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Unified Space Optimization Drives Tangible Value

Jan 28, 2021 5 min

Space management can be a fraught process for retailers. If they cannot get their space allocation right, retailers face challenges from potential stock-outs and lost sales, or at the other end of the spectrum, excess stock and high waste levels. This has a knock-on effect on store staff who spend additional time on in-store tasks like re-shelving rather than focusing on delivering high quality customer service.

Traditional approaches to these challenges can offer a lot of benefits. Category or cluster-level planogramming are simple approaches that can improve brand consistency, customer shopping experience, and merchandising compliance. Unfortunately, though, they are not tailored to a store’s specific requirements. Too many retailers—even enormous, sophisticated companies—are still at this level when there is a lot of opportunity to improve.

For example, retailers have been implementing store-specific planograms for about two decades at this point, though they still struggle to achieve consistent success across all categories. Store-specific planogramming is hard to get right without a solution to automate the process, taking a lot of the calculation work off your planners’ hands. However, the benefits are significant. An automated solution that creates store-specific planograms can typically drive improvements such as:

  • 1-3% increase sales
  • 5-10% decrease in waste
  • Increased product availability

While store-specific planograms can generate remarkable benefits, it’s unfortunately impossible to consistently guarantee these targets. Too many factors outside of your control can impact these traditional KPIs—from unseasonable weather to a competitor opening a store down the street.

So, what can retailers do to see assured benefits from their space planning?

Unified Space Optimization Generates Consistent, Tangible Benefits

A unified approach to space planning allows retailers to build a more tangible business case by breaking down functional silos. By drawing their space, inventory and supply chain, and even workforce planning into a single unified solution, retailers are able to realize the benefits of store-specific planograms.

The two clearest tangible benefits of unified space optimization arise from:

  1. The reduction of excess stock, when inventory that doesn’t fit shelves requires back room storage
  2. The use of order proposal optimization to reduce delivery frequency at the product level and improve product handling efficiency

These two tangible benefits work to remove product handling costs across the supply chain—in both DCs and stores—reducing a product’s overall cost to serve.

Reducing Excess Stock

Let’s consider what happens when space and supply chain planning take place without visibility into each other’s data and plans. The space planner creates a planogram with the right products in the right amounts for a store—but the supply chain team generates a completely different, higher forecast about how those products will actually sell.

On delivery day, store staff find a difference between the amount of product the supply chain team ordered for the store and what the space team laid out in the planogram (Figure 1). With too much inventory to fit the allotted shelf space, staff must figure out how to deal with the shelf breach.

Figure 1: When excess stock is delivered to a store, it results in shelf breaches.

There are only a couple ways to deal with this disconnect: either cram items into the sides and tops of the shelves, creating messy displays or move excess inventory back across the store into backroom storage. And if the shelf empties too quickly, staff have to identify the gap, return to the backroom to check availability, and replenish the shelf again if inventory is available.

Stores often suffer unnecessarily high operational costs when staff have to cycle through this never-ending process of moving inventory from storage to shelves. They also risk losing sales when staff can’t identify the gaps quickly enough, or if the supply chain team sends too little stock to fill the shelf to begin with.

Unified planning improves visibility into space plans and constraints, enabling supply chain/ordering teams to optimize both order quantities and how frequently items need to be picked in distribution centers. Space planning teams, on the other hand, can build more accurate planograms from store-level sales forecasts that include weekday or seasonal variation and any planned promotional activity.

Figure 2: Though the planograms in this example were designed to ensure stock could fit on shelves, without order proposal optimization in place, inventory does not actually fill out the available shelf space.

Truly Unifying Space and Supply Chain

Through unified space optimization, we’ve seen retailers achieve accurate, automated direct-to-shelf replenishment that doesn’t demand excessive manual calculation work of planners. The same applies for delivery rows — the frequency of product-store deliveries or the number of times staff have to pick that item in your distribution centers.

Just as direct-to-shelf replenishment improves operational efficiency in stores, reducing delivery rows improves operational efficiency in distribution centers. If the supply chain solution has access to space planning data—what space is available at each store and what products are shelved in what quantities—it can optimize the number of times items have to be picked at the distribution center.

This is especially important for fast-moving items, which should be picked less often and in larger quantities to last through delivery cycles. By feeding space information into supply chain planning, distribution centers can send larger quantities to stores with less frequency, reducing the amount of times they have to pick items.

Figure 3: Order proposal optimization reduces delivery frequency to stores while maintaining availability and ensuring stock both fills and fits the shelf.

Measurable Results: The Benefits of Unified Planning

With unified space optimization, retailers still see all the benefits of localized space planning. We’ve seen companies like East of England Co-Op drive a 2.2% sales increase through store-specific planogramming, while others have seen a 12% improvement to inventory turnover. Circle K saw over 10% inventory reduction in their most challenging category, tobacco, as well as a 2% increase in availability.

But beyond these traditional, difficult-to-guarantee KPIs, unified planning provides tangible operational cost reductions in the form of reduced shelf breaches and delivery rows. In our experience, retailers can see up to 1% OPEX savings from direct-to-shelf replenishment, a 25-35% reduction in store delivery rows, and a 15-25% reduction in shelf breaches. Retailers who sell products with expiry dates can see waste reduction of 5-10% through optimized facings. Finally, with store staff relieved of time-consuming shelving and re-shelving tasks, they have more time to focus on delivering high levels of customer service.

And most importantly, a sophisticated unified planning solution should be able to deliver all these benefits with the flexibility to adapt easily to changing business conditions and strategies. The right solution can automate planograms and optimize for any type of fixture—not just standard shelving—while taking into consideration product additions and deletions.

Furthermore, RELEX has been developed with a “configure, don’t code” approach in mind that considers how different needs can be between retailers or even categories within a single business. With a modern solution in place, retailers no longer need to outsource their back-end coding work every time they want to adjust their processes. Today’s planning teams can innovate and experiment through flexible configurations, amending their automation and optimization processes quickly and efficiently.

Written by

Steve Boon

VP Sales

Sam Welton

Product Strategy and Management Lead