Impact of category management practices on performance of FMCG supply chains
Hamister, James W.
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This dissertation investigates the impact of Category Management practices on the performance of fast moving consumer goods (FMCG) supply chains. Category Management is a retail industry initiative that was introduced, by Marketing professionals, as part the Efficient Consumer Response (ECR) initiative in the early 1990's. Category Management is defined as the distributor/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value (Blattberg & Fox, 1995). Some of the expected benefits of Category Management are improved responsiveness to consumer needs, better performing mix of products at the SKU level, improved merchandizing effectiveness through combined retailer and manufacturer knowledge, and achieving a more entrepreneurial approach by organizing categories as strategic business units. Somewhat independently, Operations Management professionals have sought to improve the performance of retailers through the application of supply chain management initiatives, with seemingly little overlap with Category Management efforts. Supply chain initiatives include measures such as strategic alliances and partnering with key suppliers, coordinated inventory management, vendor management inventory (VMI), and the use of electronic data interchange (EDI) technology, etc. In recent years, Marketing researchers have begun to study Category Management practices and their impact on retail industry performance. In supply chain research, however, to the best of our knowledge there have been no studies so far on the possible impact of Category Management on retail supply chains. Thus a major objective of this research is to close the gap and investigate retail industry performance in an integrated manner, synthesizing Marketing and Supply Chain Management research. Supply chains dealing with fast moving consumer goods face interesting challenges. They are known to be dynamic contexts, requiring fast response to changing tastes and buying habits of consumers, as well as supporting broad variety of end products. These supply chains are becoming more globally dispersed as well, introducing many operational challenges in maintaining high levels of responsiveness. This is also an important sector of the economy, both in terms of employment and impact on consumers. For these reasons, we believe that this sector merits more careful attention. In order to better understand the relationship between Category Management and Supply Chain Integration, a theoretical model is developed linking the two, along with the global structural characteristics of FMCG supply chains, controlling for product and market characteristics. The supply chain management practices construct is defined as comprising strategic-level initiatives such as establishment of strategic supplier partnerships, integration intensity, information sharing, information quality, etc. The complexity of the supply chain structure is defined in terms of the horizontal structure, vertical structure, horizontal position, and a new construct termed as global dispersion. The construct Category Management practices is defined to include intensity of CM efforts, category captain resources, retailer category resources and category plan implementation. This is generally consistent with early Marketing research such as Gooner (2001). This covers activities such as the intensity of merchandising activities as well as the merchandizing resources (consumer information, promotional budgets, etc.) contributed by both suppliers and the retailer. These variables are chosen to represent the level of implementation of both Category Management and supply chain management initiatives among the trading partners. The dependent variables comprise retailer performance (defined as the combination of several retailer financial and market share performance measures), category captain performance, as well as supplier performance consisting of elements such as quality, cost, flexibility, delivery, and prompt response. The structural model developed suggests several testable hypotheses and relationships. The major hypotheses are that, first, increased adoption of category management elements may be positively related to supply chain performance. Second, increased adoption of the various supply chain management initiatives may also be positively related to supply chain performance, mediated by increased supplier partnering. This dissertation has several theoretical and managerial objectives. First, a theoretical model describing the relationship spanning two research streams in the operations management and marketing areas is developed. Second, this research empirically validates the theoretical model through survey research specifically in the FMCG sector. The FMCG sector is important to the US economy, but has received relatively insufficient attention. Third, this research may also offer practical guidance to retailers and suppliers within the FMCG sector for improving performance, with implications for both consumer satisfaction and increased firm performance. (Abstract shortened by UMI.)