Product assortment optimization
Formation and product assortment optimization in store are the processes that are closely related with company’s economic indicators. Surface assortment management can cause profits reduction and regular customer loss. Besides, if sales forecasting is a basis for assortment management, then the optimization cannot be driven by the actual customer demand . This certainly leads to a series of fundamental problems:
Loss of sales:
- Deficiency of working capital due to decrease in turnover;
- Loss of sales caused by the deficiency in fast-moving goods (Out-of-stock);
- Potentially closed lost client;
- Absence of system for measuring the lost sales.
Surplus:
- Distribution costs of unprofitable goods
- Advertising costs on development of marketing arrangements of slow-selling goods;
- Expenses on storage and movement of product surplus;
- Wearing and obsoleting of goods;
Administrative difficulties:
- Absence of common methodology in SKU management;
- Escalation of costs on ‘express order’;
- Faulty assessment of the systems of suppliers’ credibility.
Optimization of products’ assortment
Optimization of products’ assortment is quite a difficult and labor-intensive process that requires processing a great deal of information. That’s why the need for optimization of this process is fully justified.
The methodology of the ABM Inventory system enables to influence on the formation of assortment matrix in such a way as to organize the maximum profits with the minimum costs. In order to realize this condition, assortment should be based on the goods with a high turnover, so called ‘Top-Mover’ generating 80 % of the total turnover. Using the ABM Inventory, you have a possibility to easily detect the fast-moving SKU and adjust the required assortment to the actual consumers’ demand.
Minimizing the number of unsaleable goods with low turnover is as equally important. Daily reports based on the analysis of reserve buffer help to detect the unmoving SKU at each storage locations. If the situation analysis proves that the low turnover is connected with the specific product, so there’s most likely a possibility of removing this product from the assortment.
The system analyses the strategic reserve buffer and then, based on the reports, it indicates about the choice of the necessary type of delivery for each SKU. For example, if one product category generates the customer traffic, it is reasonable to start ordering these goods before receiving the approved order from the market. To move the goods from the warehouse of MTO type (Make-To-Order) into MTS (Make-To-Stock) type.
Assortment of products in the system is formed and optimized with help of the following instruments.
Belonging of the goods to a specific category:
- DTO: the product, which is delivered according to a special order, i.e. this product is in stock but its surplus is not kept at a company’s storage location. Therefore, these products are not included while estimating the loss of sales, though any remnants of them are considered as surplus.
- DTA: the product, which should be always in stock at a storage location; local storage locations/branches (stores) replenish it regularly. This product is included into the regular orders in the system and while estimating the loss of sales, where the remnants above the buffer (target reserve) are considered as surplus.
- NA: non-active product, which is removed from the assortment at all storage locations; surplus in all chain = 0.
- NM: product, which is not monitored or managed in the system. Commodity stock and sales that are marked with such a status are included into a company’s total stock and sales.
Combining the alternative products:
If an old product is changed with a new one or if several products look alike to the customer (a stock of only one of them can be provided), then we can use the function of combining the SKU into a family of alternative goods. In case of such configuration, only the main goods are included into an order due to the total remnants of all alternative goods.
Automatic detection and assignment of records to the goods:
- TOP-mover is a system parameter that is automatically installed. This record distinguishes the goods generating 80 % of company’s turnover during the last 3 months and that were sold in number more than one unit (category A). If the decision is made and other goods that were not estimated by the system as the TOP-mover to keep important (accompanying goods etc., the absence of which would decrease the sales), then such goods can be manually marked as TOP-mover in order not to remove them from the assortment mechanically.
- NON-mover is a parameter that is automatically installed. This record distinguishes the goods generating 2 % of company’s total turnover during the last 3 months, i.e. the slow-moving goods. These are the prospect goods that can be removed from the assortment.
- NEW-mover is a record of a new product, which is automatically applied to all new goods coming into the system. The product is automatically considered as a new one within 3 months from the day of its emergence in the system.
- OUT-mover is a mark for the product that is removed from the assortment throughout the whole chain.
The procedure of removing the product from the assortment:
If the product is marked as the OUT-mover, the following sequence of activities is applied:
- The product status is automatically changed into DTO at the central warehouse. The goods are not replenished at the central warehouse and are not placed into the regular order from the central warehouse to the outside supplier. The DTA status is kept in the branches (product is replenished at the storage locations/branches/stores in order to sell the rest of the goods from the central warehouse).
- When the product is out of stock at the central warehouse, the system will automatically transfer this product into the DTO status at the stores (AZS), as the stores cannot be replenished from anywhere.
- When the product is out of stock at all storage locations, the system automatically “excludes” the product, i.e. the NA (non-active) status is installed.
If the goods are delivered to the regional storage location right from the supplier, then by marking the OUT record the system transfers the goods into DTO status at all storage locations.
Optimization of products’ assortment and monitoring ABM Inventory.
Optimization of products’ assortment in a store should rely on analytical findings and accurate numbers. So, there are several reports in the system that allow to successfully influence on forming the assortment policy of a company’s assortment.
Main reports help to visualize the whole picture and to consider the situation in each SKU if necessary.
TOP mover company report:
shows company’s TOP Movers generating 80 % of turnover.
NON Mover company report:
shows slow-moving goods in a company;
Lost Sales SKU per week:
shows due to the shortage of which SKU a company lost its sales;
Overstock SKU per week:
shows due to which SKU a company got surplus;
SKU Count:
shows the summarized data of the available TOP and NON in a company.
Each report is formed at the predetermined intervals: every day, every week or every month depending on reasonability of analyzing that specific indicator. Part of the reports is formed directly in the system, while another part is sent to executives’ mail.
