseline, update the plan each year.
Free PDF
Category strategy one-page template
A one page template with seven boxes: scope and spend, demand, supply market, position, objectives, actions and risks, plus a segmentation grid for your top categories.
- Seven box one page strategy
- Segmentation grid for top categories
- Lever chooser
- Sign-off block for the business owner
What levers does a category manager have?
- Change the demand. Standardize specifications, remove items nobody needs, set policy on what may be bought.
- Change the supply base. Add suppliers for competition, or reduce them for focus. See supplier consolidation.
- Change the commercial terms. Price structures, indexation, payment terms, volume tiers. The reverse auction guide covers one competitive tool.
- Change the relationship. Joint cost reduction, innovation, supplier development.
- Change the source. Decide whether to make it in-house. See make or buy.
What does a category manager do?
The role is part analyst, part negotiator and part internal consultant. It owns the category strategy, keeps close to the market and the users and answers for results. It is different from a buyer who places orders. The procurement organization structure guide shows how the role fits in a team.
Capacity is the common limit. The Hackett Group projects procurement workloads to rise 8 percent in 2026 while headcount and budgets decline. Start with the five categories where spend, risk or opportunity is highest, and run those well.
What goes wrong?
- Too many categories at once. The team spreads thin and finishes nothing.
- Analysis without action. A beautiful spend cube and no decisions.
- Ignoring the business. A strategy written without the users is a strategy they will ignore.
- Treating every category the same. The point of the method is different treatment.
- No review. Markets move. A strategy older than a year needs checking.
How do you write a one-page category strategy?
The template in the download below holds seven boxes: scope and spend, demand, supply market, position (the four types above), objectives with numbers, actions with owners and dates, and risks. If a box takes more than a few lines, the strategy is not clear yet. Take the page to the business owner for sign-off before you start any sourcing event.
For where this sits in the plan, see procurement strategy, and for measures read procurement cost reduction.
Sources
- Peter Kraljic, "Purchasing Must Become Supply Management", Harvard Business Review, September to October 1983. We describe the idea in our own words and rename the quadrants.
- The Hackett Group, 2026 Procurement Key Issues Study: sample size not published on the pages we read.
- The seven steps and the lever list are editorial summaries of common practice.
Frequently asked questions
What is category management in procurement?
It is an approach that groups related spend into categories and manages each with its own strategy, based on demand, market and supplier analysis, under a named owner with defined targets.
What is the difference between category management and strategic sourcing?
Strategic sourcing is the process of running a competitive event. Category management is the wider strategy that decides which categories matter, how to treat each and whether a sourcing event is the right move.
What is the Kraljic matrix?
It is a way, proposed by Peter Kraljic in 1983, to sort purchases by importance to the business and complexity of the supply market, giving four types: routine, volume, bottleneck and strategic.
What are the steps of category management?
Define the category, understand demand, understand the supply market, analyze spend and suppliers, choose the strategy, carry it out and review results against the baseline.
How many categories should you start with?
Start with the five where spend, risk or opportunity is highest. Run them well before you add more.