While creating the Category Management Business Process, it is necessary to identify the measures of performance. The development of category performance measures involves setting measurable targets in terms of sales, margins and Gross Margin return on Investment (GMROI).
Category performance measures need to be established for measuring category performance. Category performance measures determine the target objectives that will be set by the retailer and supplier for achievement from implementation of the Category Business Plan.
Typical category performance measures include:
The increase in sales in actual rupee terms, terms, the growth over last year; the sales per square foot of area allocated etc.
Gross profits in rupees; gross profits per square foot; gross margins %, GMROI; net margin realization etc.
Market share achieved within the said market and the changes in the growth rates.
The turnover of stock achieved in the warehouse and at the retail stores
Changes in the Assortment
This would cover the number of SKUs carried, number of new products introduced; number of SKUs dropped number of SKUs that contributed to the top 50 / 70 percent of the sales.
These would evaluate the bill penetration of the category in terms of number of invoices where the category is present; average Rupee value of transaction etc.
The parameters for measurement would vary, depending upon the type of category that the product belongs to. Target objectives are typically developed on an annual basis, with quarterly milestones for the purpose of business plan monitoring and modification. Retailers may create a scorecard for the assessment of the category, which may include consumer based measures and not internal measures. Such a scorecard serves three purposes:
1) It provides discipline and structure to the category management business plan.
2) It influences organizational practices when linked to benefits and rewards schemes.
3) It facilitates cross business comparisons (categories , brands, etc)
The scorecard takes into account the traditional internal financial measures (e.g. gross profit) and balances them with external factors such as consumer satisfaction rating. The scorecard objectives are developed jointly by the retailer and suppliers, as part of category planning. The scorecard can be represented as a three dimensional model, which reviews the supplier on one axis, the retailer on another and the measures on the third In this way, a supplier can look at all its retailers across all measures, a retailer can look at the performance of all its suppliers or finally we can take an industry wide view of the entire industry from one measure, for example customer satisfaction.
Scorecards of this nature are critical to the success of category management. They provide communication tools that help suppliers and retailers fully understand the implication of their decisions and actions, not only on themselves but also on consumers. Good performance measures are characterized by:
1) A Balanced Architecture of Measurement – Measures should be internal and external and focused on both short and long term results.
2) Total system—Measures should allow results from all phases of category’s performance (production, procurement, distribution and sales) to be measured.
3) Allow for Comparison of Performance over Time – Measures should be able to track actual results versus forecasts, budgets and against results of previous periods.
4) Timely, Accurate , Understandable Measures – Measures allow managers to make good decisions and should impact their behavior in a manner that is consistent with the overall company goals and strategies
5) Related to Corporate Strategy — Category performance measures should be aligned with the broader company goals and strategies. Category measures should be able to be rolled up to higher level financial measures.