Assortment planning in an unstable demand environment

What opportunities and limitations does the transition from a traditional rigid planning system to a new flexible planning and fashion assortment management system conceal? In this article, Galina Kravchenko, a permanent expert on fashion trends and assortment management issues, talks about current assortment management technologies.

Galina Kravchenko -

expert in fashion assortment management, business consultant, specializes in the development/purchase of commercial collections of clothing and footwear, adaptation of commercial trends, formalization of style DNA, category management of assortment in various sales channels (offline, online, marketplaces, wholesale). https://t.me/galina_krav

In the turbulent situation of the fashion market, the accuracy of sales forecasts is minimal and, as a result, problems arise with planning purchases. That is, already at the planning stage, the risks of excess balances are obvious if actual sales do not correspond to sales plans.

The hottest questions in procurement today are:

• how not to “re-buy” so as not to create excess balances;
• how to quickly respond to demand with changes in the model range.

Both of these issues are resolved by the transition to a more flexible assortment planning and purchasing system by reducing the share of long-term order placement and increasing the share of operational assortment planning.

In buying practice, three assortment planning systems are used:

•  Hard system - fixing plans and budgets for production / purchases for a full season (6 months) without the possibility of additional changes less than 5-6 months before the start of sales. That is, as planned, and should be purchased / produced;

•  Flexible system - fractional order, in parts. Takes into account the possibility of making changes in the period less than 5 months before the start of sales in the assortment plan, production plans, purchase / production budget, etc. That is, they drew up a plan, but closer to the season they adjusted it and, with a positive dynamics of sales, made an additional purchase;

• System hybrid assortment planning implies the presence of a part of an order / assortment that is fixed for the season and a part of an order / assortment that changes less than 3-5 months before the start of sales.

In a situation of volatile demand, the risk of residuals can be reduced by combining the following methods:

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• rigid (long) planning for minimum sales (covering costs or a stable level of minimum sales);
• flexible (short) planning with positive dynamics of current sales higher than the indicator inherent in the rigid planning model. This can be either an additional order of individual articles with high dynamics, or an increase in the order of all categories.

In the realities of changing demand, a hybrid planning system is the safest, as it helps to optimize many performance indicators. Thus, the amount of investments and the period of freezing of working capital is reduced, and gross profit and balances are optimized. Buyers can make more accurate calculations of inventory purchases and model range selection.

Also, the hybrid scheduling system implies other possibilities for the retailer:

• an increase in the frequency of orders;
• lineup adjustments within the season;
• additional order / production of models in demand;
• model range testing;
• small order for 1 article (1 dimensional grid and / or sample sizes).

But not everything is as rosy as it might seem at first glance. This flexible assortment planning system has limitations:

• possible shortage, absence of a consignment of goods in the supplier's warehouse if you wish to re-purchase;
• seasonal factor, it is not advisable to buy additional models in active seasonal demand if they arrive at the store after 2 or more weeks, when sales activity decreases;
• business size: when working in various sales channels and a collection size of 200-300 articles, it is impossible to completely abandon long planning, but you can bring some articles under a short planning time.

How is it painless to switch to a hybrid scheduling system?

Solution for manufacturers and wholesalers:

• not 2, but 4 or more periods of orders per year;
• offer of individual models and / or drops closer to the sales season, which are combined with those ordered earlier;
• offering new articles based on the best-selling pads;
• formation of a model range, taking into account the understanding of the risk of the formation of residues in retail;
• free warehouse for sorting goods.

Solution for retail buyers:

• selection of local Russian companies for purchases with a warehouse close to the sales region;
• expanding the pool of suppliers for the possibility of operational additional purchases within the season;
• adding new off-season product categories - such as bags, belts, accessories, etc., so that they can be easily purchased without being tied to the sales season.

The transition to a hybrid, more flexible assortment planning and management system implies changes in business processes for both wholesale / manufacturing companies and retailers. First of all, this is a change in IT solutions (software, reports) for assortment management. It is important to quickly see statistics on the complete classifier of product characteristics in the context of all sales channels.

Further, assortment management techniques are also being improved, since hybrid planning implies an accurate identification of the reasons for the hit or failure of a certain article and understanding the risk criteria for a differentiated order for an article.

Manufacturers should be able to quickly replenish stocks of materials and accessories in accordance with new demanded models. And the most important is the focus on the competencies in the assortment for every proposal and every purchase. That is, understanding the most profitable categories and characteristics: types of assortment, model design features, heel height and format, materials, colors, price range.

Despite the need for a total restructuring of processes for managing not only the assortment, but also practically all company processes (presentations, sales, logistics, production cycle, etc.), the industry is unambiguously changing the benchmark in terms of the length of assortment planning from a rigid system of 1,5 years -1 year to more flexible - up to 6 months.