In an earlier post we were talking about the importance of good master data when optimizing a supply chain operation. Now we want to focus on another key process; assortment decision making.
When you come to decide whether or not to replenish an item in a particular store you need good assortment data.
The Power of Centralized Assortment Decision Making / Good Data
Some businesses leave monitoring this to individual stores. However, this decentralized approach has sometimes meant that not all the assortment data is held in the master data. Having relevant assortment data at the disposal of a skilled central team gives you a far greater capacity to run really good analytics on your assortment.
Often a SCM implementation is a good time to address any issues with assortment data because it’s when master data is also under scrutiny and processes are being established or refined to ensure that the master data is contemporaneous, complete and useful.
Of course as you refine your assortment you can, at the same time, consolidate your volumes especially for items you include within a central assortment, if you have one. Taking a position ‘it’s either in all our stores or none’ with a supplier is a powerful tool with which to drive a bargain. Volume purchases allow you to negotiate with suppliers for better deals, something that’s hard to do if everything is handled in a very decentralized manner, without any central coordination, by the stores. However, while this binary approach to assortment and negotiation (i.e. having a product in all ones stores or none) is good practice in terms of supply chain efficiency and might well strengthen you margin, it’s not the most customer-focused approach. You might end up with lower sales and higher spoilage.
Assessing the Impact of Your Assortment Decisions
However, there’s another facet to approaching assortment decisions in the context of supply chain transformation when you have a wealth of data and a system capable of placing it at your fingertips through analysis: it helps you to understand more fully the tradeoffs following your assortment decisions.
Let’s assume you’re considering having yoghurt on your shelves. You decide that you will indeed stock yoghurt but want to know how much variety you need to attract customers. In some areas of retail, the bulk of sales are in a very narrow band within the assortment, but sometimes it’s necessary to give consumers choice even if they largely end up making a narrow range of choices within a particular subset of the products. Then the majority of items in an assortment are as much for creating the right ambience as for generating their own sales.
In some areas of retail, the bulk of sales are in a very narrow band within the assortment, but sometimes it’s necessary to give consumers choice even if they largely end up making a narrow range of choices.
Another example is wine; a large proportion of wine sales in UK supermarkets, as much as 75% in some businesses, is promotion-driven. The same labels are promoted over and over again. So, what’s the rest of the assortment for? You might argue that it’s largely display dressing for promoted lines. But knowing how to strike the right balance can save time and money and increase sales.
Your Assortment Decisions Are Only as Good as Your Data
The main reason for centralizing category decisions is that the central team can use analytics on a more structured and global level and arrive at a view based on hard data, rather than basing assortment decisions on something more nebulous; for instance, individual store owners or managers opinions about local preferences.
Still, awareness of local preferences can be useful. However, one needs to take a utilitarian approach to inputting and maintaining tiny pieces of information centrally. The benefits may not always justify the effort. In some cases it might simply be more efficient to devolve some decisions to a more local- or even store- level. In these cases, it’s crucial that you have a feedback mechanism in your system that you can use to report back when changes are made to central plans. Otherwise data integrity will be put at risk and future central decisions will be based on false assumptions and false analysis.
In some cases it might simply be more efficient to devolve some decisions to a more local- or even store- level.
The decisions you make regarding your assortment can also be highly strategic. They can reflect core business strategy including aspects of that such as brand and positioning. So, a builders’ merchant chain might decide that there are items that should always be in stock. It might be a range of screwdrivers; it might be timber battening. If each store has the authority to make its own assortment decisions, you end up losing control over your customer promise. Again, centralizing the process gives a higher degree of control that makes for effective marketing and campaigns.
As Napoleon said; ‘The greatest general is he who makes the fewest mistakes.’ One could apply the same principle to retail. It’s about getting things right consistently. That requires good planning and that in turn requires good data. Only by knowing where you are, is it possible to chart a route to where you want to be.
If you want to know more about the benefits of a centralized assortment and the optimal differentiation level, make sure to read our whitepaper and find out what the latest solutions can do for you: ‘Balancing sales and costs with the optimal level of assortment differentiation’.