The optimal design of the product range is an important factor for successful operation on the market. A well-founded ABC analysis provides information about your own assortment: Which articles have the greatest profitability? Which are the most important for customers? Which ones cause the most costs?
In many companies 20% of the assortment generates 80% of the turnover. In view of the fact that such a large part of the assortment earns the company comparatively little, it is obviously advantageous to focus attention on the most powerful product lines. At the same time, decisions about inventory should never be taken lightly. Companies should strive to manage the entire range as effectively as possible.
ASSORTMENT PLANNING – DEFINITION AND SCOPE OF DUTIES
Assortment planning is a subarea of assortment policy. In addition to requirements determination and material staging planning, assortment planning is the third subarea of material requirements planning. Material requirements planning refers to the process of determining the required materials for a particular planning period according to type, quality, number and time structure. The following tasks are performed in Assortment Planning: Limiting material types by making basic decisions about assortment width and depth, defining material qualities, investigating substitution options, and deciding whether to make or buy.
GOALS OF ASSORTMENT PLANNING
The market positioning is determined by the design of the assortment targets and assortment planning. The goal of optimal assortment planning is in most cases an assortment that appeals to a broad, heterogeneous audience. In some cases, however, the aim may also be to attract specific target groups. To ensure this, an effective interaction between the attractiveness of the offer, efficient supplier relationships and revenues is required. The optimum is a cost-optimized material supply, which means that only as much material is available as is needed at short notice.
RETAIL PRODUCT RANGE PLANNING – DEMAND AND SUPPLY
In retail, the selected assortment policy determines the success of a company. In order to meet the current demands of the market and to be able to operate successfully, optimal assortment planning is required. Numerous retailers try to circumvent highly competitive markets and tap new sales potential by adapting their product ranges. Because the success factor of every retail business is and remains the range of goods and services on offer.
RETAIL PRODUCT RANGE PLANNING – DEMAND AND SUPPLY
In retail, the selected assortment policy determines the success of a company. In order to meet the current demands of the market and to be able to operate successfully, optimal assortment planning is required. Numerous retailers try to circumvent highly competitive markets and tap new sales potential by adapting their product ranges. Because the success factor of every retail business is and remains the range of goods and services on offer.
With a striking assortment, a retail company can hold its own in the market and gain a competitive advantage. If you want to attract customers, you have to meet their needs – as many as possible. This is only possible through a marketable, balanced assortment. A successful assortment and service strategy should therefore be based not only on brand development and assortment control, but above all on assortment planning. Within these assortment planning processes, fundamental decisions must be made about the assortment width and depth.
The width of an assortment depends on how many different merchandise categories are offered. The depth of an assortment, on the other hand, depends on how many different variants of a merchandise category, that is, different versions of an article, are available. In many companies, the assortment structure is outdated and rather random. Customer needs are often not taken into account, which is why there is optimization potential here.STRATEGIC AND OPERATIVE ASSORTMENT PLANNING
The assortment planning process distinguishes between strategic and operative assortment planning.
Strategic and Operational Assortment Planning
The assortment planning process distinguishes between strategic and operative assortment planning.
Strategic assortment planning – planning horizon and product group offer
Strategic assortment planning should be based on three aspects: location, target group and competition. The goal is a lasting high level of competence and a clear brand profile. Ideally, assortment planning in retail should reflect the sales potential. A characteristic feature of strategic assortment planning is the medium to long-term planning horizon. Strategic assortment planning is difficult to correct and therefore requires a high degree of organizational change in some cases. It takes place at merchandise category level and includes the determination of the general market coverage of merchandise categories and target groups. Furthermore, it has considerable effects on other basic strategies of the company.
Operational assortment planning – short-term orientation and article offer
Once it has succeeded in positioning itself on the market, operational assortment planning becomes necessary in order to maintain its own position on the market and to distinguish itself in the competitive environment. Operational assortment planning is characterized by short-term orientation. It becomes effective immediately and, unlike strategic assortment planning, it is relatively easy to correct. In most cases, therefore, it does not require any organizational change or, if it does, only minor changes. Operative assortment planning takes place at article and article group level. This involves designing and procuring detailed assortments that meet current customer requirements. As a rule, operative assortment planning has no effect on the company’s basic strategies.
OPTIMIZATION OF THE ASSORTMENT: ABC INVENTORY ANALYSIS
Making the right decisions in assortment planning is not always easy. Slow-moving items can seem like an expensive waste of space in the warehouse, while for certain customers they are the main reason why they shop in a store or company. If an item is profitable, it has obviously justified its place in the assortment. But if an item offers only a minimal return in terms of customer value or profit, the question is whether it is worth having it always available.
A well-structured ABC inventory analysis can show the potential of the assortment and highlight areas that require more attention. From service levels to warehousing decisions, the insights from ABC inventory analysis can be used as a driving force for designing and optimizing the assortment.
How you define the requirements for the assortment depends strongly on which key figures are most important for the company. Essentially, there are two main objectives: On the one hand, the profit margins of an article or the turnover can be the focus.
Alternatively, customer satisfaction in the form of order or sales figures can be used as the basis for calculating key figures.DIFFERENTIATION OF SERVICE LEVELS
In the context of assortment management, the service level is the target percentage of those orders for an article that can be delivered from stock as soon as possible. Since A-items are most important for sales, while C-items are probably slow-moving items that have less impact on strategic business goals, it makes little sense to set the same service level goals. For A-items, the targeted service level goal should be the highest in comparison. For B- and C-items the definition of a too high service level can cause unnecessary costs. It is therefore important to check the service level carefully.
DETERMINING THE RIGHT STOCK LEVELS
Once the desired service level has been defined, the inventory policy can be reviewed. The safety stock level should correspond to the meaning of the items. The safety stock of an A-item, for example, should be higher, as a stock-out could cost the company dearly.
This does not mean, however, that C-articles should be neglected. Findings from a well-structured ABC analysis can be used for a differentiated view of the service level, but other factors must be taken into account. For example if certain articles have political effects or if contractual obligations exist by contracts or opposite the customer. By carefully considering such conditions in each item category, a company can optimize inventory levels.
MAKE BETTER INFORMED STORAGE DECISIONS
The findings from the ABC analysis provide further possibilities for refining the product range. For example, some C articles may prove so unprofitable that a safety stock is not justified. Alternatively, there may be items that are not currently in stock, but should always be available. This is especially true for items that have either a long lead time or low supplier reliability.
By using the findings from an ABC analysis to improve the stock status of an item, you increase customer satisfaction. This is because you make sure that the most important items are always available. You can also remove unprofitable items with the insights you get. This helps to free up capital that can then be reinvested in others.
OPTIMISING DIFFERENT FACTORS of Assortment Planning
With a clear insight into which articles have the greatest influence on strategic corporate goals, you can prioritize the relevant areas. Whether it’s renegotiating lead time or order quantity with suppliers, or developing more effective inventory management tools, the results of the ABC analysis can help improve the structure of the assortment.
If A-items are the most efficient, negotiating shorter delivery times or better prices can have a significant impact. For slow-moving items, it is possible to negotiate a smaller order quantity to save storage costs.
While these relatively small developments seem to have little impact at item level, they can add up quickly at assortment level. These measures help to improve overall availability, reduce inventory costs and generally improve efficiency. By using ABC analysis, you can see exactly where time and resources need to be prioritized to maximize business value.
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