Well, put simply inventory modelling in planograms is a data-driven approach to optimising product placement and space allocation. When applied to planograms, this approach allows you to create planograms that aligns with consumer demand, minimises storage costs, and ensures efficient restocking processes. By comparing the actual inventory quantity on the shelf to a calculated target inventory in the planogram, you can determine which products are adequately stocked.
Reduced Out of Stocks and Overstocks:
By aligning planograms with accurate demand forecasts, retailers can significantly reduce instances of stockouts or excess inventory. This leads to improved customer satisfaction, as products are consistently available, and operational costs are minimised.
Enhanced Space Utilisation:
Inventory modelling helps retailers make data-driven decisions about how to allocate on-shelf space. This results in an optimised planogram that maximises the use of available space, creating an organised and visually appealing planogram.
Cost Efficiency:
Efficient inventory management directly impacts a retailer's cost structure. By minimising excess inventory and avoiding out of stocks, retailers can reduce holding costs and potential markdowns, contributing to increased profitability.
Seasonal Variation:
Adjusting the planogram to account for seasonal variations in product demand ensures that seasonal items are prominently featured and still in stock during relevant times.
Improved Customer Experience:
A well-designed planogram, backed by inventory modelling, creates a positive shopping experience for customers. Products are readily available, and the planogram is logical and easy to navigate, enhancing customer satisfaction and loyalty.
There are two primary inventory models frequently used by retailers:
Days’ Supply:
This inventory model ensures you have enough product units on shelf for a specified number of days of unit movement. The model divides the unit movement value (average number of units sold per store per week) by the demand period (usually 7 days) to determine the necessary supply for one day, then multiplies that value by the specified Days’ Supply value to determine the target inventory value.
For example, a product that sells on average 28 units per store week, the calculation would be:
28 units sold per week / 7day demand period = 4 units sold on average per day
4 x target of 3 days required on shelf = Target Inventory of 12 units
Case Multiple:
This inventory model calculates a target inventory value that represents the minimum numbers of cases of a product that must exist on a planogram. The target inventory value for each product is calculated by multiplying the specified number of cases required on the shelf by the number of units in the case.
For example, for a product that has 12 units in a case, the software calculation would be:
12 units in a case * 2 cases needed on shelf
= Target Inventory of 24 units on the shelf
It’s important that Brands understand the retailer inventory model settings as they will likely differ by retailer and by category.
The most popular option is to display an ‘unders and overs’ highlight. Most retailers will be looking at this highlight before the planogram goes live in store. If there is a product understocked, then the planogram will need to be corrected before being issued to stores. The highlight compares the target inventory and actual inventory on shelf, then highlights products that are overstocked (On Shelf Inventory>Target Inventory) red or under-stocked (Target Inventory>On Shelf Inventory) green.
When using this method, you specify the percentages of acceptable overstock and under-stock for products. Products with higher overstock or under-stock than the specified percentages are highlighted on the planogram. For example, you can use this method to highlight positions overstocked by more than 5% or under-stocked by more than 10%.
An example of the output from the Blue Yonder Space Planning software incorporating a label showing the actual number of units on shelf:
Red = understocked by at least 10% versus the target inventory
Green = overstocked by at least 10% versus the target inventory
White = bang on!
In more recent versions of Blue Yonder’s Space Planning, the highlight can be shown with product images displayed:
In our experience, not sufficiently well enough. Brands can submit planograms to retailers with beautiful brand blocking and awesome adjacencies, but if inventory modelling is not incorporated or even acknowledged, then the credibility of the planogram is greatly reduced. After all, what use is a planogram if products will be out of stock within a few hours?
The barriers for brands to use inventory modelling are often genuine however, most principally not having access to relevant data. The basic requirement is the availability of rate of sale data (number of units sold per store, per week) otherwise known as ‘Unit Movement’ in planogram software. If this is available, even at a total market or total retailer level, then daily demand can be calculated and analysed in the planogram software.
JDH Solutions is a Blue Yonder space and category management partner company, utilising the market leading Space Planning software. We understand the importance of inventory modelling in planograms and can help brands understand how to:
- Import the relevant data
- Configure inventory models
- Analyse over and under stocking
- Amend and optimise the planogram
Get in touch, we’d love to hear from you!