Improving merchandising efficiency by creating unique planograms

In this article, you will find out what is a unique planogram, how to create one and why it will beсome very beneficial for your company. 

What is a unique planogram

A planogram is a product arrangement plan on retail equipment, which store workers are using to arrange the product on the shelves. Planograms help plan the inventory and price policy, optimize the orders and the remaining products, as well as increase the overall profit. It is important to consider the following data when creating a planogram:

• Sales;
• Shelf space;
• Warehouse inventory balances;
• Turnover;
• Product characteristics (color, packaging type, size).

There are various types of planograms, but let’s talk first about the unique and individual planograms. These are plans that are developed for a particular store by considering its unique characteristics. This kind of planogram describes product position and reflects the general factors and particularities of each retail point. It is different for every store and considers various influence factors for each retail location. These particularities can be divided into two types:

1. Macro factors. Cultural, demographic, geographic, social, weather conditions, legislation and so on. 
2. Micro factors. Sales, logistics, inventory policy, warehouse capacity, size of the retail equipment, the amount of shelf space for each category, product arrangement rules for various brands and other factors for each individual retail point. 

If you consider all the details, you can create an efficient arrangement at each store and thus increase the profitability of the entire network. 

Problems of creating unique planograms

All aspects affect the formation of planograms and, accordingly, differ at each retail point. However, in large retail chains, the problem of the speed of creation and the implementation timeframes of planograms for a particular retail point is becoming urgent. 

Creating such diagrams in a graphical editor or Excel spreadsheets is time-consuming and inefficient. Such tools do not allow calculating the available shelf space in terms of width, height and depth, taking into account sales data, or adding the current inventory. This is a complex task that requires a lot of resources, and the result is difficult to predict. Retailers are now trying to automate such operations and use a specialized software solution for merchandising.

Another challenge is to accurately implement the planogram. Not all companies use tools for task management in merchandising. Therefore, even a well-thought-out arrangement planogram may not be implemented due to various reasons: an error, a lack of human resources at the store, the information not received in time, etc.

An example of a planogram, created using the LEAFIO MERCHANDISING system

How to create unique planograms automatically 

Nowadays, it is difficult to imagine the operations of a retail chain without vast digitization of the majority of business processes. When it comes to merchandising, it is essential to organize the synergy of the accounting system, algorithms for generating efficient planograms, a control function and analytical tools. At the same time, it is important to work with numerous employees at different locations. It is necessary to freely exchange information between the central office and the locations.

Basic automation level requires at least the minimum amount of data about the goods: name, dimensions (width, height, depth). If you have this data, you can calculate how much inventory fits on the shelf. And the more digitized the information, the better the outcomes of algorithm performance. Additional data can include: product category, status in the inventory matrix, brand, manufacturer, price, cost price, daily sales, remainder, and so on.

Not all data factors are static. Many inputs are dynamic and the system needs to receive and process them promptly. Here are some of the main functions that are important in any system for constructing unique planograms:

• downloading sales data global sales data from the accounting system;
• processing the incoming data;
• calculating shelf space according to sales data;
• creating zones and blocks based on product characteristics and sales ratings;
• distributing the order and direction of blocks according to the product characteristics and the sales rates;
• creating tasks based on the changes;
• keeping track of execution time;
• monitoring the actualization of tasks;
• analyzing the operation of the store and fulfillment of the planograms;
• visual analysis: hot and cold zones on the floor plan and planograms, ABC analysis of the floor plan and planograms;
• dashboard for important indicators of merchandising;
• reporting on indicators of stores and networks: equipment, tasks, return per meter, sales per meter.

After implementing the automation systems, companies significantly reduce the use of resources and increase the efficiency of the merchandising operations. The main advantages of automation of unique planograms creation are:

Speed - the system is digital, that’s why all information is uploaded and processed instantly. It is where the planograms are stored, and any changes to the data in the context of stores and goods are promptly displayed in each planogram.

Control - the software will not let the store miss any tasks; the task tracking system ensures compliance with the store plan.

Analytics - knowing the quantity and position of inventory on the shelf allows you to see accurate figures and make the right decisions for your business.

The analytics of the layout helps adhere to the principles of planograms: rational use of shelf space, attractiveness and accessibility for the buyer

Efficiency indicators of unique planograms 

The approach to organizing the merchandising of individual planograms allows taking into account the peculiarities of each store when planning the layout of the floor and the planograms themselves. Analysis of indicators for each outlet and the planogram allows to:

• make quick decisions;
• increase product turns;
• increase sales;
• increase gross margin;
• optimize shelf space.

In merchandising, performance indicators are calculated by considering the sales and the amount of space occupied by a product. This makes it possible to determine the ratings of each product and establish causal relationships in case of a drop or an increase in sales in unique planograms.

Profit per meter. This indicator is calculated as the ratio of the profit for the period to the occupied territory.

Cost per meter. This indicator is calculated as the ratio of the total net cost of goods for the period to the number of the occupied territory.

Turnover per meter. This indicator is calculated as the ratio of the turnover for the period to the occupied territory.

Profit per meter is an important characteristic of the planogram, which helps to understand and analyze the effectiveness of the layout.

Analysis of indicators helps understand which goods generate traffic (turnover/m) and which are the most profitable (profit/m). The net cost/m shows the cost of goods per meter of retail space, that is, how much money is frozen in the inventory. This data helps optimize the planogram structure and make operational and strategic decisions.

The return on profit ratio is an important indicator that helps understand the need to expand and reduce the goods on the shelf, depending on the profit of the inventory. It is the ratio of the profit share to the share of the place occupied by the product in the category:

Return on profit = Share in profit% / Share in width%

The ideal coefficient is one (the coefficient of return on profit = 1) and if we see any deviations, it means that there is a need to make a decision:

>1 - increase facing, expand the category;

<1 - decrease facing, decrease the category.

Since this indicator will only be effective for individual planograms, it makes sense to monitor it on an ongoing basis. The automated system does it quickly and efficiently in the form of graphs and diagrams in a dashboard. It is obvious that the indicator helps make operational decisions on shelf optimization and increases the profitability of every centimeter of retail space.

A clean warehouse is something every store strives for. Ideally, there is no stock in the warehouse, but at the same time, the shelves are not empty. In order to have a “clean warehouse”, it is necessary to order products taking into account the lead time, the amount of space for storing the goods, as well as shelf space and the daily rate of goods turnover. It is easy to get the lead time data from the supplier. Storage space and shelf space must be calculated using the formula:

Stock = Facing x * Facing y * Facing z 

Therefore, you need to know the exact width, depth and height of the product. Only a specialized merchandising automation program can provide this data. If you account for this indicator, you will easily develop a clean warehouse system. The store will never be overstocked or out of stock.

Related: Pharmacy Merchandising: 5 Rules to Increase Sales

Dead goods are a common problem for retail chains. To understand whether you have it, you need to compare three types of data:

• information in the planogram;
• availability in the active inventory;
• availability in the remainder.

If the product is not present in the planogram or in the inventory, but it is in the remainder, it's dead stock. If you monitor this regularly, it will significantly reduce your costs. Dead products can lay around the store for months until they lose marketability and value due to inflation and the cost of warehouse storage. Not only does it not make any profit, but it also takes up space. Dead stock can potentially waste company resources when they are forced to organize a sale, ship it back or recycle it. This must be regularly tracked and monitored, not by the employees, but by a smart unified accounting system.

In the modern world, information changes constantly. Businesses have to adapt as quickly as possible. So process digitization is a necessity. Merchandising automation enables competitive advantages for retailers. In particular:

1. Flexibility, speed of adaptation and mobility.
2. It helps reduce the waste of human and time resources.
3. It helps maintain high planogram standards and make better and quicker decisions by relying on quality analytics.
4. And most importantly - it increases the profit of every centimeter of shelf space in the retail chain.