Category Management in a retail context Each category is run as a "mini business" (business unit) in its own right, with

its own set of turnover and/or profitability targets and strategies. Introducti on of Category Management in a business tends to alter the relationship between retailer and supplier: instead of the traditional adversarial relationship, the relationship moves to one of collaboration, with exchange of information, sharin g of data and joint business building. The focus of all supplier negotiations is the effect on turnover of the category as whole, not just the sales of individual products. Suppliers are expected, in deed in many cases mandated, to only suggest new product introductions, a new pl anogram 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.[2] The concept originated in grocery (mass merchandising) retailing, and has since expanded to other retail sectors such as DIY, cash and carry, pharmacy, and book retailing.[3] [edit] Definition of category management (retail) Category management lacks a single definition thus leading to some ambiguity eve n among industry professionals as to its exact function. Three comparative mains tream definitions are as follows: Category management is a process that involves managing product categories as bu siness units and customizing them [on a store by store basis] to satisfy custome r needs. (Nielsen)[4] The strategic management of product groups through trade partnerships which aims to maximize sales and profit by satisfying consumer and shopper needs (Institut e of Grocery Distribution)[5] .. marketing strategy in which a full line of products (instead of the individua l products or brands) is managed as a strategic business unit (SBU). (Business D ictionary)[6] The Nielsen definition, published in 1992, was a little ahead of its time in tha t customising product offerings on a store by store basis is logistically diffic ult and is now not considered a necessary part of category management; it is a c oncept now referred to as micromarketing. Nevertheless, most grocery retailers w ill segment stores at least by size, and select product assortments accordingly. Wal*Mart's Store of the Community, implemented in North America is one of the f ew examples of where product offerings are tailored right down to the specific s tore.[7] [edit] Rationale for category management One key reason for the introduction of category management was the retailers' de sire for suppliers to add value to their (i.e. the retailer's) business rather t han 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, r esulting in no net gain for the retailer. The introduction of category managemen t imposed the condition that all actions undertaken, such as new promotions, new products, re-vamped planogram, introduction of point of sale advertising etc. w ere beneficial to the retailer and the shopper in the store. A second reason was the realization that only a finite amount of profit could be

milked from price negotiations and that there was more profit to be made in inc reasing the total level of sales. A third reason was that the collaboration with the supplier meant that supplier' s expertise about the market could be drawn upon, and also that a considerable a mount of workload in developing the category could be delegated to the supplier. [8] [edit] Definition of a category The Nielsen definition of a category, used as the basic definition across the in dustry is that the products should meet a similar consumer need, or that the pro ducts should be inter-related or substitutable.[9] The Nielsen definition also i ncludes a provision that products placed together in the same category should be logistically manageable in store (for example there may be issues in having roo m-temperature and chilled products together in the same category even though the initial two conditions are met). However, this definition does not explain how the process often works in practic al retailing situations, where demographic or marketing considerations take prec edence. [edit] The category management 8-step process The category management 8-step process The industry standard model for category management is the 8-step process, or 8step cycle developed by the Partnering Group.[10] The eight steps are shown in t he diagram on the right; they are : Define the category (i.e. what products are included/excluded). Define the role of the category within the retailer. Assess the current performance. Set objectives and targets for the category. Devise an overall Strategy. Devise specific tactics. Implementation. The eighth step is one of review which takes us back to step 1. The 8-step process, whilst being very comprehensive and thorough has been critic ized for being rather too unwieldy and time-consuming in today's fast-moving sal es environment; in one survey only 9% of supplier companies stated they used the full 8-step process.[11] The current industry trend is for supplier companies t o use the standard process as a basis to develop their own more streamlined proc esses, tailored to their own particular products[12] Market research company Nielsen has a similar process based on only 5 steps : re viewing the category, targeting consumers, planning merchandising, implementing strategy, evaluating results. [edit] Category captains It is commonplace for one particular supplier into a category to be nominated by the retailer as a category captain. The category captain will be expected to ha ve the closest and most regular contact with the retailer and will also be expec ted to invest time, effort, and often financial investment into the strategic de velopment of the category within the retailer. In return, the supplier will gain a more influential voice with the retailer. T he category captain is often the supplier with the largest turnover in the categ ory. Traditionally the job of category captain is given to a brand supplier, but in recent times the role has also gone to particularly switched-on private labe

l suppliers.[13] In order to do the job effectively, the supplier may be granted access to a gre ater wealth of data-sharing, e.g. more access to an internal sales database such as Walmart's Retail Link. [edit] Governmental concerns about category management Many governments have viewed increased collaboration between suppliers and retai lers as a potential source of antitrust breaches, such as price fixing. For exam ple the UK Competition Commission[14] has raised their issues on market distorti on in principle. They have also acted on milk price-fixing in Britain.[15] [edit] Category Management Association The Category Management Association (CMA), is a professional association formed in 2004 with members that come from a broad range of strategic insights and plan ning functions. It connects members with category management peers around the wo rld, is a central resource for category management information and best practice s, and is the only group certifying companies and individual category management professionals according to recognized industry standards. [edit] Modified category management For MRP-based manufacturing industries, the predominant cost-saving methodology in category management (CM) involves the integration of market intelligence with leveraged spending (for a given category of product or service). In industries where asset operation and preservation bear more significance to the procurement process than do product manufacturing such as in an MRO environment demonstrabl e benefit can still be achieved with category management but is best approached with some manner of adjustment to CMs usual processes for analysis and strategy d evelopment. The first challenge becomes incorporating analytical processes and v alue drivers that are largely indigenous to the MRP world in a manner that makes sense to an MRO environment. The second (and no less important) challenge becom es avoiding a trap where the CM processes are perceived to be more important tha n their outcome a scenario that can result in significant analytical delay, and even complete process paralysis. An excellent example of an MRO environment warr anting adjustment to classical category management is nuclear power generation i n the United States, where the adjusted approach to category management has been coined MCM standing for MRO-based Category Management or Modified Category Mana gement. Not only does electricity generation epitomize an MRO-driven environment , the nuclear energy source adds numerous dimensions of supply and procurement c omplexity including federal and state regulatory compliance, nuclear industry st andards compliance, nuclear-unique system and component design, and a tightly-au dited (and very small) supply base, amongst others. Due to the nature and quanti ty of discrete characteristics native to nuclear power generation, it can easily be argued that nuclear power generation, in and of itself, should be a distinct category of procurement within a category management project. The fundamental a djustment made between the classical category management approach and the nuclea r MCM approach is a shift from procurement strategies focused on leveraged spend ing to procurement strategies embracing nuclear value drivers, technology innova tion, risk management, and strategic sourcing. [edit] Category Management in a supply context Use of the term category management can also be focused on an organisations sourcin g, acquisition and supply management processes, and this usage has become more p rominent in recent years. In this context, Category Management has been defined as an evolving methodology that drives sourcing strategy in progressive organisat ions today.[16]

The Chartered Institute of Purchasing and Supply defines Category Management as: "organising the resources of the procurement team in such a way as to focus exte rnally onto the supply markets of an organisation (as against having a focus on the internal customers or on internal Procurement departmental functions) in ord er to fully leverage purchasing decisions.[17] Peter Hunt, partner at ADR International, writes the term category management can mean different things to different people, so a working definition is needed. A category is the logical grouping of similar expend iture items, such as spend on advertising agency services or IT hardware. Catego ry management is the sourcing process used to manage these categories to satisfy business needs while maximising the value delivered from the supply base.[18] Large multi-site or multi-functional organisations use category management to en sure that commonly used goods and services are not separately purchased by the v arious functional teams but are sources through a single process able to maximis e leverage in the market for the relevant category. The benefits which result ar e: better value for money through aggregation of demand; standardising requirements in terms of specification, quantity and purchasing au thorisation; skilled procurement personnel are actively involved in purchasing processes; resources can be committed cost effectively to market watching and analysis. Many public sector organisations have recently adopted category management as a strategic transformation tool. Sir Philip Green, in his Efficiency Review of UK go vernment spending, recommended that centralised procurement [should be] mandated for common categories to leverage this buying power and achieve best practice.[19 ]