"How can a category Manager make it easier to analyze a category, find arguments for negotiations, and make decisions?

Tool to help» (November 2020)

PRAKTINARIUM FROM IVAN BUTORIN (EX-VICE COMMERCIAL DIRECTOR OF MAGNIT 2009-2018 RUSSIA, more than 21 000 shops)

My experience with major European and Russian retailers has shown a lack of unified approaches/tools for the work of category managers and purchasing
directors. In this regard, I consider it at least worth attention that I created a Rating system for visual comparison and a unified approach within the network,
which allows managers to evaluate and speak the same language of numbers for any product category. This approach allows you to take into account almost
all economic criteria from Turnover, Profitability, Losses, Logistics to Marketing investments and so on. Most importantly, based on this, build strategies
within Subgroups of products, their price segments or within the row of suppliers within subgroups.

Visually, the problem can be reflected as follows:

WHEN YOU HAVE IN PROCUREMENT:

- HUNDREDS OF PRODUCT’S CATEGORIES/GROUPS/SUBGROUPS

- HUNDREDS OF CATEGORY MANAGERS
- THOUSANDS OF MANUFACTURERS/SUPPLIERS
- DOSENS OF THOUSAND POSITIONS

FOR QUALITY MANAGEMENT, YOU NEED A COMMON, UNIFIED ANALYSIS SYSTEM

AND EVERYTHING THAT WILL BE REVEALED LATER, WILL ALLOW YOU TO LOOK AT THE SITUATION IN THE WHOLE SUBGROUP OF PRODUCTS FROM ABOVE!
PART 1 - "RATINGS/BLOCKS FOR ANALYSIS"

To make reasonable decisions within a subgroup of products on reducing/expanding the range, entering/withdrawing a supplier, or inventing an annual
strategy (who you are going to promote from Suppliers and invest in joint promotions, and who you are going to slow down) - you need to compare like with
like! To do this, the first creates a unified Rating system for each of the economic criteria and the second define logic way to combine them together to obtain
a final weighted assessment.
Let's say we have a task to reduce the assortment in a subgroup to enter a new supplier and start comparing existing suppliers:

- supplier "A" has a turnover of 100 million rubles, Supplier "B" 50 million;
- but at the same time, the gross margin of "A" is 20%, and "B" is 40% - that is, both have the same income - 20 million rubles;
- but the range of "A" 20 SKU, and "B" 10 SKU – that is, the efficiency for supplier "B" is 2 times higher;
- although "A" is represented in 5,000 shops, and "B" in 10,000 - and again the efficiency is the same;
- further, "A" has a Loss of 5%, and "B" 2.5%
- or "A" invests 20% in marketing (and this is enough to be competitive), and the supplier "B" spends just 5% and this requires co-investment from the retailer
for another 5%;
- there are many factors for a correct comparison!

Only by correctly comparing suppliers "A" and " B " allows procurement management make the right intelligence decision, the most suitable in terms of
efficiency! And all this should be in one tool - clearly revealing the problems of each suppliers or each SKU within the supplier's assortment.

Based on the above, let's look at the list of necessary analytical Blocks for ratings:

Ratings are calculated by comparing the indicator of each scu within a subgroup with the average amount in this subgroup
1) The Sales Estimation Block (I hid the names of Manufacturers and subgroup of products so as not to confuse anyone), the block shows us:

- suppliers are ranked by turnover in this subgroup

- the share of each supplier in the turnover of the subgroup
- price's segment
- assortment (number of items per 1 store)
- distribution's level (number of stores where the supplier is represented)
- sales of 1 SKU per 1 store
- share in distribution (in fact, a share in the assortment of a subgroup)
- and the Rating itself

What is interesting here can be noted:

- supplier "П" has a much larger share in the range than in sales – respectively 26.1% and 18.6%. The result is low sales for 1 scu - 4 054 rub (instead of the
average 6 119)
- the vendor "C" plays with the supplier in the same price's segment (930-938 rub) and has remarkable performance 8 222 rubles for 1 SKU with 7 positions
instead of 21 "П". Perhaps it should be considered to expand "C" and ask the latter to additional investment
- etc.
2) Profitability Assessment Block:

I will not disclose the logic, articles and possible conclusions as previously with the Sales Block – everything is clear and simple here. And it is fair that retailer
earn less with leader of subgroup.

3) The ABC block of assortment's analysis, there is no rating here (it is already taken inside of block Turnover) – this block allows you to assess in numbers the
problems of each suppliers (FYI):
In the Sales block, we saw problems with efficiency of suppliers "П" and "Г"– this is a great argument for negotiations (38.5% of turnover can be withdrawn
from "П "and 53.7% from supplier "Г"). We remove unpopular goods, without affecting the attractiveness of stores for Customers. Although frankly speaking,
with "Г" you need to evaluate separately – after all, this is a different price's segment 1315 rubles.

4) Block Analysis of Investment in Promo, it shows:

- not only the share of Promo sales
- but and the level of the Supplier's investment (Promo budget in % of turnover), and also for comparison, the retailer investment in joint promotions

This is also a very good argument in negotiations – whether you will invest in joint promo with some supplier next year or not. And how this may affect the
revenue of latter. For example, based on the analysis above, we see problems with supplier "П" and can stop co-investing – which will affect its sales -
estimated = 7,3% / (7,3%+6,8%)*38,4% sales = that is, the supplier will lose = -19.9% of turnover
5) Logistics analysis Block (for example, another subgroup of products – a more visual example):

This block clearly shows the comparison of problems - by the level of service of suppliers on the DC and the retailer inside Stores + stocks in days.
PART 2 - FINAL TOP-LEVEL TOOL FOR MAKING DECISIONS/STRATEGIES/ARGUMENTS FOR NEGOTIATIONS

All these blocks are parts of one general report. It allows to evaluate all criteria in one place, select periods, select subgroups of products or individual
supplier and so on. In the illustrations of blocks 1-4, you can see " + " - in fact, by opening them, the system allows to see ratings/analytics by position.
Everything is built at the level of products. Each item is compared with average figures of subgroup. And then it enables to analyze suppliers, subgroups,
groups and categories.

Final rating appears in the general top-level tool. Report allows to evaluate each supplier in a subgroup of products and its contribution to economic results.
Here it is a multiplication of the turnover rating and the margin rating. As a result, receive efficiency. In practice, you should also take into account the other
promo blocks (the supplier's promo budget) and logistics (the service level), setting them logical coefficients. They are not used here, because they are
subjective figures that depend on the tasks of management.

Analyzing the blocks, you can see the problems of each supplier according to any of the criteria that requires a solution from a category Manager. And most
importantly, the actual digital arguments for negotiations. You should not hide this analysis in front of the supplier – especially if its final rating is low. On the
contrary, you should show everything and thus lets to avoid distrust and waste of time on tug-of-war!

On the site for sharing experience and communication of buyers https://www.buygroup.info you can see interesting examples of using this tool (changes in
subgroup indicators in the dynamics of 2016-2018 or how a monopolist was defeated within 3 years, reducing its share in the subgroup from 70 to 43%).
Part 3 - creation of a strategy in a subgroup and the main argument for negotiations with partners

The top-level report above provides many arguments for negotiations, defining a strategy in a subgroup, and enables to increase purchasing power. But there
is one criterion that gives the strongest influence on the results - the promo block! Since the share of promo sales has already exceeded 50% in many
countries (even with categories that are occupied brands "A" - chocolate, powders, yoghurts, milk, juices, etc. it is approximately 80-90%.).

Usually in negotiations, retailer is discussing the improvement of terms by plus 1-2%. But discussing about promo-budget retailer can achieve many times
larger numbers! This will eventually allow the network to reduce co-investment or increase traffic.

How to reach it? Everything genius is simple. We add a calculation block to the top-level report. It will show what each manufacturer's sales would be if the
retailer does not co-invest in joint promotions. How much would each supplier lost in revenue, how changed their share, etc. Now we can carry out an
auction for the spreading of the retailer's annual budget for promotions in each subgroup of products. For example, let's to announce that in 2021 retailer
will be able to spend not 2 billion rubles in "juice goods", but only 1.5 bl. And not with all 5 suppliers – but only with 2 selected ones, who will also bet at the
retailer and increase the marketing budget. Plus, It is possible to insist at launching new products early then for market, allocate TV ads for joint promotion,
etc. Many different preferences can be discussed, calling all this a beautiful word "collaboration". And of course, the retailer must choose wisely - bringing the
auction to the winning of the leaders of the subgroup. By the way, if you are interested in a different approach – then on the site https://www.buygroup.info
there is a material "knight's move", I used this strategy in 2016 and received significant results from market leaders +3-5% additional investment. Sure many
people will like it!

Let's look at the example below (this is one of the subgroups – annual sales)
Calculation block - we determine how volumes and profitability would have changed without co-investment of retailer:

Mathematically, it turns out that without co-investment of retailer:

1) Lost about 1 billion rubles in sales – 30% of the subgroup

2) But increased gross margin + 84 million

3) Got arguments for pressure in negotiations

Of course - this is math, the calculation is proportional and implies that suppliers will increase discounts in the promotion, reducing their quantity during the
year. Most likely, their competition will lead to this itself. But the most important thing is that we are using these figures to increase their marketing budgets
through the auction, and not come to such an absurd situation. And pull the "blanket of the supplier's budget" on retailer!

The first 3 players are selected on the chart below for clarity of the calculated data:

Hope it was useful and interesting material.

PART 4 - REAL-WORLD’S EXAMPLES OF USING THE TOOLS

An example from Part 2 of this material – we looked at 2016 above, and the same analysis in 2018 is shown below (do not pay attention to absolute numbers,
since in 2018 the period is from January to April)
An example is how a MONOPOLIST was DEFEATED within THREE YEARS (he OCCUPIED up to 80% of the MARKET), because it was not possible to agree with
him on the terms and development of a subgroup of goods. For clarity, the analysis removed other Suppliers and left the problematic "M"and the one with
whom the куефшдук agreed to develop "H".
This is a great example of how the retailer can influence consumption and uncooperative Partners
How it looked graphically:

At the same time, the subgroup DEVELOPED +25-30%! At the expense of promo programs with the Partner "H":
Example - analysis within 1 Supplier (preparation for negotiation) - Categories/Subgroups and most importantly you can go down to the SKU

And etc.