Replay | The Next-Gen Procurement Podcast | AI-Powered Category Management

always with by Roy Anderson U supply chain lecture extraordinaire at Nor Eastern University

and today we are going to be talking to you about AI powered category management and really like what is the secret sauce

of creating a category strategy and with that we’ll jump into the agenda and we’re going to talk about

traditional category management the stuff that Roy and I learned you know back in the 90s and why that’s changing

rapidly and why the scope of category management continues to advance and we’re going to talk quite a bit about

how to build an internal landscape and then taking all that information and use AI to look that in to get that into a

former sorry forward-looking strategy that includes the external landscape and so on and so forth and we’re going a little bit of fun with that so with that

Roy how have you seen category management change and there’s a lot of stuff on the slides uh for today because

we are very excited about category management but we’re going to try to talk as usual about sort of the back and forth and and so on and so forth. So Roy

talk about category management before and after before and after. So I mean the key is you know what what was available to us.

So traditional or historical to today we we had the ability to start doing spendy analytics. So it’s it’s amazing how many

companies are still not uh fully understanding their uh their actual spend. Uh and then building up to the fact that you have a strategy you try to

drive appropriate category uh supplier utilization and sometimes that means consolidation and other times that means

you need more suppliers to fill the global expertise of the requirement. Um and then be able to go through those planning cycles. That’s what we had

available to us at the time. uh today the world is changed by significant

uh data streams as well as uh technologies that are available. So now we just look at supplier relationship management. This is the entire endtoend

understanding of the supplier deep dive into where the supplers’s long-term plans are going. Where are they investing their money? uh what what are

the risks that they bring to us because of their geopolitical scenario, their locations of their uh services andor

products. Uh how are they shipping these products to you? So the um category strategy includes an enormous amount of

additional information that’s going to be required risk management efficiencies. Uh I would like to add in resilience. I love that last the last comment supplier ecosystem resilience.

And resilience is the ability to get better when you have impacts to you. So you have a logistics problem. Well, how

do you improve upon it? So the next time you’re actually able to minimize that risk because you’ve uh expanded the location where things are being shipped

from, what type of suppliers you’re dealing with. So the strategy of your category management uh is significantly

more in tune with what the global aspects are as well as uh let’s not forget what your internal customers are

trying to accomplish because they’re going faster and faster and you need to spend that much more time with them. So the idea is connecting those internal customers with your external

competencies of your supply base uh is what the category management function is is becoming. So can I also sort of say that when you and I started in

procurement it was all about sourcing at the end of the day and and as the function continued to mature and and

grow now we have to worry about managing suppliers and transaction processing and operational risk and and and and and

right which then sort of drives the necessity of actually doing it broader because everything that we do gets executed through either sourcing

managing a supplier or transacting with a supplier and all these other things kind of fall in underneath there. Um, so let’s jump to the next slide. Right. So

why why the old tools don’t work anymore, right? So you covered some of these things, but um

maybe you know what jumps out at you as probably the most important things that has changed.

Our last our last comment was uh the bottom row third over limited understanding of stakeholder dynamics.

If we don’t know where our stakeholders are going then we are blind to what we need to tell our suppliers. So um what

was difficult for me in the earlier days because I was so wrapped up into the trans you know the transactional activities to try to drive the sourcing

to to get something going uh in those days you know the the idea that actually talking to stakeholders on a regular

basis. Now the question, did I have the internal team? Did I have the expertise within my organization to be able to

have those intelligent uh future-looking conversations? And uh I I bring up

frequently that we still have old job descriptions that hire uh individuals that are nice, hardworking, but don’t

have the caliber of understanding that will make the internal customer our partner. So, uh, if you don’t have a

person in your organization, whether it’s a third party or or an employee or yourself that doesn’t understand what the stakeholder is dealing with and

can’t be intelligent, um, educated and supportive of what they’re trying to accomplish, you’ll never understand the stakeholder dynamics. And that is

literally job one. And if you fail there, then almost everything else you do is just going to be missing. the the comment of if you don’t know where

you’re going, anywhere will get you there. You know, you got to know where you’re going. And that’s and that’s that’s key. So, I would say limited understanding really jumps at out at me.

Yeah. And the other thing that always is interesting to me, it’s like I’ve been a CPO a few different times and the manual effort to extract the data from all

these different places, consolidating it into one spot and then even getting agreement about the data that sits on

the piece of paper, right, is often excruciating. you know I I I worked for an organization with 140 people under me

and getting a category strategy was almost impossible because the you know the disparity of the data and then people didn’t trust the data that we had

to begin with and you know again if you can’t even agree where you are right it’s very hard to chart a path forward

yeah so one of the one of the job descriptions that that I try to develop is this thing called data architecture that is if because you have multiple

systems and unfortunately ely uh many companies including the ones I worked for had multiple ERP systems. Therefore, there were possibly multiple procurement

tools out there. There’s data coming from you know third parties that you weren’t be able to handle. You need to have the architecture understanding is

how do you get into the point where you have the data that is going to be informative. Now the two things that we bring to the table and the table means

the internal customer, the CFO, the CIO, the CEO is the fact that we know what this entire company spends and who

spends it you know so we can bring groups together that have never talked together before but they have common supplier requirements and therefore aggregation opportunities going forward.

two, um, we we have the suppliers. As companies are growing and developing, you start to realize more and more of

every revenue dollar is going out to your suppliers. And therefore, your suppliers are your differentiation in in your your company. Uh, people are doing design work with their suppliers.

They’re doing all of their operational work with their suppliers. Their their marketing and advertising and legal services are out with the suppliers.

That means the suppliers own an enormous amount of information that we’ve got to bring forward. And we’ve got to be that conduit that gets the best and the

brightest suppliers on board and then gets them to drive their data analysis, their understanding, their innovation

back to my internal customers as efficiently as possible. Not to be a roadmap, not to be a stop sign, not to be a cop in the middle, but to to speed

the flow of accurate data. Not the fluff, not the salesmanship, not all this, but the actual data that makes

decisions more uh more important, impactful, more relevant to what the internal customers are looking for.

Those two pieces of data we need to we need to rely upon 100%.

And you know, if you can jump to the next slide, the interesting part to me now is how the technology is changing the

landscape. So a lot of providers were out there in the past three years for example and they were providing category

assessments as as a service so to speak right but now people are turning around and saying well wait a minute are you

treating General Motors as the same you know with the same brush as you would say a bank right when you’re buying

something and it’s it’s so individualistic that you know you need to take in consideration like who you are who’s

regulating you if anyone uh what is your spend what is your spend concentration what is your payment behavior how

critical is this category for you and it changes everything and with the advent of AI we can actually do this kind of

stuff and it’s pretty cool yeah AI is going to obviously take this mass amount of data uh and then be able

to clean it up more effectively based upon your you know providing the guidance in that structure of course you have to check and recheck that data as

much as possible in that in that analysis. But you can now be much more personalized, much more specific uh across categories, across suppliers. And

uh once again to effectively explain that information to your internal customers because your internal customers, you know, if you sit in their

shoes in their at their desk, they’ve got 10,000 other things going on in order to meet their engineering requirements, their financial

requirements, their advertising requirement, you know, production line activity. you know, they just don’t have the time and the bandwidth to do the things that we’re experts at. And we

have to understand we need to be the experts uh in that in that area. And AI is going to be one of the key tools um

to be able to do it to support it. Not to replace us, you know, though there are going to be jobs that are replaced.

Let’s be clear, there are jobs that going to be replaced because of AI.

Good. Because we don’t want to do those jobs. We want to move to the next level.

uh as as you know if you go back not too long ago when buyers were placing paper purchase orders that’s a long time ago I know but we wanted to get rid of all

that stuff right we want to get rid of the thing the the errors to the invoices errors to orders and errors to contracts all that stuff should be done by AI and

by the tool sets so that we can step up get the uh competencies in place to be able to really help the internal customer drive supplier-driven solutions

right and I I think the other thing too is is We are we are so much more resilient now than we used to be. For

example, we keep pick we keep picking on it for example but whoever sits in a CTO chair or CIO chair really makes a

difference. So let’s say the priorities change right and all of a sudden let’s say you want to go from a you know you want to do a data center change for

example you want to you want to change from Amazon to Azure whatever the case may be right like all of a sudden there’s a paradigm shift at the top and

all your category strategies need to sort of follow along and before that would have been a disaster doing that manually and with the advent of of AI and

automation you can change the priorities and the category plan updates which is pretty freaking cool. Um because back in

the day that would basically mean you have to redo everything from scratch which we have all done. It’s uh it’s a little excruciating, right?

Yeah. And one of the fun parts is on your box on the right AI makes this possible by um the third bullet is build dynamic recommendations in real time.

There is data coming in every day that in the past we would just like I I can’t take it. I I I can’t make actions on it.

Therefore, you know, just let’s push it push it aside. Well, now you have the ability to absorb that data, clean it up, and then come back and says, “Hey, you got to take immediate action.” And

the fun part about Gentic AI, it can say, “Hey, supplier number one seems to have an issue. Let’s go and contact them. Let’s set up a meeting with them.

Let’s or let’s get a list of the concerns that we have so we can get action started before we even have the time to to move forward.” The agentic AI

can actually do that for our 18,000 20 thou you know how many ever suppliers we had though my top suppliers were let’s

say 1500 we did 20,000 18 to 20,000 suppliers a year who knows which one is going to cause that big problem and they

say why aren’t you watching over that well now with AI we can do at least have a a first pass at that uh and be

consistently updated as to areas where we should take immediate action or take long-term from planning actions.

Yeah. Um, so let’s jump to the next slide. And the thing that I have a lot of fun doing right now, and you guys will see this in

the next few slides, is creating overviews of categories, right? And now with the advent of AI and orchestration,

if I can make that plug, internal and external landscapes are so much more easily attainable in terms of getting it and having it be complete.

And let’s be clear, right? Internal landscape is what’s going on inside the organization. Like so all the moving parts and pieces and the external

landscape is you know the the things that you face as you go to market, the things you have to look out for and

having those two those two things be complete. Then you can layer on top of that what the organization wants to do.

Voila, you have a plan. Um what have you seen out there in terms of of making this happen uh using magic of AI and data consolidation?

Um the more uh the more competent our technology is, the cleaner our data becomes, the more data that’s available

to us to be able to take action. Uh historically we didn’t even have that data as you mentioned. Uh today uh it’s

been always that black hole of second and third tier supplier visibility. uh if I point and pick out one area uh a AI

is going to allow us to understand what those suppliers uh who those suppliers are. Uh my hope has always been that we

start getting commonality of data streams not only with our first tier suppliers but through those first tier suppliers into our second and third

tier. Why can’t we start creating a consistency of discussion so that we’re not reinventing the wheel on every

supplier and every um every supply chain um with the goal of being able to have

common data elements at every level, tier one, tier two, tier three, tier x uh to be able to pull that data in

because you’ll find that your first tier supplier is not the problem. It is the second or third tier supplier that created that single source of failure

where all of your competitive suppliers are actually using a common player and that common player fails uh or has an

issue with logistics with uh um any number of other issues including war u to the point where okay then all your

suppliers are at failing and therefore you’re not going to have the products you need. Um so having having visibility

and insight because of AIdriven data analysis for your second and third tier suppliers I think is going to be revolutionary not only for risk but I

think for cost performance if you understand where there’s where there’s weaknesses in that second and third tier and you can bring in your expertise to

be able to drive lower costs not only for you but your supplier and your supplier supplier um you’re going to be able that’s where the next generation of

savings is coming from. It’s not another negotiation uh or another aggregation.

It is going to be how do you actually change the entire supply chain.

I couldn’t agree more. What I see a lot of now that you know our customers are talking to us about number one here’s our direct suppliers, the tier one

suppliers. Can you use AI to find out who the second tier suppliers are? And let’s say that you need to figure out which of these suppliers, which of these

second tier suppliers do you have a contractual agreement with? meaning which which ones are truly second tier

suppliers for you. And then we can use uh capabilities such as API services or

even more AI to determine what is the um uh what is the negative news assessment or adverse media for your second and

first tier suppliers? What is the compliance aspect of the second and second and first tier suppliers? Uh what

is the um do you have any sanctions for your first and second tier suppliers?

And all this happens sort of dynamically which is kind of cool right so you can say that you know you know a supplier is global in nature and has has a

compliance issue in Asia for instance do you care about that in United States maybe not maybe maybe not but it’s something you should look at and without

having access to that information oftentimes you flying blind and you don’t actually know so obviously I’m geeking out about this big time right

because this is something that I would have loved to have seen when I was a CPO back it would have it going to change the world. Uh now another little minor activity. So you have all this data.

What do we still need to do? We still need to get our internal customers to a understand what we’re saying, understand the impact. What’s the return on

investment for for a move? What’s the risk if you if we don’t make a change?

um how do we coordinate that information to give the internal customers intelligent

uh information that allows them to actually make decisions that are going to be supportive and and what I find is

uh AI does a really good job of taking the data we have and with multiple iterations

uh create the environment where people go wait a minute that’s important I I’ve got to make changes and um and not have

to spend hours and hours doing that doing literally doing it in seconds to be able to get that information across.

I it is certainly an opportunity and I know I’ve sent a lot of information off to people and they turn around going I don’t know what you’re trying to tell me

perfectly good to me I fully understand it but I’m not getting the point across effectively and therefore failure. So,

uh, the AI engines can be really good at taking all that data and making it, uh, easier to understand and easier to drill down into. So, the internal customer

says, “I get the thoughts. I know I need to take action. Give me a plan of action with either an alternative supplier or

whatever.” Um, that’s important. And if we don’t get the internal customers to move, then then we’re not doing our job.

Awesome. So moving on, we’re going to talk a little bit about what you just mentioned in terms of like from inputs to insights, right? So at the end of the

day, so you have all this information out there. How do you make it digestible? How do you make sure that you can do something with that with that

information? So, you know, one of the one of the things I love doing is bringing on new folks into into my organization. And I can look at a report

and know something is wrong immediately, right? because I’ve been I’ve been doing it a few times and so can you roy and teaching them sort of where to look for

the for the f for the problems in the data sets for example. So what we’re going to show you in the next little bit are four examples of dashboards that

we’re create we have created uh for customers uh it’s actually one category assessment but it’s kind of broken out into four

spaces. Anything before we jump in there? Uh yeah just the idea of prioritization.

Um, so one of the things we have to understand, we have so much stuff. Don’t give them the little picky stuff and then they they start getting immune to

it. They go, “Wait a minute. You sent me 20 items and none of them really change the change the move, you know, then we

have to automate. You go realize, you know what, it’s not about the quantity.

It’s like what are the two that really make a difference?” So prioritization becomes really important. So let’s jump into see some dashboards.

And this is where we nerd out. So what you see in front of you right now, I’m sorry about the eye chart because we try to put so much information into these

things these days, right? But at the top of the banner here, you can see that this is a an overview of enterprise software as a as a category of spend.

And you can see the risk and criticality which is also known as the crawl score.

Who owns the category in terms of the supply in terms of internally uh within procurement as well as a business unit.

You can see what leverage you have based on five assessments, right? Scrollic, porter, pessle, switching risk and then SWAT, right? Again, like these are done

by AI using the inputs below. And then you get operational metrics within the category, right? So how much money you

spend, is it growing uh is it going up or down? How much of that is on PO, how much of that is on contract, how much are you, you know, what is the spend

concentration, average days to pay, how many invoices per year, like all that kind of stuff. And again, back in the

day, this would have taken weeks to get. Anything that jumps out at you?

Yeah. Well, the idea of understanding the separation of your suppliers based upon those that are partners of yours and that you have to have a one-on-one

relationship, long-term relationship, well, those actions you’re going to take and the internal customers that that tie to those partnerships. It’s a radically

different um talent that you want to have in those discussions. Now, we’re talking about providing information to

improve the partnership to be able to build on long-term activity. And then where are they investing that that it’s

going to support or um get them to invest effectively that it’s going to support your long-term vision with your internal customers versus those suppliers that are tactical in nature.

And unfortunately, same with some of my students, they do the easy stuff first and put the hard stuff off for later. A lot of my teams

would I’d sit there and go, why are you spending time on this easy stuff?

Because the hard stuff is where we need to be be known. This is where we need to be able to make a difference. This is where we’re going to be make the name of

the the supply chain valuable to our internal customers. Well, easy stuff.

You can check off the box and feel like you did a good job when you go home. when and I said, “Well, you know what?

If the none of that happens, it’s not going to move the needle. It’s the hard stuff that we got to go after.” So, you know, getting people to realize you got

to go after the hard stuff. And that the chart there actually just highlights it for you. Makes it a lot easier for you to be able to attack it, drive your

metrics around it. Uh, you know, challenge your your your your team on how they’re going to go about those items and then be supportive in that process.

Absolutely. Moving on to the next slide.

And again, we’re talking about the enterprise software category here. An overview of how many POSs get sent out per year and per month. How many

renewals are coming up in this space and then how many requests are coming in, you know, to that enterprise services category, whether that’s up or down. But

now we sort of get to one level below a typical category analysis, which is how much how much is your diverse spend?

Absolutely. and as a percentage of total spend and how are it broken down by minority mops and veteran businesses for example right and what is how you’re

meeting your target or not and then and this is for our European friends what is the scope three impact of this specific category and who are your biggest

admitters again this is AI information paired with API available information where we can actually figure out

uh you know using the spend method as well as the supply reporting method on the scope 3 emission of of a specific category which is pretty cool I think.

Yeah. The idea of having understanding of your carbon footprint uh and understand that carbon footprint in most

cases is supplier driven. So you need to get a you need to be first and foremost in front of that activity but you need

the data to be able to drive it. So having it made available to you this simply is is excellent. But one of the things that I get from my when I talk to

various CPOs around the world, they go, “Roy, yeah, all nice stuff, but I still have the blocking and tackling to do. I still have to source. I still have to

put out contracts. I still have to make sure orders are processed effectively.” Uh, one of the things I told my teams and I tell them, I said, “Yep, it has to

get done, but it doesn’t necessarily have to be done by you.” So, find the technology that’s going to get it done.

If the technology can’t do it, what are the suppliers responsibility getting the pieces done? what’s your internal customers requirements because you’ve given them the self-service technology

to get a lot of that work done and then how can you use thirdparty or outsourcing to be able to drive that. So once again your internal core team is

driving real value and not not just the the tech tactical transactional activity and I’ll tell you that’s the difference between what I call an immature

organization to a more mature organization is being able to have that separation of activity.

Very cool. I agree 100%. Moving right along. Uh this here is again more

information in a specific category. So the top lefthand corner is the contracts and when they’re expiring. Top right

hand corner are the projects. So how many projects are you running currently in this category? How many did you do last year and what were the savings from

them? And what does the pipeline look like in the next 12 months? And again like if you start planning this is pretty cool stuff to have in one spot because then you can actually put resources against it, right?

And then you below that you have the supplier makeup right. So here you have you talked about this earlier who are your top suppliers what are the risky

suppliers and what are the active things that you need to do. So you can see here that Accenter needs a new sock too uh

palent palunteer you know showed up in a sanction screen those kinds of things.

But even more cool is the uh subprocessor. So, who are the subprocessors on the list that your top tier suppliers are using? And what what

can we what do we know about those suppliers? And again, you can see how AI and API information works together here

to create a really clear picture about what’s happening in this category. Yeah, it makes it really um effective is that

as you go and have your meetings with your key suppliers that you have the data necessary as importantly is that whatever data that you can get to your

supplier and say hey let’s make this not a um you know an output where where it’s like well let me tell you information

the information should already be shared. So now you’re talking not about getting through that information but actually what are the actions we’re

going to take to improve it. So now 90% of your meeting is on actionable programs and uh results that can be

anticipated versus just going through the numbers. Uh the more you can do this with Agentic AI, the more you can share this information that’s made available,

the more both sides, meaning the supplier, the internal customer, procurement, they’re all in agreement that this is accurate and complete data,

the better off you’re going to be to to get actionable results. And the meetings become far more valuable than um the

meetings before which was 90% transactional and 5% strategic 100%. And last but not least, we’ll move

on to the last slide here which is around uh the our leverage as in this is how we look at the external landscape right so we take all the internal

landscape we used as an API f into the queries we come up with all this great analysis uh I’m not going to go into a

lot of details right but crawl tells you where how important this category is for you porter tells you what your relative leverage is pestle talks about political

environmental uh you know technological those kinds of Uh, one thing I love is the switching risks in the category, right? So, I

enterprise software is probably pretty high, but you think about janitorial services and printing and so on and so forth. And last but not least, what is a

swath? And I love the fact that we have a bug here on our screen, which is pretty cool um in the in the SWAT analysis. But yeah, so

you don’t have to fix it now. It’s all right. Uh so base so as you can see a lot of this stuff is done and doing this analysis manually would take a lot of

time. Um but having it done automatically is pretty freaking cool.

Yeah. I mean obviously having it right there ready to go. So instead of building it you’re you’re acting upon it

uh is really really good. Um though I can’t see much of it on it.

I’m so sorry. We need to figure out how to how to get this blown up better.

Yeah. Yeah, we we have to do a better job of focusing.

Yeah. But all in all all to sort of say like we came up with a moderate leverage here in this category and a lot of that comes from the fact that switching

enterprise software is typically pretty hard. It’s a lot of a lot of risk around it, a lot of hair on it. So that’s why we don’t tend to to switch suppliers

very often, right? So that’s it in terms of nerding out about dashboards and all that kind of cool stuff we’re building.

So thank you. you wasted a perfect good half hour of your day with us which we greatly appreciate. Uh I enjoy

we’re gonna have another podcast in just over just under a month. So please register here and we would love to hear from you guys if you got anything out of

this at all. Category management has always been near and dear to my heart and is something that we are developing very very quickly here at Focal Point.

So I would love to nerd out with you if you have nothing else going on. Uh so please register for the next episode and Roy thanks a lot for joining us as always.

Wonderful. Thank you. Thank you guys.