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Active engagement calls for cross-functional alignment around the process.
That was the topic of a panel presentation in October in Atlanta at the Category Management Conference hosted by the Category Management Association. The panel of experts included Jon Troy, Director of Category Management & Shopper Insights for Johnson & Johnson Company; Alex Sodek, Senior Vice President of Research at Decision Insight; and Paul Thompson, Managing Partner for Henry Rak Consulting Partners.
There are several first-rate tools and processes available for assortment optimization, including virtual shopping. But the panelists agreed that as important as the tools used for SKU optimization can be, even more important is the overall strategy that focuses on both internal portfolio management and external optimization with customers. Most companies are making decisions about SKU rationalization to support both internal cost efficiency and to get out in front of retailers’ needs for SKU reductions. The process also aims to understand where new items fit in the portfolio and where a manufacturer’s other SKUs might be vulnerable.
A major area of focus is working with retailers to manage their portfolios based on optimizing the different consumer segments and understanding where the volume flows when items are added or deleted. Alex Sodek described how Heinz used the virtual shopping tool to reduce the set of products, making it easier for the consumer to shop the category. In both households with and without children, overall category sales were maintained and Heinz was able to reduce production costs.
The panelists said that the assortment process needs to be cross functional and include all relevant departments of the organization. Alignment starts with a singular view of the category internally and focuses on the same strategies for growth. The execution using the assortment tool becomes an extension of the strategy. The tool should support the underlying principles of how the category is organized and where the brand anticipates sourcing its volume.
It is initially difficult to understand how deleting an item can actually be more profitable, based on where the volume shifts. It takes a considerable amount of time educating the organization on how SKU optimization works, its benefits, and so forth.
How do you get cross-functional alignment around the optimization tool? It starts with alignment on the overall company strategy and process. Once the cross functional areas understand the importance of the initiative and the potential in doing this right, it is much easier to move forward.
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