OPC/U3 Topic 5 Fashion Industries Aggregate Planning
The selection of merchandise is a critical part of retail management. Assortment planning aims to ensure that an appropriate mix and quantity of retail inventory is stocked to meet customer demand. It involves gathering and evaluating historical data related to customer demand for various categories of goods to reduce inventory out-of-stock and overstock problems. The collaborative efforts of retailers and vendors assists in synchronizing the market orientation process in assortment planning for the garment or apparel industry.
Strategic Business Objectives
Strategic business objectives (SBO) play a key role in assortment planning. SBOs are the specific, measurable goals and objectives set by a business. This is developed at various levels within an organization and is generally tied to a clearly discernible target market. Market research related to an apparel retailer’s target market will impact the inventory selection process. Keep in mind that SBOs and product assortment planning also will be shaped by budgets.
Merchandising categories for the garment industry include basics, fashion basics and fashion. The procedures generally used for assortment planning differ between each category. For example, the “basics” category in ladies apparel might represent products with extended life cycle, such as a traditional black skirt. “Fashion basics” represents standard seasonal variations in color and fabric. The “fashion” category includes the newest designs and trends. The fashion basics and fashion categories typically have shorter demand windows.
The early process for assortment planning generally involves creating style placeholders, which are established within each product category to allow forecasting prior to the completion of final product specification. This defines the further assortment attributes that might be included, such as style, price points, sizes, colors, units and SKU counts.
Financial and sales reports provide a garment retailer with historical performance data segmented by product category that can be analyzed to identify historical, current and future trends. Analyze data variances, for example, based on historical sell-through data by category, to uncover order patterns and the fill rates for product categories. Retailers may also track gross margin, inventory turns and end-of-season excess inventory to assist in planning for effective inventory assortment.
Aggregate planning involves projecting market demand and evaluating production capacity to ensure that a firm is sufficiently equipped to meet demands for a given period. Production rates for a range of products or services are generally examined in the aggregate planning process, which also seeks to influence demand for overall outputs. Workforce size and financial resources are both key variables in this inventory management process.
The aggregate planning process, which compares market demand projections against existing and potential inventory capacity, uses basic tables, charts and other graphics aligned to data processing systems. These tools are used in aggregate planning to compare an assortment of alternative ways of achieving a company’s supply management goals. When using these types of informal methodologies alone, one disadvantage identified is that they might not provide the most optimum aggregate plan, according to Lin Pan and Brian H. Kleiner in their essay “Aggregate Planning Today.”
Mathematical techniques are used in the aggregate planning process. For example, production rates and human resource requirements might be evaluated as linear program problems. This involves choosing and expressing values for known and unknown variables, quantities to be minimized or maximized and constraints. One of the disadvantages with using mathematical techniques, such as the linear programming method, in aggregate planning is the assumption of determinism generally factored into its application.
Heuristic methods can accelerate the aggregate planning process based on the experience and knowledge of the planning team. Examples of heuristic techniques include making judgments based on past experience or using known industry best practices. It is used in aggregate planning because the process is driven by the organization’s decision-makers who draw upon their knowledge and experience. For example, the framework used for planning production might involve heuristic techniques to, in part, establish production ratios based on production management’s experience with specific inventory areas at varying production levels.
A firm’s budget significantly shapes estimates for production capacity. Generally, budgets are developed using factors that are also used in the aggregate planning process — for example, existing inventory levels and valuations, historical purchasing patterns and human resource production capabilities. Additionally, aggregate plans must operate within the constraints imposed by the revenue allocations earmarked for production of various products or services. In this sense, aggregate planning and preparing budgets are closely related business functions.