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December 07, 2017
What is Assortment Planning?
One of the biggest challenges in retailing is identifying the products that people will want to buy. The next challenge is to estimate the right amount of stock. Too little, and you miss sales opportunities. Too much, and you tie up capital in excess inventory or find yourself forced to sacrifice margin to get rid of it. According to retail analyst firm IHL Group, global losses in 2015 of out-of-stocks and overstocks totaled $1.1 trillion or about 7.5% of the total retail economy. Assortment planning aims to turn those losses into profit.
Assortment planning is about making the right product picks and ordering the right quantities to match market demand. These decisions affect both retailers and manufacturers supplying them. In the apparel and fashion sector, these challenges are also more complicated, because of limited time windows. Once a fashion season has gone, the market changes. At this point, the remaining stock often only sells at heavily discounted prices.
Picking Apparel Products to Meet Demand
The first step in assortment planning is understanding the basics. Retailers define the range of products to be sold by width and depth:
- The width is the number or variety of different product categories.
- The depth is the amount of product and brand variation within an individual category.
So, for instance, department stores may opt for wide (generalist), but shallow apparel and fashion category selections. By comparison, shoe stores will have narrow (focused on shoes), but deep (many shoe brands and models) category selection.
Two further factors determine how retailers do their assortment planning. First, they must adapt their category and product choices to the potential, but also the limitations of their outlets. Busy stores in city centers might do better with one type of assortment, perhaps further adapted to suit smaller floor and shelf space. Larger outlets in suburban malls may need a different assortment, and so on.
Second, retailers often seek to simplify their planning. Rather than plan for each store, they will group stores with similar characteristics. This clustering, as it is known, can be done in different ways: by sales revenue range, by amount of floor space, by shopper demographics, or other.
Using Assortment Planning to Drive the Supply Chain
A supply chain should work end-to-end to plan the required supply, stocks, sales, and margins. This includes manufacturing, logistics, wholesaling, and retailing. Market trend data and retailer requirements can be used by manufacturers to adjust their production schedules. Traditionally, these adjustments have often been ad hoc or carried out by reconciling plans from different sources. Ad hoc adjustments allow a manufacturer to react rapidly to changes in demand. However, they may unbalance the supply chain in unexpected ways. They also become increasingly difficult to manage as environments become more complex. On the other hand, reconciliation of plans may work for stable environments but is soon outstripped by rapidly changing marketplaces.
The alternative to ad hoc and reconciliation approaches is integrated planning. For apparel and fashion markets, integrated planning allows rapid reaction, manages complexity, and offers possibilities such as demand and supply simulation to get ahead of the curve. Integrated planning involves four key IT systems: PLM, ERP, demand and supply planning, and retail planning. We describe each of these systems below for a supply chain environment that spans brand merchandising, design and development, sourcing and production, supply chain management (SCM) and logistics, wholesaling, and retailing.
- PLM. A Product Lifecycle Management system manages information through the life cycle of a product, from the initial concept to production. To do this, it integrates data, processes, and business systems. By using a PLM system, an enterprise can work as one team to make information-driven decisions at each life cycle stage, leveraging best practices and improving customer experience. A suitable PLM system for fashion and apparel brands supports design, product development, purchasing, sample approval, sales, service, and workflow tracking. It increases the visibility of all production costs while creating and managing compliance and factory audit documentation. Overall, the PLM system is used to support brand merchandising, design, development, sourcing, and production.
- ERP. An Enterprise Resource Planning system facilitates the flow of information between departments and functions. There is no need to use separate and sometimes incompatible software applications for accounting, purchasing, logistics, and related functions. Instead, the ERP system integrates all this information, accelerating processes, easing reporting and tracking, and preventing errors. Overall, an ERP system supports sourcing and production, supply chain management, logistics, and wholesaling.
- Demand and supply management. This system optimizes the replenishment of products, enabling inventory planning for possibly thousands of product references. It helps the enterprise to balance supply and demand to meet financial and service goals. Specifically, it supports the sales and operations planning (S&OP) part of the supply chain, together with logistics and wholesaling.
- Retail planning. Merchandise planning, forecasting, brand management, and inventory control are typical functions of a retail planning system. Historical and point of sale (POS) data may be used for this. Cluster planning for groups of stores, style-by-style, and product or storekeeping unit (SKU) level retail management are all possibilities. As its name suggests, a retail planning system supports the final part of the supply chain, the retailing operation.
Accurate Assortment Planning, Profitability, and More
With an integrated, information-driven planning approach like the one above, apparel and fashion enterprises reap several benefits. They reduce costs and increase productivity. Gains come from stopping repetitive data entry, closing gaps in communication, and avoiding human error. With the right PLM system, for instance, apparel designers can enter designs into the system straight from their design applications, such as Adobe® Illustrator. Manufacturers, wholesalers and retailers get enhanced visibility across the supply chain. Seasonal and fashion items sell within their window of sales opportunity, without having to cut prices. Buffer stocks and bullwhip effects go down. Sell-through, customer service, and inventory turns go up. Accurate assortment planning can turn reliably into profitability for the different actors in the supply chain.
All Ready for Next Season’s Assortment
Even if the apparel sector includes many standard items of clothing, footwear, and accessories, fast-changing products are also a large and essential part. Assortment planning gets retailers, wholesalers, and manufacturers ready to meet customer demand for standard and hot fashion products. It lets them guarantee customer delight while ensuring good margins. An integrated planning approach makes customer satisfaction and profitability real, using PLM, ERP, demand and supply management, and retail planning. The right products are then available in the right quantities at the right time, which is everybody’s goal, supply chain actors and end-customers alike.
Read about CGS's software solutions to help you with assortment planning here!
