Blog
Jan 1, 2024
Developing holistic category strategies with AI-powered recommendations on value levers
9
min
Converting a procurement category strategy into actionable, value-driving initiatives and measures is a critical milestone in the category strategy development process. While understanding business requirements and market opportunities & challenges is essential, it’s equally vital to devise strategic value levers that align seamlessly with your objectives. For category managers, this means that innovative ideas and cost-saving opportunities must be evaluated for their feasibility and their alignment with strategic business objectives—a task that demands expertise and precision. Are you confident that your procurement team always identifies the best strategic value levers?
The third step in Cirtuo’s strategy creation process is the development and validation of strategic value levers, often referred to as the ‘strategizing phase’ in category strategy development. It builds on the business requirements and market opportunities & challenges uncovered during the internal and external analysis by ideating different ways to achieve the objectives for the category. Ultimately, the most impactful and appropriate value levers will be selected as the ‘category strategy’.
The primary goal of developing category strategies is to optimize the procurement process or approach for a category to benefit the organization financially, operationally, or strategically. The assessment requires a systematic ideation, analysis, and evaluation of potential value levers that can result in cost savings or avoidance, efficiency enhancements, risk mitigation, sustainability or diversity improvements, and overall business value creation.
To develop an actionable category strategy that is supported by the business and has a high probability for delivering the expected business value, a structured approach to ‘strategizing and validating’ value levers is required. They need to be based on realistic opportunities that reflect the gathered business requirements and market realities. The key steps involved in establishing value levers include:
1. Identify value levers – Based on the conducted internal and external analysis during the strategy creation process, ideas and paths for fulfilling the business requirements under the given market conditions are identified. These are called ‘value levers’. Each value levers can either drive cost savings, process efficiency or improvements, mitigate risks, enhance supplier relationships or optimize the supply base. Only value levers that align with the overall business strategy are to be considered.
2. Quantify the potential business impact – Next, the potential benefits and value that could be derived from each identified value lever are estimated. This could include projected cost savings, process savings, improved supplier terms, reduced lead times, enhanced product quality, and reduced risk profiles among others. For each option, a quantifiable monetary opportunity value needs to be established.
3. Evaluate the ease of implementation – For each value lever a high-level implementation plan needs to be developed that outlines the required steps, estimated timelines, required resources, and implementation hurdles that need to be overcome. It results in an assessment of the relative ease or difficulty of implementing the value lever.
4. Prioritize value levers – Based on the established business impact and ease of implementation, the identified value levers can be mapped on a 2-by-2 matrix and prioritized based on their potential impact, feasibility, resource requirements, and alignment with organizational objectives. Capturing the pro’s and con’s for each option helps in establishing a shortlist of realistic options.
5. Validate value levers in the market (optional) – Where value levers depend on supplier inputs, a validation in the market should be executed to ensure they are realistically evaluated. It allows Procurement and stakeholders to revise, update, or fine-tune the considered value levers, which will increase the confidence that the ideated value levers will deliver the anticipated business impact.
6. Finalize category strategy – Based on the refined value levers, the final category strategy including the associated initiatives can be created and approved by the business.
Ideating and assessing value levers at the intersection of supply and demand is the core of the strategy creation process. It is aimed at uncovering areas for improvement and identifying opportunities to optimize processes, reduce costs, increase supply chain resilience, and ultimately drive better value for the organization and stakeholders. A structured approach to identifying possible options for fulfilling business requirements under consideration of market realities that is validated with stakeholders and suppliers will result in actionable category strategies.
Cirtuo is on a mission to make category strategies actionable by ensuring that ideating impactful value levers isn’t difficult or time-consuming. Guided Strategy Creation™ Pro’s enhanced recommendation engine helps category managers quickly and effortlessly identify the most relevant value levers from over 90 predefined options. During the guided interview process, the tool captures over 400+ data points about the company, its business requirements, its objectives, and the supply market through spend analysis and strategic tools like, the Kraljic matrix, Porter’s Five Forces, SWOT, risk assessments and more. These inputs provide a comprehensive perspective on the company’s strategic objectives and fuel a sophisticated AI algorithm that transforms raw data into actionable insights.
Cirtuo’s AI is an expert system that is based on an extensive body of knowledge and data. The underlying algorithm mimics the decision-making process of human experts in strategy development and continuously learns and evolves its recommendations based on user interactions, feedback, and updated data. This iterative learning process ensures that the algorithm remains dynamic and adapts to changing market dynamics, emerging trends, and evolving organizational requirements.
Based on the inputs, the algorithm generates a set of contextualized value levers, aligned to specific business needs and goals. The recommendations generated are presented through a user-friendly interface that facilitate the understanding and integration of the AI-powered insights into the strategy development process. This enables procurement professionals to make informed decisions that contribute to their organization’s strategic objectives.
Cirtuo’s AI expert system is engineered to deliver actionable recommendations. It addresses the critical aspects in the category strategy development process where offline processes and simple frameworks can’t ensure consistency across category teams.With over 90 options and 360.000 combinations of value levers, Cirtuo ensures the recommendations are tailored to your unique situation qnd objectives.
With over 90 options and 360.000 combinations of value levers, Cirtuo ensures the recommendations are tailored to your unique situation qnd objectives.
Cirtuo’s recommendation engine is more than just a technical marvel; it’s a solution that empowers procurement professionals to make holistic decisions in the most complex environments. Guided Strategy Creation™ Pro enables every category manager, independent of their seniority or experience level, to identify value levers relevant to the unique situation of their business. With Cirtuo, every category manager can deliver actionable category strategies that are strategically aligned with business priorities and that maximize value beyond savings.
Learn more about developing actionable category strategies in our deep dive blog explaining the external market analysis.
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