CHICAGO -- Supervalu, Minneapolis, has experienced increases in sales and gross profit, and a reduction in its inventories, as a result of its category management practices.
Category management is a component of Supervalu's Advantage program, its application of Efficient Consumer Response initiatives. The objective of the Advantage program is to find inefficiency in any form and eliminate it and at the same time, try to discover value and build upon it.
To this end, Supervalu piloted category management in its Denver operations with five major retailers in mid-1995. The pilot involved 88 categories and nearly 7,000 items. While category management often identifies opportunities for inventory reduction, Supervalu found a significant number of items in the marketplace it wasn't carrying, said Mike Mulligan, vice president of wholesale sales and marketing, during a workshop at the Food Marketing Institute Convention and Educational Exposition here this month.
"While we eliminated almost 12% of the items in these 88 categories, we found opportunities for increased sales and marketing that amounted to 7%, a net reduction of [about] 4%," he said.
Mulligan explained that Supervalu's Northern region is in the first stages of a category management test with a smaller number of categories, 18, but a similar number of items. Plans are to roll out category management companywide in the future.
"In [the Northern region] we have been able to reduce total item count by almost 11%. In both cases, sales in every single one of these categories increased, gross profit increased and customers, surprisingly, perceived an increase in the variety we had," Mulligan said.
Another component of Supervalu's Advantage program is activity-based selling. ABS separates the cost of the merchandise provided to customers from the cost to serve those customers.
ABS was piloted in Supervalu's Denver operations, where it generated more than $4,000 in order selection savings over a four-week period, and a $5,000 per week reduction in overtime.
Changes in Supervalu's distribution efforts have cut more than 330,000 miles from its transportation routes, said Mulligan. This allowed the company to reduce its fleet by seven tractors and eight trailers.
Mulligan said Supervalu wants to quantify the revenue and cost benefits that accrue to manufacturers from implementing its Advantage program and develop the concept of "menu pricing."
Menu pricing is a listing of the activities that drive pricing. Using menu pricing allows for an item-by-item analysis to eliminate various costs of doing business.
Supervalu has begun development work in this area with General Mills, Minneapolis; Campbell Soup Co., Camden, N.J.; Kraft General Foods, Northfield, Ill.; and Pillsbury, Minneapolis. These four vendors alone have identified $12 million in potential annual savings, 18% of which comes from a fully integrated electronic data interchange platform, 12% from buying practices and 70% from streamlining distribution, he said.