Advanced Planning and Optimization Part 4: Assortment Planning

10/7/2009

Introduction: Advanced Planning addresses the major functions supporting retail merchandising activities. An overview of these Advanced Planning functions was given in our first article and they are shown below with today's topic highlighted.



The Retail Environment Today
Consumers and retailers alike are facing a severe economic downturn. This economic situation has forced consumers to change their buying habits. Customers are buying less, focusing on essential items, buying closer to need and emphasizing price. Localized assortments and customer-centric merchandising driven by good assortment plans, is seen as the way to address the problems being faced today.

Although retailers have begun to recognize the importance of Assortment Planning, the execution is hindered by various internal problems. There is often a lack of necessary support tools (e.g. Store Planning, Store Clustering etc.) and the key functions are often not integrated (e.g. financial plans, assortment plans etc.). Without good support tools labor intensive processes result and buying often takes place without a defined strategy or plan in place. Finally, there is often a lack of process definition as well as adequate resources to address the tasks at hand.

Definition and Purpose
Assortment Planning is the development of chain, store cluster and store level product attributes, styles, colors and SKUs that provide a basis for addressing localized customer preference, customer demand, store space as well as store characteristics.

The purpose of a good assortment plan is as follows:

- Enhance the company image while following and executing the merchandise strategy.
- Quickly and efficiently address the changes in customer demand and buying habits.
- Address competition and the specialization that has occurred in retailing.
- Manage inventory around customer need by considering the assortment breadth, depth, quantities and timing.

Assortment Planning Process and Methods
As we start to apply new methods and automation to Assortment Planning, we need a sound business process first. In considering the process, various different Assortment Planning approaches are possible based on company characteristics and requirements. These characteristics or requirements which need to be considered include: 

- Types of Merchandise: e.g. fashion vs basic, imports and private label, seasonal items etc. 
- Store Characteristics: e.g. large vs small, varying layouts; climate considerations etc.
- Purchasing Considerations: e.g. long vs. short lead times, early commitments etc. 
- Customer Demographics: e.g. ethnicity; income level; fashion preference, customer type etc. 
- Merchandise Strategy: e.g. look, variety, image to be maintained, approach to value and pricing, vendor programs, promotional philosophy etc.
- Merchandise Attributes: e.g. pattern, fabric, brand, price point, etc.
- Assortment Definition: e.g. breadth vs depth, no of styles/SKUs by store cluster etc.
- Key Timeframes/Seasons: e.g. mini-seasons such as back-to-school or holiday, catalogs; promo cycles etc.

The key process functions are described below:

- Business Review and Analysis - the first step in process development is to review historical performance, define trends/forecasts and apply these results to future planning. Contribution analysis and mix management also serve as a basis for new assortments. 
- Merchandise Strategy - the assortment plan is driven by the merchandise strategy that defines the look, variety, image, pricing philosophy and value proposition. The strategy should consider the type of items such as fashion, basic, replenishment, imports, private label, key items, seasonal etc. Carryover, discontinued and new items will be defined along with the keep/add/drop criteria for basic merchandise. 
- Assortment Definition and Guidelines - The assortment definition provides the number of styles/options/SKUs by store cluster as well as the breakdown by product attribute. The assortment financial targets based on the merchandise plan are then established. The numerical guidelines for the assortment plan are now set, such as merchandise mix %, number of required attributes, fashion vs basic %, number of key items, import vs domestic % etc. 
- Assortment Planning: Quantities and Flow - the Style/SKU quantities (e.g. receipts) by cluster are defined including breakdowns by key attribute such as color/size. Item lifecycle plans over time are defined with special attention to key items. A reconciliation of the bottom-up assortment plan to the financial targets is performed. Plans are then reviewed and revised as necessary.
- Assortment Planning: Item Information and Characteristics - the assortment plan also includes item information (e.g. style no., style description, item no. etc.), vendor information (e.g. vendor no., vendor name, vendor characteristics etc.) and merchandise characteristics/attributes (e.g. color, size, patter, fabric, model no., etc.). 
- Product Procurement/Buying - the final step in the Assortment Planning process is the product procurement or buying. The output of the assortment plan (items, quantities and characteristics) becomes the shopping list and input to the purchase order. In addition the assortment plan supports other buying-vendor activities such as market trips, vendor catalogs, vendor visits etc.

In addition to the key process functions defined above, there are several support functions needed for assortment plan development including: Merchandise Planning, Store Planning and Store Clustering. .These functions were discussed in previous articles. The assortment plan also serves as input to the Allocation function. The initial allocation quantities are based on the initial assortment plan for the season.

Organization and Timing
Assortment Planning requires a team approach with planners and merchants working together. In some cases, the Planners will develop the financial targets, assortment definition and the plan quantities while the Buyers will maintain responsibility for the product selection. Alternatively, the Planners may only develop the financial targets while the Buyers maintain responsibility for assortment definition, assortment quantities and product selection.

The timeframe for all activities must be defined. The plans can be developed on a seasonal, monthly or weekly basis and are often defined according to the assortment seasons referred to as mini-seasons (e.g. back-to-school, holiday etc.). Assortment plans are often driven by various events (such as Mothers Day, Fathers Day etc.) as well as promotional plans and schedules.

Automated Support and Interfaces
Assortment Planning requires new special purpose systems to support the process and methods defined. The system considers automation to address the following: 
- Maintaining history to support review and analysis.
- Developing assortment definition and assortment strategy.
- Developing the unit assortment plans.
- Addressing the breakdown of the assortment plan by key attributes.
- Creating and updating plans with flexible seasons and timeframes.
- Reconciling assortment plans to financial targets.
- Providing review and revision capabilities.

Assortment Planning systems are supported by Business Analysis, Merchandise/Financial Planning, Store Planning and Store Clustering systems as well as Forecasting/Trending capabilities.

Summary and Benefits
Assortment Planning supports localized customer-centric merchandise assortments based on customer need and changing buying habits. Assortment Planning addresses the no. of styles/SKUs needed and then considers the unit assortment quantities by store cluster. The plans consider merchandise attributes as well as item and vendor product information. The plan also provides lifecycle item management over time. The figure below shows the interaction of Assortment Planning with the other Advanced Planning processes.


Note: The development of assortment plans is performed in conjunction with Space Planning. However, our next article in November will consider Space Planning. Also, early versions of assortment plans can support the product development process which we have not covered in this article.

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