How category strategies create value in a complicated world — Cirtuo and Spend Matters discuss
For more than two years now, procurement professionals have been juggling geopolitical disruptions, labor shortages, supply bottlenecks and inflation all while doing their best to negotiate competitive prices and protect the bottom line. Time must be taken, however, to take a step back from all the juggling and map out new strategies — particularly, category strategies.
Jason Busch, our CEO here at Spend Matters, sat down (via Zoom) with Drasko Jelavic, CEO and founder of Cirtuo — a procurement software provider that guides professionals to make the most strategic category and supplier management decisions using automation technology — to talk about the value of category strategy in turbulent times. You can listen to the interview in its entirety here.
If you’d like to learn more about Cirtuo, Spend Matters has covered them here and they’ve recently contributed an article on the importance of category strategy. Cirtuo also fits within the “Alt Suites” emerging market that Spend Matters is researching, particularly defined as one of the “Strategic Spend Terminal” suite solutions.
Here is what Jason and Drasko had to say about procurement’s evolving role and how category strategies take effect in today’s world.
Jason: When I look at the world of procurement and supply chain in the past six to eight weeks, I see a period of craziness and supply chain disruptions that we probably haven’t seen going back decades; of course the pandemic and post-pandemic recovery caused record-breaking disruptions, but Russia’s attack on Ukraine has especially disrupted the metals industry, agriculture commodities and natural gas. It has been a period to be reckoned with if you’re in procurement.
Even when I woke up this morning, I saw half of Shanghai was shut down because of Covid restrictions. And if we have even a medium-term memory we can recall what happened at the urgent pandemic phase of Covid when China had completely shut down a number of cities, so we had delays in terms of shipments in ports at the time.
So, we certainly have the ingredients and recipe right now for a crisis that is not going to end anytime soon in terms of disruptions and commodity price volatility and inflation — regardless of whether you’re a food CPG company, a manufacturer, a shipper, or in just about any other industry.
But, Drasko, knowing you have clients across industries: what are you seeing across Cirtuo’s client base, specifically?
Drasko: What many category managers report to us is that they are currently in “firefighting” mode. With such a massive supply chain, disruptions, inflation and changing commodity prices, we’re seeing the similar sort of firefighting and risk aversion that we witnessed at the beginning of the pandemic.
The question then becomes whether the strategies that worked during 2020 and 2021 or the “new normal” era will continue to work now. Should they focus on category strategies or supplier strategies, or more so on the supply chain issues? Of course, they tend to prioritize the supply chain issues: the priority is almost always assurance of supply.
But we believe we will find ourselves in a ”new” new normal this time. There will be a new matrix in which procurement will operate, and there will be a massive need to realign and reposition activities.
Jason: My quick observation from across the Atlantic is that we are scrambling in certain industries on the category level. But I can barely put forth that opinion based on conversations on what’s happening in Europe right now – especially for companies dependent on central European and Russian supply chains. With that in mind, what do you consider the “new” new normal and how long do you think it might last?
Drasko: Of course, the global economy is interconnected, so we’re witnessing massive change in terms of demand disruptions, protectionism restrictions, sanctions, and so on. The “new” new normal comes with a completely new framework for category managers. They need to step out of their silos and accurately understand the internal and external challenges of their organization in real time, and to provide stakeholders with the right category and supplier strategies that will best manage and mitigate risk. If they didn’t already, they will have a seat at the executive table as procurement needs to get much, much closer to the business.
It’s difficult to say how long it will last, but there will be a new world order, and category managers need to align and, basically, reposition.
It’s a good opportunity for the procurement community, again, to create a “new” new normal by upgrading and demonstrating their competencies and capabilities to support the businesses not just adequately, but strategically, with foresight.
Jason: Before the pandemic and before the Russia-Ukraine crisis, we heard the phrase “digitalization” going back a number of years. At first, it was dismissed as a buzzword, but now it is, from an enterprise technology perspective, the new normal. Tools are not just tools — tools are transformative, and if procurement is looking to add headcount or to invest in technology, technology nearly always wins out. Not only because of the talent shortage, but because of the results you can get with it.
How can we look at Cirtuo and technology, in general, to support category strategy and category management in today’s environment?
Drasko: For operational or tactical activities, it’s intuitive to become as digitized as possible. Companies have adopted an entire digital infrastructure, digitizing their supplier management, procure-to-pay processes, contract management and so on to improve transparency, efficiency and compliance.
The question is: how much value is added in that way? Processes are significantly improved, but at Cirtuo, we believe that true value is added primarily through strategic activities. What’s strategic is understanding, managing and knowing how to prioritize cross-functional stakeholder requirements and challenges that arise internally and externally.
Imagine a midsize or ‘big-sized’ company that sources hundreds of categories and needs increasingly to monitor supplier activity and market changes; it’s automation and digitalization that provide these companies with a strong data feed and competitive market intelligence.
We introduced “guided strategy creation” just before the pandemic. Once the pandemic hit, we were struggling. Who’s going to want a “strategy tool” during times of constant disruptions? But we were proven wrong. Many companies wanted to actually understand, align and reposition the way that procurement operates. They wanted their decision-making to be informed, not reactive, and knew that a combination of artificial intelligence, market intelligence and human intelligence would be helpful. Technology can help category managers more easily understand the markets, understand business requirements, and develop the right storytelling to mobilize stakeholders.
Jason: I think technology is going to be central to helping companies get out of this crisis, even if there is a macro, dark wave above us and various headwinds in the economic environment. I think we’ll see radical rethinking in different industries.
I’m based just southeast of Chicago in Northwest Indiana, and not too far from me are a couple of steel mills. One used to be owned by ArcelorMittal and it was acquired by Cleveland-Cliffs, along with other operations. Anybody in the manufacturing world hears the name Cliffs and thinks of a mining company, or an iron ore producer. But Cliffs did not look back at its supply chain and buy mining equipment for vertical integration. It looked into the future and acquired a steel manufacturer. So, I think we’re going to see industries really rethink themselves.
I think procurement has the chance, not just to look at category strategy from a supply perspective, but also from a competitive advantage perspective, which may even include acquiring or divesting assets. So, I really think if you’re in this profession and you’re new to it, this is your opportunity to make a giant mark, probably more so than any other time in the past. And technology and visibility are central to that.
Spend Matters would like to thank Drasko and the Cirtuo team for their insights on this topic. You can listen to the entire interview here.