Аutomation of store assortment optimization: expectations and reality

  • Jun 19, 2023
  • 9 min read
Cover: Аutomation of store assortment optimization: expectations and reality

The topic of retail store assortment optimization is not losing its relevance. Each retailer solves this issue in their own way: some use Excel, others use accounting programs of varying complexity. However, not all retailers and manufacturers use a systematic approach. There are many reasons for this, including incorrect expectations of integration. Therefore, it is worth discussing issues related to the automation of assortment management in more depth and identifying the pitfalls that may arise when implementing such solutions.

When is it reasonable to implement automated solutions for store assortment optimization?

There are several reasons why the move towards automation is relevant.

This is necessary for both large and small retailers

It is believed that only large retailers need automation. But this is not the case. Smaller chains also have an impressive assortment. Sometimes, they can be as large as major companies in terms of the number of SKUs, and category managers spend a lot of time on routine processes. In fact, even companies with 5-8 stores have problems with forming and managing their assortment effectively. The same issues arise in chains with 300 stores. Therefore, any company that implements automation of assortment processes at the start of its operations gets an additional advantage to achieve success.

Failure to meet KPIs and incompatibility of financial indicators

A common problem is the failure to achieve key performance indicators. This can be the result of incorrect forecasting, which leads to overestimated plans. But more often it happens because of:

  • shortage or oversupply of goods;
  • unbalanced assortment matrix (when the goods in the store do not meet customers' needs);
  • lack of sufficient control at all stages of the business process, leading to an imbalance between demand and inventory.

KPIs of different chains vary depending on the type of retail and strategy. For example, indicators for a start-up category that is just developing and introducing a new assortment differ from KPIs for categories that have been operating in retail for 10 years.

However, the most common performance criteria are usually the same. These are, of course, sales, profit, turnover, and gross margin (%). Other indicators can also be used: the balance amount, write-off value, and others. Specialized automation tools allow not only tracking KPIs but also identifying problems in categories. Through data analysis, these tools are able to identify shortcomings that can lead to incompatibilities between demand and the available assortment, gaps in filling the assortment, or insufficient product selection. 

Additionally, such tools generate analytical reports and provide data visualization, which helps to better understand the state of the assortment and identify trends. This allows category managers to focus on key problem segments, make informed decisions about assortment planning, and optimize procurement and promotion.

There is a need to identify problems quickly

Category managers spend a lot of time dealing with various challenges, such as an overall sales decline in a category. Any problem needs to be analyzed, as well as the causes and the relationship between them and the consequences. This makes it difficult to react in time.

Automation helps to avoid such "detective investigations" because it allows category managers to receive information about problems in a timely manner and respond to market needs immediately. This is a new level of analytics that allows you to quickly identify problems and make informed decisions, instead of wasting time reviewing and analyzing Excel files with thousands of items.

Lack of a management system: methodologies for planning and controlling data

This is a fairly common problem, as many companies use standard classifiers and SKU data. But the thing is that they do not answer the question of what specific products should be active in individual stores/formats/clusters/regions of large chains with different suppliers and other factors. The planning methodology can be useful if you can agree with suppliers on the basic positions once a year or six months. 

However, controlling compliance with these conditions and entry restrictions (e.g., no ordering of SKUs that should not be in a given store or cluster) and monitoring data performance remain problematic. Let's assume that a retail chain includes stores of different formats (e.g., hypermarkets, supermarkets, convenience stores) operating in different regional markets. In the absence of a management system, the company may face difficulties in planning and controlling the assortment in each individual store. This will lead to a loss of potential sales.

Automation of assortment management will solve these problems by implementing a system that provides more accurate planning, control, and monitoring of data performance. This will allow you to maintain the optimal assortment in each store, taking into account specific conditions and factors.

Specialists have to rely on intuition 

Many decisions in category management and retail are made on an intuitive level. Specialists often face urgent tasks that need to be answered "right away." But a category manager is a human being, not a computer, that can quickly process large data volumes. 

Therefore, it is worth automating this part of the process to instantly receive specific arguments for an informed choice.

Manual tracking of demand and assortment changes

There is a fairly common opinion among managers: "We have reports and even external services that allow us to analyze data. We think we have our finger on the pulse." However, in this case, we are again talking about a manual approach: when a manager reviews analytics only when they have the motivation or time.

An assortment management system should be more than just switching statuses between SKUs and analytics that can be viewed or ignored. We are talking about a more systematic automated approach. For example, LEAFIO Assortment Performance offers automatic insights and tips that give specialists specific tasks to track factors - even those that have not been paid attention to before: for example, changes in competitors, the presence of analogues, demand in other business niches, etc.

Category managers spend a lot of time on routine tasks

This is a common problem. And, as a rule, they don't have enough time for strategic issues. Specialists are usually responsible for many different aspects. By solving routine tasks and looking for problems in analytical reports, managers really lose time and do not have additional resources to address important issues. But you can automate this process and create a product that will take care of all the routine and allow you to focus on strategic directions and decisions.

Expectations and reality in store assortment management automation

Here are the most common myths, statements, and expectations that prevent retailers and manufacturers from making a decision to automate store assortment optimization processes.

Expectations: "If we install the most advanced assortment management system, it will be able to do almost all the work of a category manager."

Reality: This is not a completely correct opinion because a balance is needed. The company needs to find its niche and have unique positions that distinguish it from other players in the market. The assortment will never be fully automated. The system will remain a smart tool in the hands of a professional category manager. It is worth noting that the store's assortment meets a certain demand in the market and reflects the aspirations of customers. And full automation can lead to copying solutions from other chains. Therefore, only a category manager who has a deep knowledge of the product, all its details and has a tool that will help him do it effectively can create an excellent assortment.

Expectations: "Process automation is only implemented to reduce staff."

Reality: We want to disprove this myth (or even the fear of category managers), as the introduction of automation is aimed at strengthening the competencies of a specialist, increasing sales, improving overall performance and regularly achieving certain KPIs.

Automation in retail is implemented to improve efficiency and optimize processes, not to replace staff. Its main goal is to free category managers from routine tasks and allow them to devote more time and attention to strategic issues, data analysis, and informed decision-making. In addition, automation helps to implement best practices, standards, and optimal processes, which contributes to increased efficiency and achievement of goals.

Expectations: "No one will do a better job than a category manager using the tools they are used to."

Reality: This is only one side of the coin in the issue of maximum automation. It is worth returning to the previous points where the issue of a reasonable balance was mentioned. It is important to understand that processes are evolving, new solutions are emerging, and it is impossible to ignore them. For example, many people observe the hype around ChatGPT and other AI-based models and have different opinions on their adoption.

However, artificial intelligence does provide new opportunities. It's like exploring space. There are many interesting things out there that complement or even replace traditional tools. However, this does not mean that it is a magic box into which you can just upload data and it will "do everything by itself." 

In fact, the system only helps category managers to move to a new level of management by providing valuable hints and recommendations that no tool can do.

Thus, automation provides category managers with additional capabilities and tools that make their work easier and more efficient when making strategic decisions.

Expectations: "New products are very difficult to implement and learn. They are difficult to use."

Reality: There is a common belief that implementing and adopting new products is always a difficult task, as they often have an incomprehensible interface and require unusual actions to achieve the desired results.

However, in today's environment, this is a false impression. 

LEAFIO Assortment Performance, for example, is intuitive and easy to use: even novice category managers can easily understand what they need to do to achieve their goals:

  1. The interface and functionality are designed with users in mind, allowing them to master the system quickly and easily.
  2. Processes are automated to ensure maximum usability.
  3. The navigation system is well organized and intuitive

Expectations: "Automation solutions always come at a high price."

Reality: At the beginning of the implementation, it may seem that solutions for automating store assortment optimization are very expensive. However, it is worth considering this in the context of long-term benefits.

We are talking about effective planning, inventory optimization, improved demand forecasting accuracy, reduced product wastage, and improved ordering and delivery processes. As a result, the company can save money, increase sales, and improve overall business efficiency. There are solutions on the market with different price points. Retailers can find options that meet their needs and budget.

That is why we have chosen the principle of flexible pricing. LEAFIO Assortment Performance is a cloud-based solution, and its cost depends on the size of the network and the amount of data. Thanks to its implementation, companies are able to effectively analyze data, perform strategic planning of assortments and product categories. This helps to increase sales, improve customer service, and maintain the company's reputation.

Final thoughts

Automation of category management processes in retail is a necessary step to effectively optimize assortment and achieve competitive advantage. In today's market environment, where competition is growing and consumer demands are changing, manual category management is becoming an insufficient and disorganized process. Automation allows retailers to optimize data analysis, demand forecasting, inventory management, and provide accurate information about the existing assortment and its updates. This increases efficiency, reduces costs and risks, and allows them to respond quickly to changes in market conditions and meet customer needs.

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