BUSINESS INSIGHTS: The Real Benefit of Category Management
It comes down to this: making more money.
I’ve used the last couple of issues to introduce the concept of Category Management (CM), and how LBM dealers can leverage it to boost top-line revenues and bottom-line profits. In last month’s issue, I focused on how CM can help companies at all stages of the building products industry—manufacturers, wholesale distributors and dealers. This month, I’m going to explore how a clear identification of practices, activities and opportunity gaps (all contributing to missed sales, low margins, and excessive costs), can make it much easier to see the benefits of engaging in a category strategic planning process as a part of an overall CM approach.
The number of opportunities to improve one’s business is almost limitless, but the reality is, though you could look at each of these opportunities as a singular benefit, (therefore yielding an unlimited number of benefits to CM) there is only one real benefit that matters, and that is making substantially more money. That’s it! That’s the primary reason why anyone should undertake the effort to develop category strategic plans.
You could argue that it only makes sense to improve our business processes and to act more strategically because doing those things will make our companies stronger. It will make them better positioned to withstand the vagaries of the marketplace when the economy inevitably cycles through upticks and downturns. And you would be right. But the underlying reason to improve process is to become more efficient and… make more money. The reason to think and act strategically (as opposed to simply acting tactically) is to be able to sustain an ability to make more money over a much greater period of time. Strategic planning unlocks that capability.
The opportunity to make significantly more profit resides within every segment of the building products industry. Manufacturers will increase profits tremendously if their success rate on new product launches gets better. They will make more money if their investment in merchandising translates into increased sales. They make more money if programming moves more products more quickly through the system without creating product gluts that must ultimately be discounted further in order to move through. They also make more money if they assist in the effort to reduce damage and shrinkage on their products before and even after the sale.
Distributors and dealers will make more money if they are stocking the items that yield the highest ratios of sales and margin, and then sell more of those items. They make more money if they stop stocking the items that don’t sell well, or are not as profitable and are not an integral part of selling other quicker moving and more profitable items. They make more money if the tools provided by suppliers (advertising, programs, merchandising displays, sales literature, PK sessions, etc.) deliver an increase in topline sales. They make more money if the products they stock don’t have excessive damage and shrinkage costs associated with them. Finally, they make more money if they do more of the activities that yield the greatest ROI and stop doing the activities that seem like good things to do, but don’t translate into either more sales or more margin.
All of this seems fairly self-evident and simple. And it can be, but it requires change. It requires a change in the way we think, the way we plan and the way we act. It requires new process and new analytical tools. It requires expertise. It requires commitment. And, it requires leadership. Yet, from my experience, the payoff makes it all worthwhile.
If you’d like to learn more about CM, I encourage you to visit the Category Management Association online at http://tiny.cc/e4wfbx.