BUSINESS INSIGHTS: Using Category Management to Overcome Inefficiency

By / 3 years ago

Inefficiencies exist within every sector of the building products industry: suppliers, dealers and distributors.

Companies are all looking for ways to improve current operations— at the top line and bottom line—through improved efficiency in how they do business. Inefficiencies exist within every sector of the building products industry: suppliers, dealers and distributors

Supplier Efficiency Opportunities

Building product suppliers, like manufacturers in other industries, often operate with a product push mentality. Products are brought to market based on company core competencies, asset base, infrastructure, and history in the market. That is to say, many manufacturers have limiting factors causing them to bring to market products they are most capable of producing rather than products that best fill market demand. Such limitations can create inefficiency.

Supplier inefficiencies largely occur in three key areas: product development, programming and packaging/bundling.

Product development should be the link between knowledge of what contractor/ consumer wants and needs are and what manufacturers are capable of producing. In other words, market demand should be the key driver in what suppliers develop, manufacture and market. Most suppliers have R&D, product development and process engineering efforts of varying degrees.

New product development can demand significant capital expenditures. In many cases this cost may be prohibitive. As a result, product introductions tend to focus on segments in which a company already participates rather than new segments or completely new markets requiring new production processes or technologies. Marketing departments sometimes lack the scale or funding needed to do more extensive market research and consumer testing necessary prior to product launch. Focus groups, audits and commissioned studies can be expensive. In addition, companies commonly introduce “me-too” product offerings after observing successful new offerings from competitors without having done their own market research to validate. This practice results in flooding the channel with largely undifferentiated products.

Supplier limitations in product introduction, development and marketing exert high levels of influence on pro dealer purchases, driving inventory levels up based on expected sales rates and stocking levels. Dealers need to be aware of these limitations and influences in evaluating product and brand selection to make the best possible business decisions for their own businesses.

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