Time for change: when retailers need to automate assortment management

  • Nov 7, 2023
  • 12 min read
Cover: Time for change: when retailers need to automate assortment management

Retail is like a living organism. It is in a constant flux of change and improvement. Many processes that are taking place are stimulated by external factors: various changing trends, fluctuations in customer demand, and the actions of competitors. However, there are a plethora of problems that can hinder the successful evolution of a company. Among the first to come up are issues concerning the work with goods. Let's take a look at the situations that indicate that a retailer should consider implementing assortment management software.

No well-tuned business process for the product life cycle

Typically, internal ERP systems are limited in their assortment management capabilities, offering only two basic statuses for products: "active" and "inactive". The binary choice does not take into account the various stages of the product life cycle and the company's internal processes.In addition, even if category managers can make limited adjustments to these choices , it makes their work only slightly easier. It is still their responsibility to manage each individual stage of the product life cycle.

LEAFIO solved this problem by creating a customized list of statuses. It reflects the full range of stages of the product life cycle and the business processes associated with them. The list can be easily expanded and adapted to the unique needs of each retailer. Such an approach provides greater flexibility and efficiency in assortment management, and takes into account the actual processes within the company.

For example, one of the possible statuses is "New". It  means that the product has recently been launched on the market and has not yet fully met the company's expectations. The following business processes can be applied to it:

  1. Discounts and promotions to raise awareness of the product among consumers.
  2. Additional quality control to identify and eliminate possible defects.
  3. Quick response to customer feedback to make necessary adjustments to the product or create a marketing campaign.

The "New" status can affect the following processes in Inventory Optimization and Shelf Efficiency:

  • replenishment may be limited to avoid overstocking;
  • more favorable shelf placement may be selected to attract attention.

Rapid network scaling

If a retailer is looking to increase turnover and coverage, it is important to keep in mind that it will challenge assortment management processes in new ways: 

  • an increase in the number of outlets will result in the need to adapt the assortment in accordance with local demand, offers from local suppliers, and seasonal fluctuations;
  • scaling processes need to be synchronized with a uniform increase in inventory to avoid shortages or excessive balances;
  • a quick response to fluctuations in demand and changes in the competitive environment bringing high-quality and timely data analysis is required since the last thing the company needs is to turn into a “clumsy giant” that is slow to respond to changing trends;
  • logistics and interaction with suppliers need to be optimized to ensure the availability of products at all points of sale;
  • the assortment has to be adapted to increase sales and margins and to achieve that you must be able to analyze performance data in different stores: both general data and per product.

Additional challenges: optimal shelf space use, increasing competitiveness, and developing new product categories.

Any scaling is more efficiently implemented with a system that supports growth without losing the quality of customer service. LEAFIO platform solutions allow you to automate inventory management processes, optimize logistics, warehouse management, and improve customer service.

A study conducted by the McKinsey Global Institute showed that about 50% of retail activities can be automated with the help of modern large-scale technologies. What’s more, the freed-up resources can be invested in development.

Missing assortment matrix

Using Excel to work with categories and SKUs of the network or missing centralized assortment management completely leads to the following problems:

  • the number of errors goes up as the assortment becomes vulnerable to the "human factor", inaccurate data or incorrect decisions;
  • inability to respond in a timely manner to problems such as shortages or unsold stock;
  • loss of opportunities to optimize the assortment and adapt to changes in consumer demand;
  • incorrect procurement budget allocation leading to insufficient quantities of products or funds frozen in inventory;
  • decrease in margins, turnover, and customer satisfaction.

A properly constructed assortment matrix makes it easier to identify profitable and unprofitable products, tailor the offer to the current needs of consumers, create pricing strategies, plan inventory, and remove or add products to the assortment. 

The use of the assortment management system makes it possible to improve the accuracy and efficiency of the assortment matrix. In particular, it is possible to centrally store, process, and update data on the entire assortment, identify trends, analyze profitability, and predict demand. The system will help to determine the optimal number of SKUs in each segment of the assortment matrix, offer products for withdrawal and introduction, and track the effectiveness of each product as well as the category as a whole.

No category management strategy

Category managers who work without a clear plan often make mistakes, which leads to a lack of category growth drivers and the lack of products that are relevant to the target audience or to overstocking. 

Storing unpopular products for a long time reduces their margins. Plus, the absence of a strategy for working with the assortment forces managers to react to current market challenges instead of actively managing the assortment and forecasting demand. Such reactive decision-making ultimately results in a shortage of popular products, lower sales, and customer dissatisfaction.

Using an assortment management system allows you to build your own strategy and monitor its implementation. In particular, LEAFIO helps to:

  • identify popular products and consumer needs based on analytical data;
  • form a product assortment to meet demand and achieve KPIs;
  • show volumes and fullness by the number of SKUs;
  • track the implementation of the strategy and adjust it in time;
  • evaluate the effectiveness of the strategy in terms of the retailer's achievement of the required business indicators.

Assortment localization difficulties 

If all outlets of the chain have the same assortment that does not take into account local demand, you can expect: 

  • a drop in sales since the assortment in at least some outlets is bound to not meet the expectations of the target audience; 
  • accumulation of overstock in some stores and margin loss ;
  • shortages of products popular in a particular location due to insufficient quantities purchased.

These problems are not something  single-store owners need to worry about: customer preferences in practice can be understood in a short while, but even small scale businesses require periodic and timely rotation of the assortment to meet the challenges of new trends and products.

For a chain of stores located in different parts of the city or in different regions of the same country, there may be a substantial variation in demand for specific products. Therefore, the assortment will differ in terms of content, price, depth, and other criteria. The typical strategy  to solve this problem is to divide stores into groups, e.g., economy, middle class, luxury, etc. However, that’s not always the most effective approach. The performance of each category is often highly variable and the same store could, for example, be part of one cluster in the alcoholic beverage category and a completely different cluster when it comes to confectionery. Managing the assortment manually then becomes nearly impossible.

The clustering function of the LEAFIO assortment management system allows you to divide stores into clusters based on various factors, including geographic location, demand for goods of certain categories, store capacity, and others. As a result:

  • a localized assortment that meets the specific needs of the customers can be developed for each cluster;
  • management is simplified, as managers need to analyze and optimize the assortment for a limited number of clusters only, and not for each store separately;
  • a localized assortment helps to increase sales because the products better meet the needs of local customers. It is possible to plan purchases efficiently, and satisfied customers will remain loyal to their favorite outlets.

Limited assortment and problems with data-driven decision-making

If the assortment does not take into account the diversity of consumer preferences and market trends, it will cause customer dissatisfaction and loss of sales.

Retailers who make decisions based solely on intuition, established relationships with suppliers, or historical data may also face the problem of unbalanced assortments and declining sales. The lack of an analytical approach to assortment management will eventually lead to a mismatch between market needs and the business strategy.

The solution to the problem will be the use of software with analytical capabilities for category management, which provides the following benefits:

  • the ability to analyze large amounts of data and identify trends that may be invisible to humans. This allows you to understand which products or categories are popular and identify possible areas for improvement;
  • generate detailed reports on the state of the assortment, including sales figures, data on popular products, profitability analysis, etc. All this information forms the the basis for making informed decisions;
  • real-time operation, which allows you to respond quickly to changes in demand in market conditions;
  • assistance in optimizing the assortment, including removing products that have lost demand and adding promising products;
  • increase sales due to an accurate and balanced assortment.

Customers leave for competitors with a more attractive product mix

Fundamental changes in the category management strategy are at the heart of the solution to an outflow of customers to competitors with a more attractive product range. When making changes, you should consider all the competitive advantages, and market demand, and pay attention to the following factors: 

  1. Your assortment strategy. Take a close look at whether it is still working for you and whether it meets the needs of your business. Even if it seems like it does at the moment, you still need to review it regularly, keeping in mind new category segments. They must be added to keep up with trends.
  2. Product mix. Add or remove categories and products. You should experiment and try new products. This will allow you to follow trends and gain new customers who will expect to always find something new in the store.
  3. Analyze the work with suppliers. There are various situations when a supplier cannot provide the price you need or does not meet your needs. In such cases, you should look for alternatives: for example, new brands or your own brand.
  4. Set up personalization. Using analytical data on purchases and behavior, you need to determine what products are interesting to each group of customers and create individual recommendations for them.
  5. Analyze competitors. Study the strategy and assortment of other retailers in the niche to understand how they attract customers. Create your own advantages.
  6. Monitor the results. Constantly track customer reactions to assortment changes. Use tools to collect feedback. Respond promptly to current needs..

There is a need to identify problems as quickly as possible

If assortment management processes are not automated, category managers have to spend a lot of working time solving problems: for example, looking for reasons for declining sales of products in a category. This means that specialists need to analyze the situation, identify the causes and link them to the consequences. While such an "investigation" is underway, valuable time is lost.

That's why the introduction of automation tools, such as LEAFIO Assortment Performance, makes it possible to receive timely data on problems and respond to them immediately.

Assortment management is carried out only through the BI system

Using Business Intelligence (BI) systems alone for assortment management can lead to certain limitations and disadvantages. These should be taken into account when making decisions about changes in product categories. 

More specifically, these are:

  • limited number of data and variables, which makes it difficult to see the "big picture";
  • dependence on data quality, which carries risks of unreliable or irrelevant results;
  • the need to train category managers to fully utilize BI systems. The result depends on the users' competency;
  • the need to integrate BI with other systems (e.g., warehouse or production management), which in some cases causes difficulties.

To overcome these disadvantages, it is recommended to consider a comprehensive approach to assortment management, not just assortment analysis, as is the case with BI systems. For example, LEAFIO can generate more accurate and informative reports and analyzes.

Assortment performance

Assortment management optimizes product selection for success.

Does size really matter? 

There is a common belief in the market that assortment management automation is only relevant for large retailers. However, the fact is that even chains with five outlets can face problems in assortment planning, just like retailers with hundreds of stores. Therefore, the introduction of tools for managing assortment processes is relevant for any company where category managers have to spend precious hours on routine processes.

Both large and small chains face the same problem – pressure on margins due to competition and other external factors. Most retailers have already exhausted traditional means of reducing costs. A study showed that retail grocery chains face margin pressure in the range of 100–150 basis points, and department stores – from 350 to 500 basis points. Implementing a comprehensive automation program can generate up to 500 basis points of additional margin that can be reinvested in scaling.

Implementation of assortment management software is an important step for retailers to solve current problems. It helps specialists to obtain information based on reliable data, automate processes, and facilitates strategic planning and assortment optimization. In the end, it is important to choose the right software that meets the specific needs and goals of the company. Investments in proper staff training and change management are also important.

Trying to fix all the issues and perfect the system can sometimes feel like playing whack-a-mole. It is very challenging to get it all done alone. At LEAFIO, we understand this and with more than 180 successful projects under our belt we know how to make the process of implementing a new system simple, transparent, and efficient. Book a consultation with our specialists and let’s talk. 

Stay informed - Sign up for our newsletter!

Join our mailing list to receive a monthly digest of our most valuable resources.