Unlocking Retail Profitability

vimals83
Oct 28, 2024
5 min read

Updated: Nov 1, 2024

The Power of Assortment Tables for Data-Driven Inventory Optimization

In today's competitive retail landscape, data-driven decision making is crucial to maximizing profitability and operational efficiency. For businesses in the B2B space, especially those in retail and supply chain management, effective inventory oversight is key to meeting customer demand while minimizing excess stock.

This is where Assortment Tables come in!

In this blog, we will explore how assortment tables can drive better business outcomes by explaining how they function.

The Role of Assortment Tables in Retail Management

An assortment table is a structured framework used to evaluate the performance of individual products across various levels. For retailers, distributors and wholesalers, this tool can provide valuable insights into inventory turnover, product profitability and stock management, which are critical for both sales growth and cost efficiency. Here’s how implementing an assortment table can transform your inventory strategy:

Key Benefits of an Assortment Table for B2B Companies:

Data-Driven Product Performance Evaluation: Track key performance indicators (KPIs) like sales, stock levels, turnover rates and gross margins for each product. This enables businesses to identify top selling items and slow-moving inventory, thus creating greater visibility upon how to adjust stock levels accordingly.
Demand Forecasting and Trend Analysis: Use historical sales data and market trends to forecast future demand more accurately. Identifying product demand trends can help B2B retailers predict market needs and allocate resources more effectively.
Informed Decision Making for Inventory Adjustments: Assortment tables highlight when to restock popular items, run promotions or offer discounts on underperforming products. These actionable insights help businesses maintain the right balance between demand and supply, ensuring that customer needs are met without accumulating excess stock.

Key Components of an Assortment Table

In the context of B2B and retail, an effective assortment table typically includes the following data points:

Location: Specifies the warehouse, retail outlet or distribution centre
Product: Details the individual products in stock
Forecasted Demand: Anticipated product demand based on historical data and market analysis
Actual Sales: The real-time sales data for a given period
Turnover Rate: A measure of how quickly products sell, highlighting fast and slow-moving items
Gross Margin: A key metric for profitability that calculates the profit made from each product
Stockout Occurrences: Tracks how often products go out of stock and the impact these occurrences have on customer satisfaction
Overstock Levels: Identifies instances where stock levels significantly exceed forecasted demand

Driving Efficiency with Turnover Rates

Inventory turnover rate is one of the most critical metrics in retail and wholesale inventory management. It determines how efficiently inventory is being cleared and replenished. High turnover rates indicate strong demand and suggest that products are selling well, while low turnover rates could signal excess stock or weak demand.

For instance:

High Turnover (>5): Signals strong product demand. In this case, increasing stock levels helps to avoid missed sales opportunities.
Moderate Turnover (3-5): Suggests steady sales. Regular restocking ensures product availability without the risk of overstocking.
Low Turnover (<3): Indicates slow-moving inventory. Here, businesses should consider markdowns or promotional efforts to stimulate demand.

B2B: Important Takeaways

For businesses in the B2B sector, managing large-scale inventories across multiple locations is a larger challenge. An assortment table can provide the clarity needed to make strategic decisions. Adopting this tool will allow for the same operational improvements that would take place for smaller retail businesses:

Maximized Profitability: By focusing on high-margin, fast-moving products, you can boost profitability while minimizing the risks associated with overstock and stockouts.
Enhanced Customer Satisfaction: Keeping the right products in stock ensures you meet customer demand without delays or missed sales opportunities.
Reduced Excess Inventory: By identifying slow-moving items, you can implement effective markdown strategies, promotions, or discontinuation plans to free up working capital and warehouse space.

Using the Assortment table:

Let's Talk Calculations

Turnover Rate:

As we mentioned earlier, turnover rate measures how quickly inventory is sold and replenished over a given period. A high turnover rate suggests that a product is selling well and inventory is being cycled through efficiently. Conversely, a low turnover rate may indicate slow-moving inventory, which can tie up capital and lead to overstock issues.

This formula shows how many times the current inventory is expected to be sold within a year, based on past sales data.

Gross Margin:

Overstock Levels:

If stock on hand exceeds forecasted demand significantly, it should be marked as ‘High.’

Stockout Occurrences:

The record of instances Stock on Hand reached zero during the given period.

Now, are we ready to observe the application of an assortment table?

Let’s go!

ASSORTMENT TABLES IN ACTION

A functional snapshot to demonstrate the utility of this data-driven tool.

Assume we are looking at a retail brand with locations in multiple cities. An assortment table provides the business’s operations team with a clear picture of which products are performing well and which products need attention.

Here is how the business may interpret the data:

Hoodies (Montreal): With a high turnover rate of 11.0, Hoodies are selling quickly. The business needs to increase stock levels to keep up with demand.
Classic Legging (Toronto): A moderate turnover rate of 6.33 suggests that the product is selling steadily, requiring regular replenishment to avoid stockouts.
Seamless Bra (Ottawa): A turnover rate of 2.8 indicates slow sales. Running a targeted promotion could boost demand and reduce excess stock.
Sweatpants (Vancouver): With a low turnover rate of 1.5, this product may need to be marked down in price to clear inventory and make room for more popular items.

Interpreting Turnover Rate and Action Required

1. High Turnover Rate (> 5):

Example: Hoodies (Turnover Rate: 11.0)

Interpretation: The product is selling quickly and inventory is turning over frequently. This is generally positive, indicating strong demand.

Action Required:
- Increase Stock—To avoid stockouts and capitalize on high demand, consider increasing the inventory levels. This ensures that you don't miss out on potential sales due to insufficient stock.

2. Moderate Turnover Rate (3 - 5):

Example: Classic Legging (Turnover Rate: 6.33)

Interpretation: The product is moving at a steady pace, aligning closely with expectations. It's neither too fast nor too slow.

Action Required:
- Replenish Stock—While the product is performing well, a moderate rate suggests a balance between demand and supply. Ensuring that inventory is restocked regularly will maintain this balance and prevent potential stockouts.

3. Low Turnover Rate (< 3):

Example: Seamless Bra (Turnover Rate: 2.8), Sweatpants (Turnover Rate: 1.5)

Interpretation: The product is selling slowly and inventory is moving sluggishly. This could indicate a lack of demand or overstocking.

Action Required:
- Promotion: For products like the Seamless Bra, where the turnover is low but demand is expected to grow slightly, running promotions can help increase sales and reduce excess inventory.
- Markdown: For products like Sweatpants with a low turnover and high overstock levels, markdowns may be necessary to clear out excess inventory, freeing up capital and space for faster-moving products.

[Case study concluded]

Let’s Review!

Assortment tables are an indispensable tool for retailers and wholesalers aiming to optimize their inventory strategy. By leveraging data to assess product performance, forecast demand and manage stock levels, businesses can enhance operational efficiency, improve profitability, and drive better customer outcomes.

Adopting this data-driven approach ensures companies stay ahead of market trends, respond proactively to demand fluctuations and maintain a competitive edge in the marketplace.

Are you ready to transform your inventory management strategy?

Are you ready to put your business data to work?

Start integrating assortment tables today to unlock new levels of efficiency!