category management Archives

JDA Focus: A New Strategic Approach

Category Management | By Chris Cunnane • 05/05/2014

Last week, several colleagues and I attended JDA’s annual user conference in Las Vegas. The theme of this year’s conference was “Outperform” and had over 2200 customer attendees. The customer case studies were very informative, and could pique the curiosity of executives from every walk of life or industry. The show stopper for Day 2 was the keynote address from Captain Richard Phillips, former Captain of the Maersk Alabama (I probably don’t need to tell you who he is).

On day 1, JDA CEO Hamish Brewer’s keynote address outlined the organization’s recently refined corporate strategy. There were two key aspects to the refined strategy: technology and customer experience. From a technology standpoint, JDA has organized its product offering into five suites of adjacent and complementary solutions:

Manufacturing Planning: demand planning, sales & operations planning, master planning, factory planning, and inventory planning;
Collaborative Category Management: customer insights & analytics, assortments, planogram precision / volume, automation & workflow, mobility & task management, and flowcasting;
Distribution Centric Supply Chain (DSC): demand and fulfillment, distributed order management, transportation management, warehouse management, and labor management;
Retail Planning: demand planning, merchandise financial planning, assortment planning, pricing & promotions, and micro / macro space planning;
Store Operations: workforce management, task management, enterprise store operations, and in-store picking.

From my perspective, the DSC suite is one of the more interesting revelations from the show. The basic point of the suite is to bridge the gaps between fulfillment and transportation and warehousing. The integration of their TMS and WMS applications is already done. Additionally, JDA has integrated their TMS application with their fulfillment capabilities, and plan to have the WMS application integrated in the near future. In the next phase, JDA will integrate item locations from the warehouse into the TMS. While there was debate about whether this was actually an important piece of technology to have, it allows retailers to be more efficient when they are pulling inventory from a DC to deliver to the store. While most warehouses will have similar items located near each other, either on the same shelf or at least the same row, this capability will streamline the picking process when a retailer is receiving store replenishments as well as web orders to be picked up in the store. With more customers moving towards e-commerce, this becomes an important capability.

The final piece of the integration is to bring together distributed order management and inventory visibility. Distributed order management is really a key for omni-channel operations. This technology allows the retailer to capture all information in the order management process across all relevant channels. The benefit to retailers is that it doesn’t matter where an order originates; all fulfillment channels have access to the information and the retailer can appropriately allocate the inventory depending on stock levels, demand requirements, and timing of fulfillment.

The second aspect of JDA’s revised corporate strategy is an improved focus on the customer experience. JDA is investing in account managers for their customers due to feedback from their customers. By increasing employee headcount in these customer manager roles, JDA is seeking to ensure a single point of contact for the customer. This point of contact is responsible for coordinating all of the customer’s needs across the company, with a key focus on helping organizations get the most out of their investment with JDA. This starts with account planning and ends with execution.

Hamish Brewer outlined his commitment to his customers: customer value, quality, innovation, and real results. The alignment of the DCS product suite looks like it could be one way for JDA to deliver this promise. The integration of these key pieces of technology, with the distributed order management system as the backbone of omni-channel operations, puts JDA in a great position moving forward. Now, they just need to execute. Stay tuned for more news and insights from JDA Focus.

Hormel is Winning with Trade Promotion Optimization

Consumer Packaged Goods (CPG) | By Steve Banker • 02/06/2012

At Oracle OpenWorld last October, Kevin Kroymann, Director of Trade at Hormel Foods Corporation, gave a presentation about the company’s journey to improve the returns it gets from promotions with leading grocery retailers.

Based in Austin, Minnesota, Hormel Foods Corporation is a multinational manufacturer and marketer of high-quality, brand-name food and meat products for consumers. The company offers a wide variety of products, including hams, bacon, sausages, franks, canned luncheon meats, and shelf-stable microwaveable entrees and salsas. Hormel has 31 brands that are number one in their category. The company achieved sales of over $7 billion in 2010.

Hormel’s journey to improve its returns on promotions began back in 2004 when the company’s CEO challenged the sales and marketing group to grow sales at a faster rate than their budget for trade promotions.

Hormel started by implementing Siebel in 2005, a leading Customer Relationship Management (CRM) solution that included a trade promotion management application. Oracle acquired Siebel that same year. Around that time, Hormel also considered implementing Demantra (a best-of-breed demand management supplier) for trade optimization, but the company concluded that the software vendor was too small at the time to do business with.

Hormel’s experience with Siebel was that while the solution allows you to capture trade transactions and begin the process of better executing trade promotions, these capabilities can only take you so far. The company needed forward-looking analytics that could help it project the ROI of trade promotions before they occurred. Win/win, high-ROI promotions are the ones Hormel wants to pitch to the large grocery chains.

In 2006, Oracle acquired Demantra. This acquisition gave Hormel the confidence to go forward with implementing Demantra for trade optimization in 2009. Hormel was the first company to implement an integrated solution that included Demantra and Siebel to help enable an end-to-end trade management/optimization process.

Hormel has achieved a number of benefits from implementing Demantra:

Before the implementation, Hormel’s 60-day trade promotion forecast accuracy was 18 percent; today, it is greater than 50 percent (Account/Period/Product Group Level).

Prior to implementing Demantra, one third of Hormel’s promotions did not even cover the incremental spend associated with the promotion. For example, if the promotion cost $50,000, the company would not even garner $50,000 in extra sales. Further, half of its trade promotions generated no significant lift. The Demantra application allows Hormel to project much more accurately what a given promotion’s Gross Margin ROI is likely to be.

Based on the forward-looking analytics, Hormel has been able to improve the ROI of its promotions. While Mr. Kroymann was not willing to say how great these improvements have been, he did say the Demantra application has allowed the company to save millions of dollars, based on conservative estimates.

The cultural changes associated with effectively using Demantra have been difficult. Hormel has used the forward-looking analytics for 30 different promotions; 23 have been successful. Mr. Kroymann stated, “We are just getting started.” Based on this, the potential long-term savings are much greater than what the company has already achieved.

There is evidence that the relationship between Hormel’s trade account executives and selected retail account buyers is improving. Where the Demantra math has proved itself, the buyers are asking Hormel to come back and pitch other opportunities. This can help Hormel cement itself as a category captain.

Trade promotion optimization is at an early maturity level across the consumer products industry. This is because baseline applications or services (e.g., trade promotion management and store execution) must be in place before trade optimization can become fully effective. Further, any application that changes the way the sales force operates will always require more executive support to overcome cultural hurdles than is typical for other applications/process areas of coverage.

Finally, it is probably true that trade promotion optimization will have provide greater returns for category captains than for smaller manufacturers. A trade account executive needs to show a retail buyer that the promotion will generate significantly more in new sales for the retailer than it will cannibalize in sales of other brands in that category. The category captain has access to the sales and historical demand generated by competing brands. Smaller manufacturers will often not have access to such data.

(Note: Oracle is an ARC client)

How Objective are Category Captains?

Consumer Packaged Goods (CPG) | By Steve Banker • 02/22/2010

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.

Why Can’t My Supply Chain Team Think More Like Category Managers?

Consumer Packaged Goods (CPG) | By Steve Banker • 02/09/2010

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). As part of this research, I recently spoke with a supply chain director at a very large CG company who asked, “Why can’t my supply chain team think like my category managers?”

A little background will help you understand his lament. Large CG manufacturers generally have account teams located in Bentonville, Arkansas, the headquarters of Walmart, to facilitate collaboration. They also tend to have teams at the headquarters of other important retail customers like Target. This CG manufacturer has a “customer supply chain team” located in Bentonville that reports to the supply chain organization, but also reports via dotted line to sales.

In many ways, this CG company is ahead of the curve. It has been using downstream data for forecasting at the store level (not individual stores, but logical groupings of stores) for more than five years.

The supply chain team in Bentonville serves a variety of purposes. It meets with the Walmart replenishment team on a weekly basis. Adjustments to Walmart’s store level inventory systems will cause changes to how much and how often the CG company’s products are ordered. The CG company’s team will look at Walmart’s forecasts and compare them to their own, and at times suggest to Walmart that it needs to make “the following setting changes” in its system “for these reasons.”

By understanding these settings, combined with the downstream data it has, the CG company is able anticipate what the stores are likely to forecast in the coming weeks. But the company would be better at this if its supply chain team could think more like their category managers. The company’s category managers use the Walmart data more robustly than its supply chain people. The supply chain team tends to think its job is done “when the truck leaves their DC.”

If the supply chain team could understand shelf design, the length of store aisles, and the layout of the stores, it could do a better job of mimicking store-level ordering. There are times when POS sales do not drive future orders. For example, this company has seasonal products and the stores have to engage in seasonal pre-builds. Category thinkers, who understand the stores, can visualize this, and how it will impact store level ordering, in a way many customer supply chain teams cannot.

We used to advise people interested in a Supply Chain Management career to also take finance courses. This is still good advice. But now, perhaps, we also need to teach young professionals to be “category thinkers” so they can begin their careers in scenic northwest Arkansas.

(Note: Logistics Viewpoints is going on haitus the next two days while we’re in Orlando for our Performance-based Outsourcing Seminar. We’ll be back on Friday with some quick insights from the seminar, as well as our weekly news roundup).

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