Organizational Implications: Collaborative Planning, Forecasting and Replenishment (CPFR): A Tutorial

Organizational Implications

Conventional Organizational Roles
New Organizational Roles under CPFR
Category Management
Category Management – 5 Components
1. Pricing
2. New Product Launch
3. Category Dynamics
4. Competitive (Cross-Category) Analysis
5. Promotion Efficiency & Effectiveness

Conventional Organizational Roles

h2. New Organizational Roles under CPFR

Category Management

  • Product categories are managed as strategic business units.
  • Category management allows more focused assessment, and hence deeper understanding, of consumer buying patterns, product sales and market trends
  • Category manager given ultimate responsibility and authority for:
    • Assortment decisions
    • Inventory levels
    • Shelf space allocation
    • Promotions and buying
  • Category Management fits in perfectly with CPFR, and is part of building a joint business plan.

Category Management – 5 Components

1. Pricing
2. New Product Launch
3. Category Dynamics
4. Competitive (Cross-Category) Dynamics
5. Promotion Efficiency and Effectiveness

In all cases, category managers should base their decisions on historical data and judgment

h2. 1. Pricing

Category Managers need access to regular sales trend and pricing data.

Typical questions include:

  • What are the key category price points (low, high, differences by market,etc.)?
  • What are the competitors’ prices ?
  • How does price affect sales volume?
  • How effective are category pricing initiatives in building sales?

h2. 2. New Product Launch

When launching a new product, it is crucial to know who is buying and whether the product is attracting new or existing category buyers.

Key questions include:

  • How many households have tried the new product? Are these buyers new to the category?
  • How did trial consumers respond to advertising and promotions?
  • What effect did these activities have on the category?
  • Has the new brand bought in new category buyers?

h2. 3. Category Dynamics

Understanding what consumers are purchasing in and across stores is key to addressing issues such as:

  • Which products drive category growth?
  • Where are the retail opportunities for the category?
  • How does the category perform across various retail banners?

In addition, getting the right mix and number of products in the category is a challenge:

  • Assortment – what is the most appropriate product mix?
  • What is the optimal number of SKUs within a category / brand?
  • Where will volume go if SKUs are deleted?

4. Competitive (Cross-Category) Analysis

Category Managers must understand their performance in context with competing categories. Knowing which categories to watch is half the battle. Some issues to consider include:

  • What other categories interact with mine, and which are important?
  • What cross category opportunities are there?
  • How loyal are category buyers?

h2. 5. Promotion Efficiency & Effectiveness

  • How efficient are the category promotions?
  • Which product promotions have the most impact on the category growth?
  • How can I better optimize promotions for the category?