Optimize Inventory Iteratively

It’s easier to figure out what items to remove from your regular stock than to correctly determine what to replace those items with. You’ll probably remove slow sellers. But do you fill the gaps with more of what’s already selling well or with items you’ve not carried before?
     Researchers at University of Pennsylvania and McGill University developed a three-step procedure for deciding:

• Identify attributes of items your customers are currently purchasing. For TV sets, attributes might include screen size, image resolution, LCD versus plasma, brand, and price. For car appearance products, attributes might include intended surface for the item, whether it’s for cleaning or polishing, how the product is applied to the surface, package size, brand, and price. 
• Use your sales figures to estimate how well combinations of those attributes would appeal to your current customers. 
• Find items which fit the most promising attribute-combination configurations and/or expand your stock of current items which are highly popular. 

     But when the researchers tried out their procedure in a tire store, they found it needed adjustments: As the available assortment in a store changes, the market shares for each item also change. People shift preferences.
     An example of this was seen in other studies, these at American University in Washington, D.C. and University of Arizona. Say a shopper comes into your store after having looked online at expensive ink pens. The shopper has narrowed the choices to two, both of which have an extra-fine felt tip. The only difference between the two is the ink color, which the shopper had decided is not that important.
     Then when the shopper asks for the pen with the blue ink, he’s told you no longer carry that particular item. He’s asked if he’d like to place an order, and he’ll be notified when the pen arrives. He declines. The salesperson—knowing the value of selling substitutability—offers the shopper the extra-fine felt tip pen with the black ink.
     But, like a majority of the participants in the American University/Arizona study, the shopper goes off in a different direction, such as purchasing a fancy ballpoint pen with blue ink. Because of the change in item assortment, the blue ink color becomes more important than the felt tip.
     The Pennsylvania/McGill researchers realized assortment decisions are iterative: You make changes and then use the three-step procedure again, repeatedly circling back to refine your merchandise assortment.

Click below for more: 
Turn Out-of-Stocks to Your Advantage 
Stock Slow Sellers Which Reassure Customers