Category management is the latest concept Smead has become involved in and it’s clearly more than a fad. CEO Sharon Avent outlines the benefits for all concerned
OPI: Smead has a reputation for continuously evolving. In the past, we often talked about acquisitions used as a catalyst to spur further growth. You are also heavily involved in the niche area of electronic document management. What you’re doing at present, however, is somewhat different altogether again. Please tell me about your efforts in category management (CM). I believe the concept originated in the food and healthcare industry and has been around for some time. When did Smead get involved?
SA: As you say, CM is not a recent trend, but a proven approach to business that has been used quite successfully in other industries for many years now. We started to hear about it from our customers last year. The likes of Corporate Express, Office Depot and United Stationers are just a few of those companies in OP that brought in people from other industries to lead their purchasing and retail businesses. The insights these people brought to the office products industry made us want to learn more about CM.
Smead itself has been involved in learning and planning for CM since July 2003. We started studying the concept to determine how it could be applied to our industry and soon saw the benefits of the business model. The CM approach to assortment and positioning with a distributor or retailer is well founded. It is a data driven approach to maximising the opportunity on a product category, focused on delivering better value to consumers.
OPI: Why did you feel you had to get involved?
SA: Smead has been in business for nearly 100 years and we’ve learned much along the way. One very important lesson is that you must continue to evolve to stay a leader. TQM, ISO9000, lean manufacturing – these are all concepts that have allowed businesses to improve, and to better meet consumer demand and expectations. Just as we embraced lean principles years ago, we have now made the decision to organise around CM as a go-to-market approach. It will allow us to look to the future, shift our mindsets and develop a substantial competitive advantage, thereby positioning us for greater success as we enter our second century of business.
OPI: Who is the driving force behind CM – the manufacturer or the reseller?
SA: Obviously, the need for CM is fuelled by the need to understand and satisfy the consumer, but I think the driving force is the OP industry itself. Consolidation and overseas competition have forced both the reseller and the manufacturer to look at different ways to do business.
It is in a manufacturer’s best interest to know the consumer better than anyone else in the industry. Therefore, manufacturers continue to make an ongoing investment in researching consumer needs and emerging trends in the categories in which they compete. As a result, they can then produce the right products to grow their own businesses, that of resellers and retailers, as well as the total category.
In our industry, we know the process works best when manufacturers and resellers collaborate to build the right plan, leveraging each others’ strengths to grow the business through improving product availability and overall supply chain efficiencies. Clearly, when done the right way, everyone wins.
OPI: Did you model your CM programme on any other company, in OP or another industry?
SA: We modelled our approach on what has been endorsed as industry best practice. In many respects, there are certain outputs that are defined, but how a company achieves those outputs is unique to the individual organisation. It’s similar to lean manufacturing – the principles are there, but how they are applied differs.
We first looked at Smead’s corporate mission, objectives and goals, and then at the needs of both our customers and the end consumer.
OPI: So how does it work in detail and what is the timeframe?
SA: We’ve been aggressively building the systems and processes to support our capabilities for the past several months and expect to be fully operational in spring 2005. We plan to begin with a few customers next year and then roll out the programme to all of them as the opportunity arises.
CM is never really complete however, because there is a feedback loop resulting in continuous improvement. Also, implementation must be done strategically so as not to impact your current business, while still positioning yourself for necessary changes in the future.
Smead has decided to implement at a pace consistent with its long-standing focus on customer satisfaction and product quality. We have put customer needs at the forefront and are implementing CM in a way that doesn’t impact those customer relationships or commitments until the timing is right for both parties.
OPI: What about cost?
SA: Well, it’s difficult to be specific about that. CM is a methodology as opposed to a finite project, so an all-encompassing cost cannot be attached to our efforts. I can tell you, however, that we have already seen the results from increased efficiencies, and the benefits of a few key initiatives more than offset the initial investment.
OPI: Do you believe there are any prerequisites for a CM strategy to work?
SA: Yes, I would say there are three. First, you have to commit to CM as a way of doing business. If you treat it like a one-off project, it will be very costly and it will probably fail. Second, you have to organise around the work to be able to do it with any consistency. And third, and probably most important, the organisation has to have the necessary knowledge and skill sets to do the work.
OPI: So at the end of the day, what are the benefits both for your customers and for yourself? And are there any disadvantages?
SA: The benefits are easy to highlight: better research, better consumer insight, better product development, better packaging, better promotion effectiveness, better supply chain and better customer-focused service.
For example, we very carefully measure the ROI and margin opportunity for our resellers and ourselves by using the CM constructs. We are then able to maximise the opportunity by shifting business into products that are more in tune with the actual end-users’ needs. The result is increased innovation, a more collaborative relationship with our customers, and more top line revenue and margin for both Smead and our resellers. The ultimate benefit of CM is better performance for everyone in the category.
The only potential disadvantage I could think of would come with failure to fully implement or follow through with the methodology. Either of those problems would result in not achieving the initiative’s end goal – better serving the customer.
OPI: What channel partners does your CM work incorporate?
SA: CM will enable us to serve all our customers better, so our capabilities have been developed to span all channels of distribution, including retail, commercial, contract and mail order. We believe CM will also position us to maximise on new channel opportunities in the future. As we learn more about who is buying our products and why, we can market the best solutions to them through these channels.
For example, the insights we receive from contract consumers will allow us to better manage the merchandising of the category into the office products catalogues.
OPI: Does your strategy require any training?
SA: Many of our partners are familiar with such programmes, which means that most of the training will consist of explaining our improved capabilities and how it will benefit them and their customers.
For those customers who are not familiar with CM, this is a real opportunity for Smead to introduce them to the methodology and explain how it will positively impact and strengthen the business relationship and ultimately their bottom line.
Also, Smead has a long history of providing training to our network of dealers and VARs, and we fully expect to integrate many aspects of CM, like consumer insights, into our ongoing training efforts.
OPI: Broadly speaking, what has changed so far for Smead – internally and externally – as a result of CM? And how about revenues: is there a tangible ROI that Smead can point to?
SA: When we committed to CM, it was a fundamental change in how we do business. It required the support of every employee, because it will result in changes company-wide. To date, the shift in mindset has allowed us to think more broadly about how we approach the market. We are discovering greater potential for our products, resellers and consumers. The end result will be a much-improved experience for the consumer.
Also, it has become evident that, as we work with some of our customers and roll out certain tactics, they are intrigued by the improvements we are making. This has led to greater understanding and an increased level of trust, resulting in open discussions on our strategic initiatives and a deepening of our business relationship with these clients.
With regard to ROI and revenues, at this point in our implementation, it is too early to measure a change. We do know, however, that it has helped us focus on the needs of our customer and we have already seen gains in market share.
OPI: What about supply chain management – what effect does CM have on this?
SA: Smead has long had a reputation for its superior supply chain, so we didn’t anticipate a lot of changes in that area. But remember, one of the prerequisites to CM is organising it around the work to maintain consistency. So even though we didn’t feel we needed to make any major changes to our supply chain, we knew that it would be touched by improvements in other areas of the business.
For example, we discovered that CM allows us to take the data we have collected and develop a targeted product mix of filing supply items in either a retailer’s assortment or in a catalogue. The supply chain then allows us to develop more accurate projections on a particular category to be certain we have the product available for our customers when and where they need it. That’s just one example of how a change in another area resulted in an improvement in the supply chain.
OPI: Is the CM concept applied to all your subsidiaries? If so, does it differ depending on the geographical location?
SA: It’s being implemented throughout the organisation in a phased approach, starting in North America. The goals we have set are consistent throughout the organisation, including subsidiaries. Also consistent throughout the organisation are the best practice principles for CM. Each subsidiary will take those two pieces and develop implementation around them. Each branch is unique and CM will allow it to develop a plan that best suits its capabilities.
OPI: To sum up, what are your short and long-term plans?
SA: Short and long-term plans flow from each other. In the short term, we plan to continue to grow our CM approach to the marketplace with our customers. Growth within each of our customers will then allow us to provide long-term, unparalleled value in all of the categories within which we compete.