In the previous articles, we talked about the Customer-Centric Business Strategy and how it influences the Supply Chain Management. The latter, depending on how we want to satisfy our customers based on the 3 Disciplines of value. With this base, we can establish four steps to follow to develop a successful Assortment Strategy.
For efficient inventory management, the assortment must be approached strategically. For this, a range of products must be established, which will be the level of availability that we hope to deliver and the tactics that we will adapt to meet the expectations of consumers. Below we give you our four steps to developing a successful Assortment Strategy
1 – Definition of Product Range
In the first place, it is necessary to determine the range of products and the role each group of products will play. On the one hand, there may be items that serve to attract new customers, while others for loyalty. Also, there may be essential items in the assortment that should always be available. This could mean that the consumer looks for it in the competition, thus losing purchase and possibly the customer.
2 – Stock Push and Stock Pull
Given the above, it is essential to define which products will be available in stock and which will be exclusively on demand. For example, in a retail multi-tienda could determine that microwave ovens are available in store, for the customer to take it immediately. While the refrigerators will not be physically accessible, so once the customer makes the purchase, direct delivery date from the warehouses or distribution center is “scheduled.”
In the case of the microwave oven, the article works under the logic of a stock push. This means that the stock is placed in the store according to the estimate of future demand. While in the case of the refrigerator, it works under the logic of a stock pull. In this case, it is the customer’s purchase that triggers a need and works “on demand.”
Stock Push: the stock is placed in the store according to the estimate of future demand.
Stock Pull: it is the customer’s purchase that triggers a need; it works “on demand.”
3 – Determine Level of Service
Another critical decision is the determination of the level of service that you want to deliver in each of the articles. For example, strategic items that can not be missing should have a high level of service. Those who have many substitutes may have a lower level of service. A class A article should have a higher level of service than one C. Articles with high variability will have a lower level of service than one with low variability (more stable). The company defines the dimensions to be considered to differentiate the assortment, and applying differentiated service levels is an excellent way to manage inventories.
Most of the time, commercial management establishes that you want a 100% level of service. This is to ensure that you can dispatch the units you have negotiated. However, we must always remember that the level of service has a very high financial impact, so this determination must be made considering both the commitment to customers and the business capabilities of maintaining inventory.
4 – Important Tactics
It is essential to consider the tactics that must be carried out to ensure the availability that we established our products. This point includes the selection of products, the search of the corresponding suppliers and the definitions of point of purchase and delivery time.
Our suppliers in China will have a total delivery time of one month and a half or two months, so our ability to react to a sudden market is minimal. We would have a too long time-to-market. Thus, it may be pertinent to have a second supplier, much closer and with a shorter delivery time. This is to have a higher reaction capacity if necessary, even though the purchase costs are higher. In the case of Class C products, it may not be required to resort to this strategy, as we would be willing to assume the inventory breakdown. But for essential products, it is always good to have conditions previously agreed with the “second” provider.
As you can see, defining an Assortment Strategy is essential when it comes to inventory management efficiently. This is because at this stage the basic framework is defined where other business decisions will be executed and which will mark a guide in the management of the supply chain.
How is the assortment strategy of your company?
Do they make a difference between push and pull stock?
How do they carry out the approach and differentiation of their assortment?
Do they have differentiated service levels?
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