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BUSINESS INSIGHTS: Using Category Management to Overcome Inefficiency

Stocking decisions create two kinds of cost: 1) High inventory carrying cost. When dealers choose to stock more than one or two items of a similar type and color, the result needs to be increased incremental sales rather than simply driving up inventory costs, and 2) Sales opportunity cost. If dealers are not stocking certain items performing well in the market, what is that costing from a top line sales standpoint? Do the program benefits outweigh the cost of this lost sales opportunity? The objective needs to be the elimination of duplicate inventory while still offering what the market wants with appropriate variety.

Lastly, the economic cycle itself can drive inefficiency. When business is strong, dealers typically get busy filling orders and don’t always spend the time necessary to improve process, to think and act strategically. As the current business climate improves, this tendency needs to be avoided.

Category Management Delivers Efficiency Benefits

LBM Resources

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Category management is a disciplined and rigorous process of assessing market needs and aligning dealer performance with opportunity. It yields numerous operational efficiency improvements including optimization of product mix, reductions in inventory carrying cost, elimination of duplication while maintaining appropriate variety, optimizing pricing and margin mix and utilizing the most appropriate merchandising strategies. Category management is therefore a lever that can be used to eliminate inefficiency and maximize profit potential.

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