Managing assortment vs. managing availability

There are two types of assortments that differ by their basic message to the potential client:

  1. Whatever you truly need we have in stock or can produce it for you.
  2. We offer an attractive assortment for you to choose from.

Rows Of Beautiful Women's Shoes On Store Shelves

Generally speaking the first one applies to products whose main value is a practical need.  The clients are assumed to know a-priori their exact needs.

The second one, with the emphasis on ‘choice’, is for potential clients who enjoy browsing and is based on the value of ‘pleasure’.  The reader is advised to read my post on The Categories of Value.

The difference in the type of value lends itself to different logistics.  In the first type managing availability is critical to sales.  A shortage means the right product for a specific client is missing, leaving the client either to choose the second best or go elsewhere.

The second type, which is fashion, books, music, art and similar products is focused on clients spending significant amount of time browsing, which already creates value for them.  While sometimes clients might have a good idea what they look for (like the last book of Grisham), most of the clients enter the store wishing to be exposed to an assortment out of which they might choose one or more items.

This characteristic impacts the replenishment procedure.  A sale of an item should invoke replenishment, but not necessarily of the same item.  An assortment of fashion requires frequent changes.  It seems logical that when a certain design generates high or stable demand, the same item should be replenished.  However, when there is no evidence for special wide appeal of an item, then maybe it is a good idea to replenish the item with a different item?

I assume that creating an attractive assortment is an ‘art’, based on intuition and it is difficult to come up with clear guidelines.  Most of the items within the same assortment have to appeal to a certain market segment in order to attract the browsing that eventually leads to sales.  Sometimes one client even buys several items of an assortment just because he/she likes them and deciding upon only one is tough.  This never happens in selling products for practical needs.

So, the choice of the items is a key for the success of an assortment. There should be a certain common taste through the whole assortment, but also providing variety to create pleasure during the browsing.

Another factor is the size of the assortment.  How many similar, yet different, items can a store display as one assortment, which is effective in attracting potential clients?

An assortment of fashion goods might be too large.  Browsing for too long might cause the client to give up.  It is a known effect that too high variety attracts people to browse, but, actual sales are low.  Certainly too small assortments definitely reduce sales.

How should we decide upon the size of an assortment?

The TOC generic directive is to start with a guess and then check signals whether the initial assessment is too large or too small.  Such a signal can be the rate of clients entering the store that go to the specific assortment. Another is how much time on average is spent there.  When the time is short, it might signal disappointment, which could be due to general taste or that the assortment is too small.  Very long average time indicates too large assortment, which could be validated by checking the ratio of sales to the number of clients browsing.  All that information has to be collected.  Sporadic observations in a week could provide good enough signals whether to re-evaluate the size and content of the assortment.

The distribution of sales of different items within the assortment is another signal, but it is not straight-forward.  When the tail of the distribution, the sales of the slow-movers, is pretty long then a possible cause is that the assortment is too large.  However, providing variety is an important factor for attracting clients even when most clients eventually choose only few specific items.  Different types of assortments might have different lengths of effective tails which are required for the pleasure of browsing.  Testing the effectiveness by carefully dropping several slow-movers and realize the resulting impact on sales of the whole assortment is absolutely necessary.

Managing assortments is linked to managing availability and creates several challenging dilemmas.   Many products/designs are offered in several sizes.  As long as the design is to be kept as a part of the assortment, we should keep availability of all sizes.  However, when there is a decision to discontinue that design, then the whole design should NOT be replenished.  It opens the question what to do with the remaining items of that design?  My own recommendation is to carry the remaining items to another spot and sell it cheaply, without any commitment to availability.

The idea of maintaining a certain size of the assortment means that when you add a new design you take out an existing one and vice-versa, when a specific design is taken out there has to be a new design ready to move in.  This means having to manage a buffer of new designs waiting for an opportunity to enter the assortment at a specific store.  These buffers have to be managed through buffer-management to ensure there are never shortages of new designs, and there are never too many new designs waiting for the opportunity to be displayed and sold at a store.

The more generic point is the need to find practical and effective ways to combine human intuition with systematic analysis supported by software.  I have seen that need, combining intuition and hard analysis, when I developed the decision-support the TOC Way (DSTOC) as an expansion of Throughput Accounting.  As you can see the need to combine intuition with logical systematic analysis does not stop there.

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Published by

Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

13 thoughts on “Managing assortment vs. managing availability”

  1. Hi Eli!

    In order to check the right size of assortment (and other issues), is not easier launch each collection or group of new products in some pilot stores in order to learn for a while… and then quickly launch them in all the stores with the main lessons learned?

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  2. Alfonso, you can check in a pilot store variables that you believe do not depend much on the location of the store and its overall size. I generally agree to your point that the result of a test can be used by other stores. At least it gives a better initial guess, but I think the store managers should still watch to see the effectiveness of the assortment for the specific store and type of collection. Eventually every store should have generic guesses for various types of collections, but also look for feedbacks on top of the sales data.

    Collections are usually understood as having a start and end date for the whole collection. Zara developed a somewhat more dynamic model of collections where individual items change all the time. I wonder whether this model should not be more widely used. Even if you stick to the periodical/seasonal idea of collections then you can prepare wide collection to be able to replace some slow items with other designs without changing the whole collection.

    Any policy about the collections has an impact on the logistics. You always like to keep the fast movers as long as they sell well, and for that you need very fast production and transport lead-time to ensure availability, which is critical for them. For the rest of the items, availability is less critical, as long as you have something else to replace the item/design.

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    1. I agree with you, Eli. I have referred as collection or “group of new products” for that reason. The both ideas (pilot stores + stores manager´s monitoring) can be implemented together, but I “feel” it is more difficult that store managers spend their time in this activity… but it is posible. We will check in two clients…

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      1. Hi Alfonso, nice to meet you! I am from Brazil.

        I am conducting research on MTA and that is why i am contacting with people who work with TOC in practice. My intention is to conduct research in the future with companies which applying TOC in operations management.

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  3. Hi Schragenheim!

    Analysis should be by person with a good intuition and sensibility. In some cases the software is not sufficient. Therefore, the quality of the decision can depend of person that are analysing. I notice that not all people have hability to analyse, even with the software to support and a big experience. For me, this can be a restriction which is difficult to be found and broken. I spent by this situation recently.

    What do you think about this?

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  4. Robson, eventually the future of any organization is limited by the capabilities, skills and capacity of top management. I believe that learning TOC improves the analysis skill of any manager. Still this is a definite constraint to the flow of initiatives to improve the performance in the future.
    Software is never sufficient. Sometimes, not always, it is truly necessary. I’m proud to be a co-writer to Goldratt Necessary but Not Sufficient (also with Carol Ptak).

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  5. Hi Eli,
    I have (and still do) faced this issue and the best solution encountered so far is to work on a “new models” or “fashion” buffer. An accumulation of products that are being evaluated to see if they are fast movers or not. If they are they should be taken out of this buffer and given SKU buffers to each, otherwise they should not be re-purchased. Now in this case there are still some interesting points to solve: 1. how to buy more “fashion” buffer items. 2. how to accelerate the flow of “fashion” items in the stores.
    In the question number 1 my experience has been to dedicate a big portion of the new purchases to known and visible patterns of demand (like the better performing categories, for instance) and a smaller, but still relevant portion of the purchases to pure experimentation (by design NOT guided by the recent past performance). This allows the demand to shape new offerings, but not to completely choke the renovation of new offerings.
    In the question number 2 there is a crucial obstacle: non-fast movers by definition sell slowly and therefore linger longer in the system. Here two facts are crucial: first the non-fast mover in one store might (with relatively good chances) sell well in other store. These are the “beta” products and they are the majority of the mix. Swapping product among stores is a good strategy as long as the logistics support this. And second there are products that sell poorly almost in every store (gammas), these should be liquidated as soon as it is safe to classify them as such. In a recent case we estimate that selling these products at a loss of 20% (negative Throughput) would recuperate the loss in less that 3 months if reinvested on new products and allow for positive throughput generation in then new products.
    Cheers,

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  6. Humberto, you add to the post the aspect of managing a central warehouse supporting a number of stores, which allows for moving items between stores and also testing the chances of an item to be fast mover.

    In the post I have tried to raise the issue of the assortment, rather than treating every item as an independent entity. The first point is the size of an assortment, realizing there is an unknown number of items that is just right, where the combination of items attracts potential customers and also pushes them to buy.
    The content of the assortment, on top of the overall size, is meaningful, but it is difficult to give clear guiding rules. As you have mentioned testing the potential demand at one store and use it for more stores, let me ask you this:

    How many potential fast movers you like to have in one assortment?

    Suppose we have model X that has a potential of selling 10,000 units in one store, and now we spot another model Y with similar demand. What would be the total sales of both displayed at the same assortment at the same time? My assumption is: less than 20,000, because buyers of X might hesitate to buy also Y (some might, but not everyone). If we could offer them in different stores, or at different times, maybe we have a chance to sell 20,000.

    It is the good characteristic of fashion that a client who comes in to buy one might by more. However, there is a practical limit to that, which means there is a certain competition between X and Y, both potential fast-movers. Somehow we have to be aware of that. This is where intuition is truly precious. We can only make people note the dependencies, but we don’t have the strict rules.

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  7. Hi Eli,

    In Italy very often retailers have seasonal collections with no additional available inventory during the season period. When we tell them they lose sales when they stock out on some sku’s, the customary reply is that this is not a mandatory outcome since very often the customer will switch to a different color of the same model. That is exactly the reason for the abundant color variations they produce in each collection. In a way they say they produce and sell assortments of the kind you have been describing in your post.
    When this fashion retailer allowed us to experiment with additional inventory available on top of the store forecasted consumption we discovered that a minority of the skus experienced an explosive consumption, that is sales jumped to 300%, 400% and sometimes 500% of the forecasted consumption (the quantity the store would have received without the additional availability). It seems that in this case we are looking not at the pleasure of browsing but rather at the need to own the color and size of garment that has become a fashion must for a part of the clients of that retailer (how else to explain that exceptional consumption?).
    With these items the problem is then providing availability rather then hitting the right browsing mix. Of course we do not know a priori what items will experience that behavior, we need to monitor sales and organize a fast supply channel for the early and important stock-outs.
    The idea then is that a fashion collection is really composed of two parts, one we can call the browsing part and the other the must-have part. The must have part of the collection is dependent on the commitment for availability. Do you agree with this view ?

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  8. Carlo, sorry for the slow response. Yes, I agree that there are must-have items. Regular must-have usually have constant demand and those are known a-priory.
    What about items that somehow become very popular? There is valid way to identify those items ahead of time. So, the only way is to have a supply-chain mechanism, could be twice more expensive per item, to replenish the high-demand items. The advantage is that when you replenish those items you have very high convictions that they would be sold at the premium price.
    The fear from establishing such an expensive, but fast response, ability to replenish the star items, is very high. It could be good to demonstrate the financials of the existing scenario, where much of the items are sold for reduced price.

    I assume the claim that when an item is missing browsing would cause the buyer to buy something else is partially right. Question is: how much of the sales are still lost? Even this could be checked – we can try that the most optimistic view is that only 30% of the potential sales for the star-items are lost and then check the financials when that number is 60%.

    Simulating various scenarios lies in the core of Throughput Economics. It leads to better understanding of the whole picture. Eventually management needs to make a decision.

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