As I’ve mentioned before (here and here), I’ve been researching the ROI associated with consumer goods (CG) companies using downstream data (e.g., POS, store level inventories, and DC-to-store shipments). One of the conclusions that I have reached is that Category Managers get a better ROI from their investments in this area than other consumer goods manufacturers.
Category Management might be new to many supply chain professionals, so let me provide a brief overview using an excerpt from Wikipedia, since they do a nice job of describing this topic:
Category Management is a retailing concept in which the total range of products sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories. Each category is then run like a “mini business” (Business Unit) in its own right, with its own set of turnover and/or profitability targets and strategies.
The focus of all negotiations [between retailer and supplier] is centered around the effects of the turnover of the total category, not just the sales on the individual products therein. Suppliers are expected, indeed in many cases, mandated to only suggest new product introductions, a new planogram or promotional activity if it is expected to have a beneficial effect on the turnover or profit of the total category and be beneficial to the shoppers of that category.
One key reason for the introduction of Category Management was the retailers’ desire for suppliers to add value to [the retailer’s] business rather than just the supplier’s own. For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer. The introduction of Category Management imposed the condition that all actions undertaken … were beneficial to the retailer and the shopper in the store.
Large retail chains tend to employ Category Management and the category captain is usually the largest supplier in a particular category. If a smaller supplier is the category captain, it is usually because their ability to analyze downstream retail data and make intelligent suggestions exceeds that of their larger competitor.
Category captains receive downstream data for all SKUs, including competitor products, in the category they manage. The category captain advises the retailer on the best way to price, display, and promote all products in a category, including those of competitors. While this arrangement ensures retail efficiency, it does raise concerns about possible misuse of power by the category captain.
One of the reasons category captains get a better ROI from technologies that allow them to leverage downstream data is that they have better lines of communication with their retail partners. So, in addition to account teams talking about new product introductions and promotions, the CG customer supply chain teams meet regularly with their replenishment colleagues at the retailer and make suggestions about how the retailer’s replenishment settings should be changed, why they believe their POS forecast for a particular product and region is better than the retailer’s, and so forth.
One can’t help but think that the category captain spends more time making sure their products leap off the shelf instead of their competitor’s products in the category.
But maybe I’m just being cynical.
Category captains also usually invest a good deal of time, and resource into building the category plan.
We spoke recently to a beverage manufacturer who had spent over 5 months for an entire team, planning store specific modulars (or planograms) for the category on each of 900 stores in the chain.
The final step should be to check compliance to plan after the products are put onto the shelf. In the case of this manufacturer, the shelves were almost 40% out of compliance with the plan, on average. So, the category captain was giving up 40% of the plan leverage, affecting both his brands and his competitors.
Is category management harder for companies that do not have product classification and taxonomies? Is standard data models the rule, like GDSN? How are categories, subcategories classified in your view?
What if a retailers data is lousy? errors, dups, etc.? Category management is worthless?
JR