What is Inventory Modelling in Planograms?

Simply put, inventory modelling in planograms is a data-driven methodology for optimising product placement and space allocation. When applied to planograms, this approach enables the creation of layouts that align with consumer demand, minimize storage expenses, and facilitate efficient restocking. By comparing actual on-shelf inventory to a calculated target in the planogram, businesses can precisely determine which products are adequately stocked and which require attention.

Benefits of Integrating Inventory Modelling into Planograms

Incorporating inventory modelling into planograms offers significant advantages for both retailers and brands:

• Reduced  Out-of-Stocks and Overstocks: By aligning planograms with accurate demand forecasts, retailers can substantially decrease instances of product stockouts and excess inventory. This leads to enhanced customer satisfaction due to consistent product availability and minimises costs.
• Enhanced Space Utilisation: Inventory modelling empowers retailers to make data-driven decisions regarding on-shelf space allocation. This results in optimised planograms that maximize the use of available space, creating organized and visually appealing displays.
• Cost Efficiency: Effective inventory management directly impacts a retailer's cost structure. Minimising excess inventory and preventing out-of-stocks helps reduce holding costs and potential markdowns, thereby contributing to increased profitability.
• Adaptation to Seasonal Variation: Adjusting the planogram to account for seasonal fluctuations in product demand ensures that seasonal items are prominently featured and remain in stock during their relevant periods.
• Improved Customer Experience: A well-designed planogram, supported by inventory modelling, cultivates a positive shopping experience for customers.  Products are readily available, and the planogram is logical and intuitive to navigate, ultimately enhancing customer satisfaction and loyalty.

Understanding and leveraging inventory modelling within planograms is no longer just an advantage - it's a strategic necessity for retailers aiming for operational excellence and brands striving to meet consumer needs effectively.

How do Inventory Models work in planogram software?

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

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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

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It’s important that Brands understand the retailer inventory model settings as they will likely differ by retailer and by category.

What options exist in the planogram software to analyse inventory models?

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:

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‍Red = understocked by at least 10% versus the target inventory

Green = overstocked by at least 10% versus the target inventory

White = bang on!

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In more recent versions of Blue Yonder’s Space Planning, the highlight can be shown with product images displayed:

Do Brands Truly Grasp theImportance of Inventory Modelling in Planograms?

In our experience, brands often don't sufficiently grasp the crucial role inventory modelling plays in planograms. A planogram might feature impeccable brand blocking and excellent adjacencies, but if it doesn't integrate or even acknowledge inventory modelling, its credibility is significantly diminished. After all, what good is a planogram if the products will be out of stock within a few hours?

The barriers preventing brands from incorporating inventory modelling are often genuine, primarily stemming from a lack of access to relevant data. The fundamental requirement is rate of sale data (the number of units sold per store, per week), often referred to as "Unit Movement" in planogram software. If this data is accessible, even at a total market or total retailer level, it enables the calculation and analysis of daily demand directly within the planogram.

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‍What next?  How can JDH Solutions help?

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!

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