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Product group strategy: definition & important aspects for buyers
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Product group strategy in a nutshell:
A material group strategy is a systematic approach to the categorization and strategic management of procurement goods according to their characteristics and importance for the company. It enables purchasing to take a differentiated approach to supplier selection, negotiation and inventory management for different material groups.
Example: An automotive manufacturer classifies its 2,500 supplier parts into 12 main product groups and develops a multi-supplier strategy with at least three qualified suppliers per component for critical A-parts such as battery systems (annual volume: EUR 50 million).
Contents
What is a product group strategy?
A material group strategy is a central tool in strategic purchasing that aims to bundle and optimize procurement activities for similar or related products and services. By categorizing materials and services into product groups, companies can make their purchasing processes more efficient, reduce costs and improve cooperation with supplier management. The product group strategy serves as a guideline for all procurement decisions within a category and supports the achievement of long-term corporate goals.
Core elements of the product group strategy
Significance for purchasing
The product group strategy plays a decisive role in modern purchasing, as it helps to manage procurement activities efficiently and achieve competitive advantages. It enables buyers to achieve better conditions through bundled negotiations and to establish long-term partnerships with strategically important suppliers. It also contributes to risk management by reducing dependencies and creating flexibility in the supply chain.
Category strategy: from traditional procurement to category management
The product group strategy has developed from a purely operational purchasing function into a strategic instrument. Originally, the focus was on the procurement of individual materials and services without a comprehensive strategy. Today, companies are recognizing the need to take a holistic view of their procurement in order to achieve competitive advantages. The increasing globalization and complexity of supply chains require a transformation towards innovative approaches in order to increase efficiency and value creation.
Old: Traditional procurement
Traditional approach: In traditional procurement, materials and services were purchased individually and often without an overarching strategy. Buyers focused on price negotiations for specific products without considering the overall volume or potential for bundling. Tools and processes were mostly manual and fragmented, which led to inefficient processes. Challenges such as inconsistent conditions, a lack of transparency and low negotiating power with suppliers were the result. This made it difficult to reduce costs and ensure quality.
New: Category Management
Category management: The modern category management approach is revolutionizing the product group strategy. Here, product groups are viewed as strategic business units for which specific strategies are developed. By using digital tools and data analysis, companies gain deeper insights into spending, supplier performance and market trends. Partnerships with suppliers that promote innovation and long-term contracts enable improved conditions and stability. Practical benefits include significant cost savings, increased value contribution from purchasing and increased agility in the market.
Practical example: Introduction of category management in the consumer goods industry
A leading company in the consumer goods industry successfully implemented category management for its packaging materials. By analyzing the entire procurement volume and bundling requirements, it was able to realize savings of 20%. The number of suppliers was reduced from 30 to 10, which reduced complexity and increased process efficiency. In addition, close cooperation with strategic suppliers led to innovative packaging solutions that improved the sustainability of the products and generated positive market feedback.
Conclusion on the product group strategy
The product group strategy is an indispensable instrument of modern strategic purchasing. By systematically categorizing and bundling procurement activities, it not only enables considerable cost savings, but also optimizes supplier relationships and processes. Despite initial challenges during implementation, the long-term benefits clearly outweigh the costs. In view of forward-looking trends such as digitalization and sustainability, the importance of structured product group strategies will continue to increase.
