Thursday, April 21, 2011

The Case Against Category Management – The Suppliers - 2


The efforts to keep CM alive are both tenacious as well as alarming. Providing effective category management services for a select group of large retailers is one thing, but the idea of providing CM for tens of thousands of small retailers is simply, undoable.

Millions of dollars have been spent and are still being spent to keep CM alive, and the mere suggestion retailers explore a more accurate method of managing their stock draws fire from all sides.

Larger chains stay with CM because they employ personnel who have invested their lives in it, and suppliers like it because they don’t have to change what they’re doing- and they believe CM works in their favor.  What they don’t realize, is item-level control does not eliminate the continuation of CM, it simply adds an option that is critical to the survival of the industry. A move away from the emphasis on CM would increase their sales by 28 percent or more (suppliers have told me this), and it would cost less than what they’re doing now. The first supplier to abandon CM and start paying attention to items will reap the benefits from a method that will eventually become the standard whether they support it or not.

I am left to think suppliers hang onto their self-assigned SKUs because they feel it affords them more flexibility, allowing them to substitute items with impunity when they’re out of stock; but the primary reasons suppliers run into out-of-stock situations is because they are unable to forecast future needs, and the reason they’re unable to do that is because they don’t know what their retailers are going to need on a delivery a month down the road. Retailers and suppliers are capable of helping each other in so many ways, but as it stands now, retailers are placed in an adversarial position rather than one of mutual cooperation.

In cases where CM is being used by smaller retailers, they are left pretty much on their own and quickly brings rise to multiple brands of the same products, all out wars between suppliers trying to gain territory, unsightly messes, cannibalization, huge amounts of overstock, and confusion over which department key to press on the POS when the customer brings a quart of oil to the counter.

In TCSICGM I wrote, “Paint a picture of a door at the back of a cooler and a drink salesmen will stand there for hours trying to get in.” If it’s on the truck, it goes into the store, come hell or high water.

The supplier’s solution to the problem is elementary. The UPC of the item is the only accurate way of determining what the product is, and the parent/child relationship (what’s in the box) is the glue that holds the products together. If a supplier does run out of a product and selects a substitution, it could be so noted on the invoice. It shouldn’t prevent a supplier from swapping brands if the retailer allows him to do that; and if the retailer does not want substitutions, he should be allowed to refuse them.  

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