Category Management: Steps, Benefits and Evolution

Category management is essential for improving the way your retail organization accesses items, understands product linkages, and executes the procurement process.

 

We're all searching for the most effective way to source items while raising our profits. Category management will aid these activities while also providing repeatable methods for internal and external communication. This is the place to start if you want to enhance your company's merchandising process.

 

What is Category Management?

 

First, what exactly is a "Category"? A category is simply any set of related things that a corporation wishes to purchase as part of a single transaction.

 

The technique of grouping related items into a single category and then handling all business objectives for that category as a whole is known as "Category Management." Procurement, merchandising, sales, and other retail activities are examples of such initiatives.

 

At its most basic, category management may be thought of as a method of grouping similar objects to avoid having separate, dispersed agreements. Consolidating separate agreements into a single contract saves time, money, and resources.

 

Category Management is a systematic approach to procurement that comprises its organization's segmentation of bought-in items and supplies. The segmentation of products and services investigates the roles of these items and services and aids in the maximization of yearly turnover. 

 

This type of management is carried out via trade tie-ups and partnerships, according to the Institute of Category Distribution, and it is a management of items as independent business units, according to Nielson.

 

The notion of category management is familiar to people in retail who want to control clusters of things within a store setting, but it is also a means for businesses to buy more effectively and save considerable amounts of money in procurement.

 

At its most fundamental, category administration is the act of grouping objects. Buyers search for things acquired throughout the organization and combine separate agreements into a single contract (and price).

 

A category is simply any set of related things that the corporation desires to purchase in a single transaction. The management portion entails using procurement techniques to guarantee that the organization optimizes savings.

 

Also Read | All about Sales Management 

 

Steps for Category Management 

 

Let's break down the category management procedure into phases to make it easier to follow. Brian F. Harris created the model in 1997. It is an organized and formal category plan with a series of specified steps to follow that is frequently referred to as the Brian Harris model. 

 

The model has evolved over the last 20 years, and it may be found in many versions where it has been accepted, with the nomenclature varying between cycle and process. Within the category plan, there may be the following steps involved :- 

 

1. Specify the Category

 

The category should include goods that provide the same or similar function. The goal of category planning is to enhance the overall profitability of the category. Some goods generate varying amounts of profitability within the same category. 

 

They must also fulfill various customer wants, thus it is critical to create subcategories to further divide it down so that alternative tactics can be readily implemented.

 

A business category is a set of items sold by a shop. The business defines product categories to make category administration easier. Customer-centric product grouping is the best approach to go. Consider the customer's or shopper's perspective on the merchandise. Consider making a consumer decision tree to help you get started.

 

2. Determine the Category's Role

 

After defining the category, you must determine its role. It is critical to analyze how the category will function and how it will integrate into the retailer's overall portfolio. Understanding the complete profitability of your client is aided by assessing the function of your categories and how they relate to one another. 

 

Examine the profit margins for retailers and suppliers. To guarantee optimal resource allocation, all actions surrounding the category must continuously contribute to a category role.

 

3. Performance Evaluation

 

The periodic examination of categories and subcategories is referred to as category assessment. It acts as a regular assessment of the category's current performance, which entails spending time analyzing sales data. Use KPIs as performance standards, especially when launching new products.

 

This assists you in determining the category's sales, market share, and profitability. It is also vital to perform a thorough examination of significant rivals.

 

To begin, do a thorough SWOT analysis to reveal relevant category insights. You may discover that classification is required. The study heavily relies on your suppliers. They deliver data-driven evidence from many authorities, as well as access to shopping research and merchant private data.

 

This stage of the category management process yields extensive and thorough data on your top sellers, top producing lines, out of stock, volume, and more.

 

4. Establish Goals and Objectives

 

After completing the category evaluation, it is necessary to create attainable and quantifiable targets for sales, volume, and margin. Keep track of this information in a category scorecard. You may use it to keep track of:

 

• Sales Volume 
• Sales
• Shares
• Product Variety

 

5. Category Strategy

 

The corporation uses a marketing strategy to improve product supply throughout this phase. The fundamental goal of this approach is to creatively and optimally utilize allotted resources through creative possibilities.

 

The category strategy is also concerned with the capitalization of firm returns. Furthermore, this process's sub-objectives include transaction development, turf protection, profit, and thrill generation.

 

6. Category Tactics

 

Category tactics are nothing more than tools in your planning toolbox. They enable the execution of category strategies. This contains items such as:

 

• Pricing
• Promotions
• Penetration
• Product Variety

 

The category captain is supposed to lead the data analysis so that the degree, frequency, and timing of the strategies may be determined. Adoption strategies will differ from one company to the next.

 

7. Implementation

 

This is the most crucial phase in the category management process. This is due to the fact that it entails carrying out the strategy you devised in the first six parts of the procedure.

 

Here's where the planogram comes in. A planogram is a computer-generated graphic that demonstrates to merchants where and how to display category items in particular locations. 

 

It embodies category planning and is the most effective approach for carrying out the strategy in-store. It contributes to the implementation of the appropriate product mix with the appropriate adjacencies.

 

Accurate implementation is critical since it is critical to making it as simple as possible for businesses to implement. The retailer examines the profitability of each category after executing category strategies.

 

8. Review

 

In the last phase of the category management process, you conduct a category review on a regular basis and make adjustments as needed. Based on market changes, you may need to rearrange items to establish other categories. 

 

This is critical to ensuring your company's relevance in a rapidly changing commercial environment. Because category dynamics vary often, tactics and plans must adapt to remain competitive.

 

The full eight-step category management procedure, excluding implementation, takes between 16 and 24 weeks to complete. You'll need a team of many employees to finish between 60 and 100 distinct data templates. You may also require the services of an outside consultant or facilitator to create and manage each category plan.

 

A category manager must be designated to each category for effective management. Depending on the size of the organization and the number of business units, one individual may be in charge of many categories.

 

Also Read | What is Procurement Analytics?

 

Benefits of Category Management

 

Some of the top benefits of category management are as follows :- 

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Benefits of Category Management

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1. Improved supplier performance

 

An effective and efficient category management strategy will help your firm interact more effectively with suppliers and shorten the time between the process's inception and conclusion. When done strategically, category management may assist a new supplier or contract with layers of modifications.

 

2. Increased customer satisfaction

 

A category manager is solely responsible for all things relating to a certain contract or service, such as sourcing needs, collecting bids, and negotiating contracts. This gives business people enough time to focus on their profession and provide value-added services to their clients.

 

3. Improved Supplier Relationships

 

Category management gives a chance to make relationships inside the organization's hierarchy. This is assisted by coordination at the highest level, and hence particular duties are delegated at the functional level. As a result, creating and structuring good communication in this manner frequently aids in the improvement of supplier relationships.

 

4. Better spending insights

 

When no one owns a category, there is rarely anybody who can give the essential insights into the accuracy of expenditure since no one is familiar with the contracts that are on the way. The exact list of vendors is unclear, as is the total amount spent. It can help with a better knowledge of current and anticipated contract spending.

 

How has Category Management Evolved? 

 

To further comprehend the usefulness of category management, it is necessary to examine its origins. You may have heard of strategic sourcing. Despite their similarities, category management arose from strategic sourcing.

 

The Brian Harris model enhanced the strategic sourcing process by identifying its weak spots in structure and communication. Here's a look at how things have changed throughout time:

 

Typically, an organization's purchasing staff serves as the supplier's gatekeeper. A Request for Quote (RFQ) is their recommended procurement procedure for comparing vendors and their products/services. These RFQs are frequently produced on an individual basis under the silo model to meet an acute demand. This overlooks the larger picture of associated items.

 

The purchasing staff has direct ties with legal, finance, and other critical departments in addition to dealing with suppliers. They also interact with corporate representatives, frequently on an ad hoc, project-specific basis. Suppliers connect with these same stakeholders, often without the buyers' knowledge or presence. You can see where this paradigm falls short in terms of communication and efficiency.

 

This fragmented thinking is broken down by category management. You maximize efficiency with a clear and defined shared aim by identifying your categories and the teams accountable for the relevant responsibilities. This procedure entails an open conversation among all stakeholders in order to optimize and streamline the supply chain for a certain category.

 

Thus, category management may be regarded as a parallel process that serves as the foundation for the success of strategic sourcing projects. However, this is only achievable if it is done efficiently and with all necessary care. The organization must take significant efforts to create development and training programs to increase abilities for competent category management.