Assortment Optimization is a powerful tool for retailers to increase profit and improve customer experience and loyalty. It combines cutting-edge machine learning techniques, an agile continuous improvement methodology, and flexible customization to accommodate unique business requirements. Like other related solutions, assortment optimization utilizes machine learning techniques and AI to find the optimal assortment for every SKU in each store location. However, assortment optimization offers other unique benefits.
What Makes Assortment Optimization Different?
1. Assortment Optimization is attribute driven.
This means that it doesn’t really look at inventory the same as other solutions, because it focuses on attributes. This allows retailers to step back and view inventory more holistically based on true demand and unique market conditions for each store at every location. It also helps reveal what information is important to customers by looking at their buying habits based on product characteristics.
2. Assortment Optimization is Operationally Focused
Another key benefit of assortment optimization is that it is operationally focused. At 4R, we provide the ability to review the optimization recommendations and to slice and dice the results to understand what the recommended in-store assortment might look like. Additionally, we provide the ability to modify the assortment in real-time to understand the impact on both inventory and overall financial benefits.
3. Assortment Optimization Provides Whitespace Forecasts
Assortment optimization is unique in that it provides whitespace (or meta-SKU) forecasts. Whitespace refers to the process of identifying opportunities for products (or a combination of attributes) that are not currently sold anywhere in the chain. Understanding demand at an attribute level allows us to be able to make recommendations for new products that will sell well in certain stores. Our system recommended that one of our clients try a certain type of car wax in some locations. Shortly after testing it, the client began regularly stocking this product due to the level of demand that was there. Had this recommendation never been made, the client may not have realized the opportunity and thus would have never gained the missed sales as a result of not carrying this product.
Is Assortment Optimization a Part of Other Solutions?
While other inventory, forecasting, and demand planning solutions are beneficial, they don’t consider assortment by default. Some are focused on finding the right levels of inventory more than what kind of inventory should be carried. Assortment optimization is typically an add-on module that is not part of other main solutions.
Unlike other solutions, assortment optimization isn’t very concerned with overstock situations. Assortment Optimization is all about stocking the “right” items and is not necessarily focused on depth. Assortment optimization really helps retailers nail down what to carry based on actual data.
Since businesses, consumers, and market conditions are dynamic, assortment is not a one and done solution. Meaning, retailers can’t simply find an optimal assortment once and then stick with that for years. Finding the right assortment is an on-going need. This makes sense when you realize how often new products are added to the mix, when new competitors enter the same space, and how technology continues to influence consumer shopping patterns and behavior. It is very rare that a retailer has a perfect assortment. It is also very difficult and almost impossible to manually manage large SKU and store combinations. Doing this would require a large number of people and resources on a regular basis. Assortment optimization solutions help retailers manage and monitor all the store and cluster level assortments on a continuous basis.
Marsha Shapiro | SVP Product Management
Marsha Shapiro is responsible for the strategy and design of the 4R Systems Product Suite. She has over 20 years of retail software design and implementation experience managing the entire product lifecycle using an agile framework. Marsha has held executive positions with…
Read more about Marsha here.