Category Management

by Richard White

Faced with a no-growth economy, parts proliferation, shrinking profit margins and bloated inventory, key automotive aftermarket leaders, led by AAIA, are working to adopt category management practices. This process will increase the industry's profitability and efficiency while improving shareholder value.

Category management, which has worked well for the grocery, pharmaceutical, hardware and other industries, is expected to give the aftermarket the tools needed to deliver greater consumer value in a sharply more competitive and less forgiving marketplace. Category management will streamline the entire aftermarket industry, creating winning solutions for all aftermarket companies, large and small.

"Our industry is in transition. It's faced with a complex mix of consumer, technological and marketplace factors. To grow and prosper, we must look at new ways of doing business collaboratively for the good of the whole industry," said Alfred L. Gaspar, AAIA president and CEO. "We believe category management is one solution that will benefit suppliers, distributors, retailers and all sellers of aftermarket products."

Category Management is a retailer/distributor/supplier planning process designed to optimize assortment and merchandising to best leverage category growth and efficiency.

It is similar to portfolio management permitting varied strategies by categories (for growth, margin, traffic building etc.) to achieve a total company targeted goal. The process places emphasis on understanding and providing what the consumer wants and making adjustments in the marketing plan that will grow transaction sizes while satisfying the consumer said Sandy Brawley, director, customer development, Armor All/STP, and chair of the Category Management Committee.

This data-driven, fact-based process was first introduced to AAIA in 1997 by a member company as a way of reducing the cost of doing business. In response to industry interest, the Category Management Committee was formed to adapt the traditional category management process/practices to the automotive aftermarket industry.

"The project has accelerated and evolved into a true industry effort with AAIA providing the platform and infrastructure with full board support and monetary and staff resources," said Gaspar.

Proponents of category management present a long list of benefits and results for those companies who adopt this process and practices, including:

• Reduce excess inventory
• Improve return on investment (ROI)
• Improve comparable store sales
• Enhance knowledge of the consumer
• Improve the speed to market on new products
• Reduce out-of-stocks
• Maximize shelf efficiencies
• Increase turns
• Identify problem brands
• Identify procurement opportunities
• Improve return on marketing funds invested for suppliers
• Maximize vendor relationships

Participants will be able to gauge the marketplace and benchmark their results against the industry by category.

Working with retailers, distributors and manufacturers, the committee is developing resources and processes that will make fact-based decision making the standard practice in the aftermarket.

The AAIA Category Management Committee is comprised of three workgroups: the Steering Workgroup, the Syndicated Data Workgroup and the Enhanced Line Review Workgroup. A Hard Parts Workgroup is being formed.

Syndicated Data Workgroup

The Syndicated Data Workgroup is designing a point-of-sale data exchange model for the entire retail aftermarket that will compliment existing mass merchant data and provide information on the entire aftermarket business. The intended output is a fully integrated system of information, software and analysis tools to be made available to participating retailers and subscribing manufacturers that will provide key market data in a standardized universe while ensuring complete retailer confidentiality.

Enhanced Line Review Workgroup

The role of the Enhanced Line Review Workgroup is to design an improved business process, which maximizes existing line review information with additional data from point-of-sale information, the industry trends and consumer insights. ELR will improve comparable store sales, margins and ROI by guiding category plans with corporate strategy, creating more knowledge-based decisions and enhancing knowledge of the consumer.

"Work to date is the result of many individual volunteers who comprise the committee from in-front-of-the- counter as well as application hard parts companies," said Brawley, "We are excited by our initial progress and the potential for these business-improving changes."

A cornerstone of category management is top management commitment and leadership. Company leaders who participate in category management must be willing to share key information to allow a collaborative relationship to grow in an atmosphere of mutual trust and respect. Collaborative relationships or strategic alliances as opposed to adverse relationships can harness and leverage the unique perspectives, skills and resources of each other to achieve substantial business improvement for everyone.

Steering Workgroup

Because top-level corporate endorsement is imperative in order for category management to succeed, the Steering Workgroup recently hosted the President's Forum. Participants of the Forum included the presidents and CEOs of top manufacturers, retailers, program groups, WDs and wholesalers. This unprecedented gathering resulted in competitors and colleagues alike openly and candidly discussing the merits of adapting the traditional category management process and practices. There is clearly a bias for action and a sense of commitment to make a difference.

This unprecedented gathering resulted in competitors and colleagues alike openly and candidly discussing the merits of adapting the traditional category management process and practices.

"Not since the bloody battle over the Industrial Design Protection Act in the early 90s that would have virtually wiped out the independent aftermarket has there been such a burning platform to rally the top industry decision-makers," said Gaspar. "The Forum was a start to begin building an action plan with speedy solutions to a more prosperous aftermarket industry for all companies, large and small."

"Two business models designed for overall industry success were presented at the Forum. The models include a point-of-sale data exchange model to enable retailers and manufacturers to improve the quantity and quality of data available for business planning, and the enhanced line review process, which is designed to add information and rigor to the line review process for better results," said Brawley.

Because participants are required to modify strategy, structures, work processes and systems and to share data, a frequent concern is how one participating company can achieve competitive advantage if every other company has access to the same information and market data. "Companies using additional and better information will not end up with the same answers and tactics because each has a different corporate strategy and different level of involvement in the category management process," answers Gaspar.

Category management will become the foundation for an improved aftermarket industry and will send a message to Wall Street that this industry is taking action to improve shareholder value.

"Category management has been proven in other industries to give a company increases even though the total market is flat. This is because each company will make their own strategic choices and decisions and come up with solutions based on the shared data. The quality of these decisions will affect gains in competitive advantage, " said Gaspar.

While a number of retailers, distributors and manufacturers have expressed interest in participating in AAIA's category management program and committed to sharing data, the association is encouraging all companies to take a look at this new way of doing business. "This program is inclusive, not exclusive," said Gaspar.

The Future of the Industry

A number of steps are being taken by the Category Management Committee to keep the program moving with speed, including testing selected front-of-counter products through the data system and establishing a hard parts workgroup to focus on hard parts application products. Research into a consumer maintenance awareness campaign that would complement the enhancement of consumer value and service achieved through category management is also well underway.

"AAIA is excited to be the catalyst for such a dynamic program that will help drive sound decision-making for our members and the industry at large," said Gaspar. "Category management will become the foundation for an improved aftermarket industry and will send a message to Wall Street that this industry is taking action to improve shareholder value."

Reprinted with kind permission by the Automotive Aftermarket Industry Association.