Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Category Strategy to Cut Spend by 18 Percent
Transcript
- Lucas: So we talk a lot on this show about individual sourcing moves—renegotiating a contract, running an auction, switching suppliers. But what happens when you step back and treat an entire category of spend like a portfolio? Luna: That's category management. And it's one of those things that sounds like consultant-speak until you see the numbers. Lucas: Exactly. Today I want to walk through a specific case: a mid-size manufacturer that spent about twelve million dollars a year on packaging. And by applying a formal category management process over eighteen months, they cut that spend by roughly eighteen percent. Luna: That's over two million dollars in savings. And they didn't do it with one big negotiation. They did it by breaking the category down. Lucas: Right. If these conversations have helped you think differently about your own procurement work, we do want to mention something quickly. This show is ad-free and listener-supported. If you find value in it, you can support us at buy me a coffee dot com slash fexingo. Luna: Yeah, that's buy me a coffee dot com slash fexingo. It's a small way to keep the episodes coming without any sponsors. Lucas: And we really appreciate it. Now, back to that packaging category. The first step the buyer took was a thorough spend analysis. They weren't just looking at total spend; they mapped every purchase across the last two years by supplier, by material type, by plant location. Luna: And what did they find? Lucas: They found that the twelve million dollars wasn't one big bucket. It broke into three distinct sub-categories: corrugate boxes, flexible films like shrink wrap and bags, and rigid plastics like totes and pallets. Each had different suppliers, different market dynamics, and different leverage points. Luna: So the first insight is that you can't manage what you don't segment. That sounds basic, but I've seen procurement teams go into a negotiation with a supplier for corrugate without realizing they're also buying films from that same supplier under a different contract. Lucas: Exactly. Once they had the segmentation, they moved to market analysis. For each sub-category, they looked at supply concentration—how many suppliers dominated the market—and demand volatility—how much their own volume fluctuated quarter to quarter. Luna: That's basically the Kraljic matrix, right? Classifying items based on profit impact and supply risk? Lucas: You got it. For corrugate, they found a mature market with many suppliers. Low supply risk. They classified it as a leverage item. For flexible films, fewer suppliers, more specialized—higher risk. That became a strategic item. Rigid plastics fell somewhere in between. Luna: And that classification drives the strategy. For leverage items, you can go aggressive—competitive bidding, consolidating volume. For strategic items, you need partnerships, maybe even joint process improvement. Lucas: Right. So for corrugate, they consolidated. They had been using six different corrugate suppliers across three plants. They did a request for proposal and awarded eighty percent of the volume to one supplier, with the rest as a backup. That alone saved about seven percent. Luna: And they got better service too, I'd bet. When you're the big customer, you get priority. Lucas: Exactly. For flexible films, they couldn't consolidate as easily because the suppliers had unique capabilities. So they used a different tactic: they ran a competitive auction for each film type, inviting two or three qualified suppliers to bid on line items. They saved about twelve percent on that sub-category. Luna: And rigid plastics? Lucas: That was the trickiest. They had long-term contracts with two suppliers for custom-molded totes. The team did a should-cost analysis, broke down the raw material and tooling costs, and renegotiated with one supplier for a volume discount. Six percent savings. Luna: So across all three, the weighted average came to eighteen percent. But the real win isn't just the savings—it's that they now have a repeatable process. They can update the spend analysis annually and adjust strategies as the market changes. Lucas: That's the key difference between category management and transactional sourcing. Transactional sourcing is reactive: you get a requisition, you buy it. Category management is proactive: you study the category, develop a multi-year plan, and execute systematically. Luna: And you need stakeholder buy-in. In my experience, the hardest part is getting engineering or operations to agree to standardize on fewer materials. If they want six different box sizes, that kills your leverage. Lucas: Absolutely. In this case, the procurement team spent a lot of time with the plant managers explaining the savings. They did a total cost of ownership analysis that included not just purchase price but also storage, handling, and waste. Once the plant managers saw that standardizing on three box sizes instead of twelve would save them fifty thousand dollars a year in storage alone, they got on board. Luna: So the category manager also has to be a change manager. Lucas: Right. The framework itself is straightforward: spend analysis, market segmentation, supplier positioning, strategy development, and implementation. But the implementation piece is where most teams stumble because it requires internal selling. Luna: Let's talk about supplier positioning. That's the step where you map your suppliers on a matrix—how important is this supplier to you, and how important are you to them? Lucas: Yes. For the corrugate supplier they chose as primary, they realized they were about twenty percent of that supplier's revenue. That's a strong position. So they could push for better payment terms and get them—from net sixty to net ninety, which improved their own cash flow. Luna: And for the film suppliers, where they were a smaller customer, they had to offer something else—like longer contracts or shared demand forecasts. Lucas: Exactly. They committed to two-year agreements with volume guarantees, which gave the suppliers visibility to plan production. In return, the suppliers locked in pricing and gave them priority during a film shortage later that year. Luna: So category management also reduces risk. You're not just negotiating price; you're building resilience. Lucas: And that's the argument when you present this to the CFO. It's not just about the eighteen percent savings—though that's compelling. It's about having a structured way to manage spend that adapts to market changes. The manufacturer we're talking about is now applying category management to their MRO spend, their logistics spend, even their IT spend. Luna: I've seen that too. Once you prove the model on one category, it becomes a template. The procurement team goes from being order-takers to strategic advisors. Lucas: Which is ultimately what every procurement professional wants. So if you're listening and thinking about trying this, I'd say pick one category—ideally one where you have good data and a receptive stakeholder—and run the full process. Even if you only get half the savings this manufacturer did, that's real money. Luna: And you'll learn a ton about your own spend. The spend analysis alone often reveals surprises—like maverick spend you didn't know existed. Lucas: Yeah. In this case, they found that three different plants were buying the same type of shrink wrap from five different suppliers at five different prices. That's an easy win you don't need a fancy framework for. But the framework helps you find it. Luna: Good point. So category management is really about bringing discipline to the process. Lucas: Exactly. And next time, we'll look at a case where category management went wrong—where the team did the analysis but failed on implementation. Because that happens too. Luna: Looking forward to that. Thanks for joining us on The Buyer's Side.