Assortment analysis: identifying weak links
The Pareto principle says that 20% of the effort gives 80% of the result, and in relation to the assortment implies that the largest amount of profit (80%) comes from a fairly small group of products and customers (20%). Using the Pareto principle, all inventories can be divided into 3 main categories:
And - especially valuable goods, which make up 20% of stocks in a warehouse and form 80% of sales;
B - goods of average value, comprising 30% of stocks in a warehouse and 15% of sales;
C - the least valuable goods: 50% of stocks in a warehouse and 5% - sales.
Before applying Pareto principle to product categories, analyze sales at a point of sale. To do this, you need to divide all the parameters and resources that you encounter when working into groups according to the degree of importance and effectiveness. This is especially convenient with tables. To compile them, do the following:
Identify the ones that matter to your business objectsfor example, customers (regular, casual, wholesale customers, those who are looking for rare sizes or models, etc.), suppliers (seasonal shoes, exclusive shoes, discounted shoes, etc.), groups and subgroups of goods.
· Determine what parameters you will evaluate efficiency these objects for your store. This may be the volume of sales provided by this object, the total income earned from the object, the average inventory, the number of sales units per object, the number of orders from the object, etc. For example, you analyze sales and you see that a certain regular group of customers buys the entire size range of certain shoes every season, another group - only a few popular models, and another customer group is focused on a particular brand. Or, looking at the income earned, you see that from one group of goods profit is 3 times more than from another. Make several tables for each such object, and consider all its parameters in the table. The numbers may surprise you!
· Sort Objects in importance and profitability for your store. These tables will help to understand with whom cooperation is more effective. Do not forget to analyze the ratio of the tables to each other - this way you can find that, for example, a certain group of customers buys the entire size range each time, but this does not bring the highest percentage of profit due to the pricing policy. And some supplier doesn’t deliver the most popular models, but it is them who are guaranteed to buy regular customers: in this way, the products of this supplier practically do not form residues in the warehouse.
· After analyzing all the data, matching all the numbers and graphs, go to the definition priority product groups using the Pareto principle.
How exactly to apply the Pareto principle to the information obtained from the tables? As noted above, group A - these are the models and sizes that bring the main part of the profit, suppliers whose products diverge the fastest, and customers who provide most of the turnover. Therefore, in the final data, objects of this group are very easy to notice: these are the most popular models in the collection, the most popular sizes, shoes that most meet the demand of buyers and suppliers who offer just such products.
The goods of group A practically do not form residues in the warehouse, therefore also look for objects that are sold as quickly and fully as possible. In general, all the products you selected in this group will amount to no more than 20% of the total.
Next Popular Products group B form in comparative tables about 30%. These are objects that provide a good average level of sales - something that will most likely be sold out, but a certain number of pairs can get stuck in the warehouse: sandals will linger in the fall, and several pairs of boots will also stand in the spring.
Product group C they generate income less than others, but more often than others they turn into long-term stock balances. This is usually a specific product - amateur shoes, extreme sizes, exotic models. Such products also find their buyer, but this happens extremely slowly.
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