Space Management aims to provide the right products in the right quantity at the right place on a limited sales area. The motivation behind: A shelf allocation at the point-of-sale only works well if it is very well planned and justified and revised regularly.
Trade marketing is perhaps the most underestimated strategic element of retail. Providing the right goods in the right quantity at the right place is crucial for sales and earnings and thus for the success of retail companies. The design and evaluation of shelf planning is correspondingly important.
This is where Space Management comes in, as an evidence-based strategy for POS planning.
Everything should be made as simple as possible – but not simpler. (Albert Einstein)
Space Management is an overall strategy for resource management in trade marketing with several components and process steps. A space management system should implement this overall strategy – as simple as possible, but without simplifying it.
The main function of a space management system – and often the first motivation – is the planning of shelves. What exactly is a shelf, what product data do you need, how flexible can the structure of a point-of-sale be and how do you get the products on the shelf? What other goals can and should be pursued in space management?
Many interests meet at the point of sale: industry companies want to sell their products, retailers want to generate sales, and consumers wish their demand to be satisfied with an adequate range of goods.
A number of boundary conditions take effect:
- The shelf space is limited, both in terms of the outlet area for a product group and in terms of the stockable fixtures on the rack.
- The shelving system, the fixtures and their dimensions are largely fixed.
- Individual displays and fixtures may enter the equation.
- Products have defined dimensions and geometries.
- The products of a product group should be placed on the shelf in an appropriate arrangement and quantity.
- The shelves are stocked with new goods at fixed points in time.
- The shelf stock should avoid short selling (out-of-stock).
- Products can be placed and stacked on shelves, hung in pegboards and on hooks and presented loosely in baskets and chutes.
In shelf planning, a virtual rack is first assembled from typical shelf components and product carrying fixtures, while a list of products contains master data and product geometry data. Articles may be selected from this list: individually, in groups or according to some custom selection criteria. The rack planning software will then use assembly and arrangement algorithms to position the articles on the rack’s fixtures.
The planning of racks and shelves pursues various objectives: generate sales and profits, show supplier competence in the category and serve customer demand. These are the objectives of marketing, financial success and logistics. Valuation procedures based on key figures are applied to the existing shelf planning and provide information on how well the various goals are achieved with the shelf.
In the first approach, this scoring makes the quality of shelf stock transparent. By making specific changes to the shelf allocation, the scoring of the shelf can be improved to obtain a good, a better or an optimal shelf.
The shelf planning needs to be communicated to the following instances: to in-house departments (sales, marketing, and furnishing planning), to field service, sales representatives and furnishers as well as to the trading partner. In any case, the aim is the application-oriented documentation of shelf planning.
Documentation is provided in graphical form, as lists and tables, as Excel worksheets, in PDF format or as an export to other software.
Digitalization, generally discussed under the term Industry 4.0, is progressing in all areas and is not stopping at trade either. The dynamics of interaction between manufacturers, retailers, service providers and consumers will confront many companies with new challenges in the future.
E-commerce in particular is forcing us to rethink and develop new concepts in the stationary specialist and retail trade. But the ability of companies to integrate data-driven business processes and exchange semantic-analytical information is also becoming a key competitive factor, beyond the effects of purely increasing efficiency and reducing costs.
The allocation of space at the point of sale is known to be the permanent competition of articles for the occupied shelf space, with the obvious aim of optimising the overall performance of the shelf space and inventory management. The data becoming available as part of a Retail 4.0 strategy is the ideal basis for customer-centric restructuring decisions – for the shelves, but also for the entire store area of outlets and branches.
This means the inclusion of the fourth dimension, the time, in planning of shelf space occupancy. By observing the shelf over time, the continuous improvement of product presentation and area performance can be achieved by adapting to analytically determined customer interests. This requires systems that implement versioned and historicized data storage.
Fast decision making together with appropriate implementation at the point of sale is possible if
- the communication channels between manufacturers and retailers are established and clearly defined
- the data exchange processes are highly integrated and multi-level manual procedures are eliminated
- the shelf planning tool can integrate performance indicators and supports version comparisons and historical planning data
- the shelf planning tool can forward its results in graphical, tabular and digitally integrated form and automatically triggers exports and subsequent business processes in other systems.
Space Management acts in the area of tension between
- Space and quantity: The available shelf space is limited, products cannot be placed on the shelf in arbitrary quantity. The space required by products does not correlate with their retail margins; the products have a space-specific value.
- Sales and capital: The sales target in retail stores depends entirely on the articles and quantities on the shelves. The total sales value is tied up as capital in the stock quantities on the shelves.
- Supply and demand: Only what you make available on the shelves can be sold. Actual sale is the only reliable source for customer demand.
- Time and space: The longer the delivery period, the more storage space is needed for the stocked items in the stores. Delivery and handling costs are reduced while the capital costs increase.
- Competence and profit: Putting just the most profitable articles on the shelves is not an advantageous option, because dependencies and supplier competence requirements stand in the way.
These conflicts cannot be solved at the merchandise resource planning level alone, since the available space must always be taken into account. It is not possible to just derive the optimum shelf layout from logistical and financial information; the geometry of shelves, fixtures and products has a considerable impact on the performance of the point-of-sale.
XPace follows a 4-question (4Q) strategy to achieve these goals:
4Q Strategy: What – How much – Where – Why
Here, the What describes which articles are to be placed on the shelf, How much determines the inventory quantities used, Where determines where the products are hung, placed or poured, and the Why gives reasons for each of these decisions.
XPace Space Management is used to
- bring products and fixtures together to form a qualified shelf
- adjust the stock quantity to demand
- make values on the shelf apparent
- develop and evaluate shelf variants
- report shelf allocations to all persons affected
- exchange planogramming data between all stakeholders