7 steps to unlock the value of cognitive category management

Tim Wood is vice president and partner for the Supply Chain Management Practice, IBM Global Business Services.

In my previous commentary, I discussed how the private sector has used category management, combined with cognitive capabilities, to unlock significant value. By adapting Federal Acquisition Regulation practices and applying lessons from initial pilots in the federal government, the potential for $340 billion in savings, as outlined by the Technology CEO Council, is possible.

The dawn of the cognitive era has brought forth two game-changing capabilities. First, cognitive tools can capture and interpret unstructured data, such as text, speech or images. Considering that 80 percent of all information that humans capture and process is unstructured, this vastly expands the data set for analysis and provides more insight to the procurement decision.

Second, cognitive tools learn based on user feedback, which enables rapid filtering and prioritization of the most relevant content for the desired outcome; e.g. pricing data most important to contract negotiation. Over time, the tools will provide increasingly more relevant information – and ultimately insight – of disparate data sets for the user’s purpose, much like an experienced procurement analyst learns with years of experience.

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Commercial companies use cognitive tools in their own procurement processes to drive additional value, as outlined in a few examples below.

Deep supplier insight captures and prioritizes critical internal and external structured and unstructured data around a supplier for a corporate buyer. Based on feedback, future searches are honed in accordance with key attributes of the search.

Instant contract analysis enables contract text review and automatically identifies clause similarities and deviations from reference standards to improve contract compliance and reduce protest potential.

Virtual agents support procurement specialists with natural language interaction on key questions, such as the Federal Acquisition Regulations.

Cognitive category management use case

How do these components integrate to provide value to the buyer and end-user?

Below is a use case showing how cognitive tools could be used to enhance visibility to the process, improve the end-user experience, and enable the category strategy.

  1. Data is extracted from multiple agencies and external data sources. Cognitive tools clean and normalize the data for commonality.
  2. Then, this data can be used to conduct cross-agency spend analytics, made visible through a dashboard to a category lead, contract officer or program manager. From this analysis, category leads would craft strategies and conduct sourcing.
  3. Negotiations of the resulting contracts would leverage tools, like a cognitive dynamic pricing engine, to capture key data pertinent for price negotiations.
  4. Preferred products and services would be advocated and available through an easy-to-use buying assistant, simplifying the buying experience and enabling the planned category strategy.

Getting started — While Cognitive Category Management (CCM) across all federal categories could take five-to-seven years, significant value can be realized in six-to-nine months with the right strategy (e.g., pilot, refine and then full speed ahead) and approach. Below is a proposed set of guidelines to migrate to a CCM model.

Pilot the CCM process with targeted cognitive tools on a few priorities. Successful deployments in commercial entities are focused at the category level. Each category has fundamental different markets and successful strategies. While recent federal efforts have focused on IT, we recommend starting with marketing/advertising and travel categories.

Marketing/advertising has an $800 million annual spend and has had limited focus, which allows a fresh perspective. Travel is a mature category with very good cross-agency data. Both are mature categories in the commercial world and could yield larger and accelerated results.

Secure deep category/sub-category expertise and related tools to accelerate the value through pooling talented expertise from the agencies and partnering with external entities.

Leverage and rapidly deploy cloud-based cognitive tools to accelerate stand-up, use and refinement of these tools with the procurement and user communities. Start with cognitive analytics and buying advisors to prove the value.

Initiate a federal change management program to engage agencies, suppliers, and the small business community in this process. Socialization and commitment from key stakeholders will be critical to realizing the benefit.

Evaluate policies that will lift barriers and enable the value proposition. For example, the policy for reinvestment of the savings achieved within an agency should be evaluated closely.

Exercise the governance model with the pilot programs. An active and purposeful governance has been a critical element in successful efforts.

Build on the acquisition gateway to capture key requirements and deploy federalwide contract use. The required cognitive collaborative platform will be key in expanding its use and delivering the potential.

Government and industry alike use category management — a proven and powerful supply chain practice — to save money and enable key mission goals. More sophisticated technologies such as cognitive can accelerate the benefits. CCM would power the current category management effort by addressing key federal gaps in people, process and technology.

While the federal government has established a solid category management framework, it is not enough to realize the potential. Deep category expertise will accelerate the implementation of category management strategies and related value. User-centric mobile capability will simplify ordering and status checks. A cloud-based cognitive analytics platform that captures target data from all agencies, and leading-edge cognitive tools will capture and normalize both structured and unstructured data to provide buyers with critical suppliers, pricing, risk and contract data and analysis at their fingertips.

In summary, CCM is a key enabler of up to $340 billion of value, as a subset of the $500 billion in potential cost reductions resulting from supply chain and acquisition improvements outlined in the Technology CEO Council report. Further, these tools will serve to enhance the experience and provide more insightful information for both our procurement specialists and buyers of goods and services across the government.