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Category management: streamlining procurement during unprecedented times

By MarketDial / Aug 10, 2022

Why category management?
Supply chain strategies
Staffing solutions

For an optometrist, 20/20 connotes clear vision. For the rest of us 2020 became the demarcation for a season of intense global disruption. Memes asking for a return to precedented times highlighted just how unprecedented life had become.

Retail was profoundly disrupted. Prior to the pandemic, significant disruption had already taken place with e-commerce and direct-to-consumer becoming more mainstream. Marry that to pandemic and post-pandemic challenges, and the term unprecedented became an industry understatement.

Unfortunately, the aftershocks of the 2020 shake-up are still being felt – primarily due to inflation and continued supply chain disruption. Navigating these challenges will require unprecedented approaches, changes, and shifts that likely will not only help businesses endure the storms ahead but also enable them to evolve.

In particular, with budgeting season on the horizon, the need for wise procurement has potentially never been greater. A Gartner analysis reports that the greatest procurement concerns for 2022 include category management, supply chain strategy, and staffing challenges. An effective testing strategy and culture can play a unique role in addressing these dilemmas.

Why category management?

Category management, in the simplest terms, is a lean procurement strategy that categorizes products into groups, enabling streamlined, cost-efficient access. Traditional procurement was very siloed, with procurement teams creating multiple Requests for Quotes (RFQs) for individual products. In contrast, category management works cross-functionally, not only in its collaboration with relevant stakeholders, but also in considering the broad interplay of related products.

For example, in a traditional procurement system, a grocer might get an RFQ for milk and another RFQ for butter, without thinking through how milk purchases and butter purchases interrelate and could be handled and purchased simultaneously. The grocer might interface separately with and be the point person between the legal department, suppliers, and customers for each product.

With category management, everyone works together to plan, track, and implement the leanest outcomes. Products are grouped together into a category such as “dairy,” making that category purchasing more cohesive. Additionally, in this context, milk sales would be evaluated alongside butter sales to see how the two impact one another – are they frequently purchased together? If sales in milk goes up, what happens to sales in butter? By looking at sales in terms of “categories” rather than individual products, greater insights are gained into consumer shopping patterns.

Testing software, such as MarketDial, is particularly adept at empowering retail category managers to make well-informed decisions. A strong testing platform will have a basket analyzer that allows users to not only see the lift in sales with the product they are testing, but also allows them to see how a product’s sales impact all the other products in the basket or category.

Supply chain strategies

Global supply chain disruption continues to challenge the retail industry. Goods are getting stuck at ports which results in demand exceeding supply, driving costs up and contributing to inflation. But then, as port bottlenecks loosen, supply suddenly exceeds demand, causing extreme price cuts and potential revenue losses. Seasonal items are not delivered in time for seasonal purchasing. All in all, supply chain disruption has created quite the mess for retail procurement and category managers.

The question on everyone’s minds is what can be done to mitigate supplier risk? A merging solution is warehouse expansion. As Shawn Clark, President at CRG, in Forbes states, “The pandemic highlighted the shortcomings of ‘just in time’ manufacturing, whereby manufacturers develop goods to meet consumer demand exactly in time. Now, American companies are rethinking their manufacturing locations, which could spark a need for additional warehousing space close to these locations.” He goes on to note, “CBRE data reveals that warehouse vacancy is at a record low of 3.6%.”

An evolving possibility is micro-warehousing, where businesses open small warehouses in strip malls or other shopping centers. Not only does this allow for storage in the event that supply is unforeseeably cut off, it also makes delivery faster and gives consumers easier access to packages and goods. Both consumers and businesses are gravitating to this solution.

The challenge with micro-warehousing is ensuring that the location of the warehouse is optimal. The best way to know this is through testing. By choosing effective trial locations and control sites, retailers can determine if micro-warehousing will alleviate the supply and demand woes created by supply chain disruption across their fleet.

Staffing solutions

Attracting and maintaining talent is a significant procurement concern. Finding employees who have adequate skillsets while simultaneously maintaining a feasible staff size has many businesses on edge. July 2022 added over 500,000 new jobs, but potential cutbacks in funding from entities such as venture capital (due to the combination of inflation and stock market volatility), has employers wondering how and when to hire. In many ways it is a job-seekers market, but business leaders are concurrently eyeing the clouds forming overhead and wondering if and when a recession storm may be coming. Balancing these factors makes staffing unusually tricky.

With a strong testing platform, however, retailers can evaluate how staffing is impacting sales and conversions in real time. They can determine if increases in labor spend are ROI positive, and they can evaluate if a reduced wait time at checkout (from increased staffing) impacts customer satisfaction. Testing takes the guesswork out of staffing decisions and makes hiring decisions clear, backed with accurate data.

Unprecedented times aren’t going away any time soon. However, our ability to adapt to them will make them become the new normal – it is what will ultimately render them precedented. By innovating and testing new solutions to unprecedented problems, procurement teams and retail category managers can have the information they need to make lean, efficient decisions for their businesses.

To learn more how testing can help category managers be even more efficient, read these:
Woolworths innovates to improve it customer experience, driving gains in a key product category
Testing to thrive in today’s retail landscape
Unlock the value of your data with A/B testing