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The same way that a house can't be built without a strong foundation, category management technology will do nothing for a retailer if the data and systems supporting it are shaky. So when Pathmark s.v.p. and c.i.o. Bob Schoening came on board soon after the chain came out of bankruptcy in September 2000, he decided to put together a master plan to rebuild its technology infrastructure."
"We wanted to focus heavily on rebuilding the basic business programs of Pathmark," Schoening says. "This includes how you go to market, all the merchandising, how you track items, how to better understand pricing, and the impact of promotions. We laid the groundwork by building out the straight infrastructure, putting in the roads and the highways—the LANs and the WANs—and refreshing the technology."
Schoening wanted a complete system to handle all of Pathmark's business needs, because he didn't want his IT staffers to spend all their time bolting different systems together. After exploring several options, he decided to replace all of the legacy software with a solution from St. Paul, Minn.-based Lawson Software. "We already had a successful implementation with Lawson's financials suite," he says. "So when they approached us about adding new software to the fold, we eventually put a deal together with them."
Pathmark signed a long-term contract with Lawson in July for its Retail Enterprise Solution, including the Retail Operations, Smart Notification, and Enterprise Performance Management suites. The company plans to use these solutions to create a single framework that will support merchandising, streamline pricing and new item introductions, and provide users with an exception-based management system.
The initial part of this implementation, which is currently underway, is building the central data repository. "This is the first thing you need to do when replacing your merchandising software," Schoening says. "This is where your item, vendor, and store information live, so you know which items and which vendors are being carried in which stores. If you have those three elements in your data repository, you're in a great position to build a robust program that helps your merchants make better decisions on how to push products to the store, or what promotions to run."
At the same time Schoening is cleansing the data, both to ensure that the results are accurate and to prepare the company for future synchronization with suppliers. "When you clean your data, there are all sorts of little errors that are in there as a result of data entry—it might come from e-mail, or it was incorrectly keyed into the system," he says. "It's amazing how everyone thinks they have such clean data. I have heard this from many retailers, but then you go in there and you see what's really happening. We just signed up with UCCnet, and having clean data will help when we synchronize with member suppliers."
Easy access to data
Having a centralized data repository is crucial moving forward, because it will be easier for those on the business side to access the data they need to make the best and quickest category management decisions. "The biggest rap supermarkets get is that for years we've had all this wonderful data we've collected in our POS systems, but we just haven't used it as effectively as we can," Schoening says. "The technology is definitely there today, but there has to be a willingness on the part of management to embrace these technologies—which is basically giving tools to the decision-makers.
"If I had to guess today, I would say that our category managers spend about 75 percent of their time accessing the data they need," Schoening continues. "The remaining 25 percent is spent analyzing this information. They have to extract the data from many sources within the business, since it doesn't exist in the same place. Plus, if they have to assemble the data themselves, and some of it is dated and some of it is new, they may end up making decisions based on an incorrect assemblage of the data."
Schoening's objective is to make it easy for category managers to assemble the data and have confidence that it's correct. That will allow them to spend most of their time analyzing and planning their categories.
Once the data repository is built, Pathmark will be able to get into what Schoening calls the real "elegance" of category management. "We'll be able to port this data into a data warehouse and develop various queries, so you can come up with a variety of what-if scenarios about how products will do based on historical data," he says.
The Lawson Merchandising suite will provide the analytical part of the program, serving as a centralized, highly automated solution for planning, execution, and analysis. In addition to freeing category managers from labor-intensive tasks, it helps them clearly comprehend and manage all the variables that go into pricing, promotion, and assortment decisions.
The suite consists of five components:
•Category Planner provides flexible tools for implementing category strategies based on best practices, proven planning techniques, and collaboration with trading partners.
•Category Review will allow Pathmark to continuously monitor gross profits, sales, inventory levels, and other performance indicators against strategies and targets.
•Efficient Assortment will let Pathmark's category managers use a combination of rules, filters, market information, sales, and profit criteria to create ranges of items that will perform most effectively in an individual store or group of stores. "As you build out your items, one of the things you can look at is store-level marketing efforts," Schoening says. "One store in a specific geography may have a mix of goods that's different from that in a store in a different geography. This will let us merchandise the store with products that people in those communities are interested in buying."
•Effective Promotion will give Pathmark the ability to understand complex product relationships as well as customer buying habits, to plan and launch effective promotions. "They can use the promotion management system to gather their decisions, along with those decisions about the other products within their category, and generate a business forecast of what their expectation is," Schoening says. "The category manager doesn't just make one decision, but makes decisions for all of the products within the category and how they relate to each other. For example, if they promote one product, how will it impact the other products in the category?"
•Strategic Pricing automates and accelerates pricing decisions in response to corporate margin tolerances, rounding rules, and competitive data. "We'll be able to take market share data—whether it's ACNielsen, IRI, or another marketing information company—and measure how your categories compare to corporate market share, as well as that of your competitors," Schoening says. "This will help our category managers set realistic competitive goals for the category in relation to performance of the company as a whole."
For example, a category manager may determine, based on this outside data, that he has 11.5 percent market share in his category, while the company's overall market share is 12 percent. "Based on this, he would think that he ought to be able to get at least another half a percent," Schoening says. "So he develops some programs, works with his suppliers to come up with promotions to try and close that gap. And you don't try to do it all at once, but by a few basis points at a time, and you analyze this market data in relation to your own business data and develop a realistic plan."
This way, every time a business plan is made by a category manager, he knows the objective he's trying to achieve in terms of sales and profitability, and can check it against an objective "scorecard," to measure performance.
This is what really will become the power of category management, according to Schoening—having the ability to set goals and objectives, and being able to properly measure them. "It becomes a learning experience," he says. "They will see what's effective. They can do some of that today with the historical data, but it's not easy for them to get at that data and to look at all of the other variables that impact sales."
Nonfinancial variables like weather, current events, and the economy, as well as any other influence that might have an impact on a category but couldn't easily be measured before, will be measurable in the new system. "I might have put together a great promotion, but then 9/11 comes along and the purchases are completely different than what was planned for the week," Schoening says. "Or the competition puts together an even greater promotion than we did. It would look like we did something completely wrong, when in reality it was something on the outside that impacted the category. So part of what we're looking to do is incorporate all of this other information, so that the category manager and management have a complete picture of what's happening."
Overall what Schoening is trying to do is to give the tools back to people who've been conducting business in the supermarket space for generations, to let them be what they've wanted to be all the time--managers and merchandisers, not information gatherers.