The techniques used to assess performance include Data Envelopment Analysis combined with Multi-Stage Efficiency Models.
The efficiency of the allocation process is measured by looking at the impact on,
a) Desirable outcome: Reduce lost sales, improve sell-through and
b) Undesirable Outcome: Unsold Inventory
We chose to share two hidden levers which impact sell-through
Hidden Lever #1
One of the key actions that have a significant impact on the outcomes (a) and (b) is “INITIAL ALLOCATION”.At this point, you may answer this question.
What is your current initial allocation policy?
If you do not have one, it is time to think and put one in place. In one of the case studies, the brand had an initial allocation policy of 80% of the inventory and 20% kept in the distribution centre for replenishment.
After running the models, it was observed the brand had an optimal efficiency at initial allocation of 30-40% at the chain level.
Note: This optimal level is dependent on what the data tells about your distribution and demand patterns. This is not one size fit all.
Hidden Lever #2
Deep research on whether sell-through as a metric in itself a representative of the performance of products and what variables impact this metric, reveals that taking the sell-through metric without consideration of fixed attributes like store size will draw one to wrong conclusions.
In other words, sell-through has a high dependence on store attributes like store size. While deriving insights for allocation and planning, it is important that sell-through numbers are considered after neutralising attributes like store size before taking action. Monitoring these dimensions dynamically and using them in operational decisions will be critical to ongoing effectiveness. These attribute dependencies could vary for your business conditions.
What this means is challenging the metrics in themselves (asking questions on current practices) takes us to a new level of performance (potential).
This is what we keeping at Stylumia and sell-through is a key metric that we focus on improving for all our customers. Our approach is holistic addressing all the macros components of what to design? what to buy? how much to buy? and where to distribute?
In order to address these questions, we have been constantly working on and impacting global brands for them to continuously enhance their performance. We have captured all our solutions at this point of time in an infographic below.