The use of merchandise planning automation software is growing in popularity. According to the Global Retail Analytics Market Research Report, from a current market value of more than $3 billion, this sector will increase to more than $6 billion by 2032. Specialized software allows category managers to evaluate different product assortments, pricing strategies, and promotions to determine the best approach to category sales and profitability.
However, many specialists still use Business Intelligence systems, focusing exclusively on category analysis, whereas modern software (for example, Assortment Performance by LEAFIO) is less dependent on data quality, adapts to business needs, and even provides tips. It allows you to not only analyze but work with category formation, store clustering, changing SKU statuses, etc. This explains the relevance of the evolutionary transition from Business Intelligence to automated systems.
The BI system features managing categories
Business Intelligence (BI) systems can be helpful for category managers who are responsible for analyzing sales and distributing products in a particular category. But along with their advantages, they also have significant drawbacks.
- BI allows category managers to access a large amount of data from various sources for more objective and comprehensive analysis;
- The system provides analysis of sales, distribution, and other critical indicators with updates once a day on average. This allows for quick and informed decisions on category development;
- With the help of BI, category managers can receive data in an understandable and accessible form, which makes it possible to understand and analyze complex information.
- BI implementation is quite complex and requires significant financial and technical resources. In addition, it is necessary to prepare the data and check its quality before it is displayed in the system;
- Some systems are limited: they can only work with a certain amount of data or variables for analysis;
- Even if the system has access to a large amount of data, the result depends on quality. Otherwise, BI conclusions will be erroneous;
- Category managers may need additional training to understand and effectively use the system;
- For BI to be helpful, it must be integrated with other systems (e.g., warehouse or production management). In some cases, this isn't easy.
Let's take a closer look at the specifics of using BI for category managers
1. Work with numerous reports
Specialists have access to various reports to help them track sales and distribution of products in their category. However, dealing with a large number of reports can be a challenge, as effective category management requires not only collecting data but also conducting in-depth research into cause-and-effect relationships
Category managers have to spend a lot of time and effort looking for indicators pointing to problem areas in the category. So, if a specialist notices a decrease in sales in a particular store, they should independently analyze what affects it: price, product quality, competition, marketing efforts, or other factors.
2. Lack of flexibility
Not all BI products can be customized to the needs of each user: in most cases, retailers only have a certain number of predefined reports.
Therefore, category managers often export existing reports in Excel format to view metrics in a form that is convenient for them and use their favorite functions (such as VLOOKUP). However, this practice can make analyzing metrics routine and complex (especially if reports must be manually entered into Excel regularly).
This makes analyzing metrics a complex and unproductive process. An additional risk is the mistakes a specialist may make when transferring data from a report to Excel.
3. The need for clear parameters
BI systems use parameters to analyze data and provide recommendations. If they are not relevant or do not take into account all aspects, the results of the analysis may be incomplete or even incorrect.
For example, if a BI system uses only the number of sales as a parameter to determine the success of a product, the results will be inaccurate because it does not consider how much was spent on marketing or what promotions were held. Therefore, it is essential to predefine all the indicators for analysis and periodically check them to ensure that they are current.
4. Dependence on data quality
Data quality and accuracy are essential for effectively operating BI systems in category management. Irrelevant or erroneous information leads to incorrect conclusions and recommendations regarding the product range. These, in turn, have a negative impact on performance. Therefore, the data used in the BI system must be verified. It is also worthwhile to constantly update the system to ensure relevance.
5. Lack of context
BI systems are typically based on numerical data and statistics, so they are somewhat limited in their conclusions. For example, they may not consider competitive pressures, changing consumer attitudes toward brands, various consumption trends, or other factors that affect category management.
This leads to decisions that don’t take context into consideration, and, as a result, may be incorrect or ineffective. For example, if the BI system shows an increase in sales of a particular product, but does not take into account that this is the result of a temporary promotion or a price change from a competitor, then the manager may make the wrong decision to increase the inventory of this product.
It's essential to remember that BI systems can only provide a limited picture, and a specialist must independently determine a set of further actions, considering the full context.
6. This is just analytics
Assortment management is a complex process that involves many stages: assortment planning, sales analysis, strategy and tactics development, sales control, etc. A BI system can help in planning these stages. However, it is essential to understand that it does not replace the expertise and experience of category managers but only serves as a tool to support and facilitate their work.
Are there any solutions on the market that increase the efficiency and accuracy of forecasts for category managers? We will discuss them in the next section.
Category management with merchandise planning software
Merchandise planning software allows category managers to conduct various experiments with assortments and strategies to determine the best approach to increase sales and profitability. For example, they can evaluate pricing and promotional options to find the best plan for each product category.
In addition, the software gives access to data on sales, inventory, and other factors, which allows for more accurate analytics and informed decisions on assortment management.
There are several robust software solutions in the merchandise planning segment. For example, Assortment Performance by LEAFIO helps the category manage their assortment and increase sales and profitability effectively.
Let's look at the features of using merchandise planning systems in category management in the example of LEAFIO Assortment Performance.
1. Work with all aspects of merchandise planning in one system
Digitizing the assortment management aspects in one system can be helpful for category managers, as it allows them to work with all category levels in one place. This means that a specialist can:
- plan and track category performance;
- monitor the status of stocks, have sales data;
- store important information about the performance of each SKU in one system.
Such a system allows you to conveniently and quickly perform operations: from global planning of category representation to more detailed information about each SKU. For example, a specialist can view data on sales of a particular category in different stores and markets, research consumer behavior, analyze market trends, and much more.
A merchandising department in a retailer's organizational structure: What is the most beneficial option?
Such a system allows you to keep better control over categories and track their dynamics, which can help you make effective decisions. However, it is essential to remember that automation cannot replace human experience and intuition. Therefore, the manager must remain an active system user to understand and analyze the data received.
2. System flexibility
Product planning software allows category managers to test different strategies effectively and approaches to assortment management. This will enable them to respond quickly to changes in market conditions and adaptation strategies to achieve better results.
For example, Assortment Performance helps professionals evaluate product assortments, pricing strategies, and promotions to determine the best approach to increase sales and profitability in categories.
This solution is not only available to large businesses. Modern merchandise planning products are also targeted to the small and medium-sized enterprise segment, which accounted for more than 60% of the market in 2022. These companies can now use inventory management software to optimize storage and distribution operations and gain a competitive advantage.
3. System tips
One of the critical advantages of merchandise planning software is the ability to get tips and recommendations on optimizing a product category. The system can analyze data on sales, costs, prices, and other factors and recommend changes that can improve the category's performance. This allows specialists to focus on the strategic aspects of working with the assortment instead of constantly analyzing data and developing their recommendations.
The tips can cover the following aspects of assortment management:
- optimization of product mix;
- formation of assortment clusters, etc.
Due to this, category managers can implement category changes faster and more efficiently. This creates a potential environment for increasing sales and profitability.
In particular, among the specialized software for merchandise planning, only Assortment Performance can provide tips on what to change to improve financial performance, thereby making the work of a category manager more efficient.
4. Better adaptability to business needs
Merchandise planning solutions are designed with business needs in mind and can provide conclusions tailored to specific situations. For example, the system can suggest replenishment of a popular item that is selling out quickly or increasing inventory during a promotion.
In addition, category management automation solutions can be more flexible than BI systems. BI systems are usually suitable for general analytics and reporting but cannot always consider the specifics of the business and individual product categories. However, assortment automation can be customized to specific business needs and product categories, which ensures better adaptation to the company's requirements. For example, Assortment Performance is designed to meet different business specifics to offer solutions tailored to specific situations.
5. Less dependence on data quality
The actions of category managers significantly impact a company's financial performance. Therefore, the accuracy and reliability of the data on which decisions are based is critical. Merchandise planning software is based on algorithms that allow you to correct and clean data before using it, thereby reducing the impact of errors and inaccuracies.
As mentioned above, data quality is key in BI. Otherwise, the results will be too general or incorrect. Thus, the use of assortment automation systems reduces the dependence on data quality and allows category managers to implement more accurate and reliable decisions. In particular, Assortment Performance can correct and process data before it is used, which reduces the likelihood of erroneous analysis.
6. High level of efficiency
Automating category management with dedicated merchandise planning solutions helps category managers achieve high efficiency. This may include:
- automation of sales and inventory monitoring processes;
- demand forecasting, assortment optimization, and pricing decision-making support.
This creates the conditions for increasing sales and profits by better understanding and meeting customer needs. For example, businesses that have invested in demand forecasting technology have achieved 90% accuracy compared to manual forecasting, which is only 60% accurate.
BI systems can help analyze data, but they do not provide complete automation of category management. This means that category managers depend on complex and often inaccurate manual work, which can be time-consuming and demanding.
Automation of category management is a new level of merchandise planning that allows companies to use their assortment more efficiently, ensure high-quality data, and respond to customer needs.
BI helps category managers analyze data and understand what solutions can benefit the business. Merchandise planning software can provide complete automation of category management, which directly affects the increase in sales and profits. In addition, such systems are less dependent on data quality, as they are trained to correct and process information before use.
Both approaches have benefits and the best option depends on the business's specific needs. In some cases, it is more beneficial to use the systems together to gain a more complete picture and maximize efficiency.