An Introduction to Assortment Optimisation
Fri Nov 15 2024
Author
Alok Joshi
What is Assortment Planning?
Assortment planning is the process of selecting the products a retailer or business offers to its customers. It involves deciding which products to stock, in what quantities, and how frequently to refresh the selection.
Optimisation - Getting it Right
The importance of assortment planning lies in its direct impact on sales, customer satisfaction, and operational costs. A well-planned assortment ensures that customers can find what they want, boosting sales and loyalty. It also helps avoid overstocking, reducing markdowns and freeing up cash flow.
Why is it so Hard
Assortment planning is incredibly complex. A large retailer could face hundreds of millions of potential product-location combinations, making it infeasible for humans to determine the optimal assortment. Each decision must consider local preferences, market trends, store layouts, promotional strategies, pricing tactics, and supply chain constraints. Even more so when planning for store specific ranging. This presents challenges on not just picking the right range for the customer demographic served at the store, but also calculating the profitability and feasibility of your network to be able to handle great stock availability.
Furthermore, how the products are laid out and displayed on the shelves adds another thick layer of complexity. And add in the integration for omnichannel experience, finding the range that can be executable seamlessly from online to store can be a challenge.
And this is just assortment! Combine this with trying to forecast the impact of your product range change to upstream and downstream processes like promotion planning and replenishment, you can quickly get yourself into analysis paralysis - how do you decide what is best holistically?
Where AI can Help
AI can handle massive data volumes to uncover patterns and insights, and scale efficiently across multiple locations and product lines, finding the optimal choice to make while reducing unnecessary manual guess work. With a data-driven yet human-in-the-loop approach, AI enhances decision-making without losing the valuable input of human expertise. Additionally, AI can simulate scenarios before implementation, allowing businesses to test strategies and ensure optimal outcomes before going live. These capabilities make AI a powerful tool for driving smarter, more adaptable assortment decisions.
Landscape of Assortment Planning
When an organisation recognises the need for an assortment planning solution, there is then the key decision on how to get there. The four main methods commonly observed are:
Manual
Many organisations continue to rely on manual assortment planning methods, using spreadsheets or guesswork. While this might suffice for very small retailers, it becomes problematic at a moderate scale, leading to poor outcomes such as overstocking, missed sales, and disappointed customers. Not to mention the significant effort needed from the team.
Build
A number of organisations have leveraged an internal data science team to build their own assortment planning solution, with varying degrees of success. While building intellectual property internally is a benefit, challenges often arise in fully operationalising the system as a mission-critical application, and the total cost of ownership can significantly accumulate. It can also be challenging to find the right talent to deliver.
Get help Building
Seeking external assistance can be crucial for successfully implementing an assortment planning solution that delivers real value. Leveraging the expertise of those experienced in this area, who understand the science, business processes, and operational methods, can accelerate and reduce risks in the delivery process.
Buy
There are a number of off-the-shelf products that plan assortments and can accelerate the time to value. The trick here is to select the one that is truly accurate for the business, has a seamless implementation effort, leverages modern machine learning, and is configurable to capture the nuance of your business and your customers.
Which option to choose depends on your circumstances and business situation, priorities and capabilities. If you need assistance in getting AI to optimise your assortment planning, reach out to us on info@jahan.ai, or check out our assortment and space planner page for more information.
At jahan.ai, we build AI twins for retail and supply chain businesses. These AI twins go beyond traditional digital twins, which are virtual replicas of business processes. They not only mirror these processes but also use AI to automatically optimise decision-making, helping businesses boost efficiency and go beyond their potential.