Monday, May 23, 2011

The Case Against Category Management – SRDC and Stores -2

After purchase orders are created for headquarters’ approval and flagged for payment on the due date, the SRDC can send an ACH bank transfer to your supplier for the value of the invoice. No paper, everything is handled electronically. The last time I heard, 60 percent of supplier invoices contained errors, each error cost $40-$400 to reconcile and even if they were perfect, it cost $40 for you to handle a single paper invoice. How many did you process last year?

Over seven years ago, Progressive Grocer Magazine reported, “$40 Billion, or 3.5 percent of total retail sales are lost each year due to supply chain information inefficiencies.” That translates to around $160 Billion in today’s money. Now that Cloud Computing is a reality, there is a lot of opportunity to recover a good deal of that loss that’s currently being missed.  

Price changes may be made to the POS device by anyone with authority, using any Internet connection and an Internet capable device; or price changes may be set in advance and automatically delivered to the POS and the specified time.

The data in the POS is an image of what is on the SRDC. If there is an interruption in the Internet connection, the POS works from the last information received and when the connection is re-established, the POS catches up to any changes or additions made on the SRDC during the time of the disconnect. If the POS crashes and needs to be replaced, the SRDC will re-propagate the POS as soon as the connection has been re-established.

Being able to keep so much information about one, single product may seem overwhelming to someone accustomed to being tied to Category Management (CM); however, one of the main purposes of the SRDC is to manage that data for you. For example, if the turns suddenly deviate from their normal rate, something may have happened in that store that you should know about- maybe you’re out-of-stock; maybe the product has been camouflaged by the actions of a recent rack jobber; maybe it’s being cannibalized by something around it; could be, your competitors have upped their prices due to supplier price increases and your manager missed it; maybe it’s a trend that’s worthwhile of being studied. Whatever the reason, the SRDC is going to tell you about it whether you take action or not.   

If you’ve accepted a new item in your store, and you’re wondering how the arrival of that new item affects similar items within a category, SRDC will alert you by sending you a simple graph, such as the one at Looking at the graph, we can see how on Day 5, the new product had a definite effect on ‘Product A’ and possibly on ‘Product C’, but not on ‘Product B’. The next question is, ‘did the effect result in higher or lower overall profits?’ Remember the ‘Budweiser Select’ story in a previous article where it was apparent that the presence of the new brand was purely cannibalistic in nature and only resulted in the supplier commandeering additional cooler space. 

In order to make more profit in the future, you will need to tear those categories apart and see what’s inside. As it stands now, only 20-30 percent of each category is profitable, 30-40 percent is unprofitable, 10-15 percent is dead-dead, and the rest of the items are marginal. As the CEO of Walmart stated, “The devil’s in the details.”


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