Why External Market Signals Matter for Intelligent Category Management

Procurement teams today are constrained and asked to do more with less. The dynamic external environment (M&As, supply chain disruptions, pandemic, trade wars, etc.) is adding to the complexity.

Getting hold of the current situation in your organization can itself be a task, with data dispersed across different systems that don’t talk to each other.

As such, most procurement teams seem content in putting together a consolidated view of the internal situation that comprises of spend, suppliers, contracts, KPIs, etc. External market intelligence takes a back seat. Worse, some teams try to collate external insights from their suppliers who are biased for obvious reasons.

We believe this mindset leaves a lot of value on the table.

For instance, many companies evolved into category management from a strategic sourcing setup, which resulted in long-term contracts for various categories. Little attention was paid to these engagements while the contract was in place, allowing suppliers a joy ride during times of supply abundance.

Also Read: Category Management: What It Is and Why It’s Important

Going Beyond Cost Reduction

In today’s age, with its fast pace of change, procurement cannot afford this approach. Best-in-class companies continue to extract value from their supply networks. It is also limiting procurement teams of average companies from taking over their new responsibility of being a “business strategies influencer”. They continue in their “cost reducer” role.

The underlying principle underpinning category management is to consistently track categories – in terms of business requirements, demand patterns, supplier performance, etc. Companies must consider external market intelligence as well in this mix.

There are certain developments – like price change, risk change and supplier disruption – that should also be a call to action for a category manager.

Additionally, an innovation can convert a ‘bottleneck’ category into a ‘leverage’ one (or the other way around); thereby requiring wholesome change in procurement’s approach towards that spend area.

Similarly, there are many other scenarios that could play out (a few are outlined for reference):

• Trade war between the U.S. and China highlighted the need for nearshoring.
• Unprecedented situation like COVID-19 brought risk management to the fore.
• The semiconductor shortage meant companies were willing to pay any price to secure supplies.

Also Read: How To Mitigate Third-Party Risk With Intelligent Category Management Software

Bringing AI into Category Management

True category management, especially today, requires one to be prescient of such external market shocks and plan for any eventuality.

Agreed, there are too many moving parts, but leading companies explore different options (supplier annual reports, transcripts, SME interactions, peer interactions and third-party collaborations) to improve their odds of chancing upon useful insights.

Moreover, with advances in technology, we also see AI-curated insights and automated alerts/newsfeeds providing timely nudges. External market assessment should be carried out periodically and should not be seen as a discrete one-time activity (as advocated in the seven-step strategic sourcing process).

Achieving this is much easier today than five to six years back with the technology maturing.

The need of the hour is to have an AI-based intelligent category management engine which allows users to set up their strategies and define control parameters (demand/supplier performance/category risk/supply-demand situation).

Any variations beyond user defined thresholds should bring this intelligent engine into action, by generating notifications and recommending tweaks to current strategies.

Such options are already out there.

Procurement needs to embrace them and achieve excellence in category management in this era of AI.

Learn about GEP’s Intelligent Category Management Solution.