Assortment Optimization is a powerful tool. It can help increase profit and improve customer experience and loyalty. Assortment optimization combines cutting-edge machine learning techniques, an agile continuous improvement methodology, and flexible customization to accommodate unique business requirements. Like other related supply chain and inventory 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. Product attributes can include size, item color, or package quantity. One example is a box of 12-pack snack cakes. As much as shoppers may have strong brand loyalty, having a 12-pack box of any brand snack cakes in stock is sometimes more important than stocking the preferred brand with the wrong quantity.
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. For example, 4R’s Assortment Optimization Solution provides 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, it provides 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 but would likely result in more sales if they were in stock. Whitespace forecasts have helped retailers substantially increase sales by adding SKUs they didn’t know their customers wanted.
Understanding demand at an attribute level allows us to be able to make recommendations for new products that will sell well in certain stores. For example, our system recommended that one of our clients stock a certain type of car wax in some locations, even though it already offered several varieties. 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 primarily 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 ongoing need and should be a continuous process. 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 rare that a brand 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 manage and monitor all the store and cluster level assortments on a continuous basis.
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Together, we can help you find the optimal assortments for your locations. Contact us today at email@example.com to get started.