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NOOS Versus Pareto, who wins in Retail?

A popular approach in fashion retailing to manage store level replenishment is to include a SKU (Stock Keeping Unit) into a NOOS (Never Out of Stock) supply program. The objective is to actively manage and guarantee shelf availability of that SKU. However, more often than not NOOS becomes a supply program for a range of SKUs without considering the “real” and “changing” speed of a SKU in a store. This “real” and “changing” speed differs from store to store as well as can change rapidly over the life span of a SKU.

Instead of using a fixed linkage between a product and a supply program, which will be only a reviewed and adopted infrequently, using a more dynamic method as reviewed below is better suited for fashion and softgoods products.

NOOS vs Pareto

The Supply Chain View

NOOS programs are popular because it organizes the replenishment of SKUs based on the assignment to a range segment. Typical range segments are basic, seasonal or trend segments. NOOS applies best to the basic range segment and are then used by the supply chain to put those SKUs on automatic replenishment. Seasonal or trend range segments are harder to include into a NOOS supply program due to the lack for reliable sales information and the short cycle of those products.

Since supply chain needs time to set up the NOOS program and its parameters across forecasting and replenishment, the timing of including and excluding SKUs into the NOOS program is slow, happening at the beginning of a season and normally running through the season. Also, NOOS programs usually runs across the store network because they are part of a wider replenishment program. Another limitation is that ERP system need a single supply method assignment to a product for a fixed period of time.

NOOS programs do not cater for the dynamic nature of SKU in store and selling behavior. Such programs are very much aimed at the supply chain aspect in organizing replenishment processes.

To make matters worse, there is also a push from brand and product organization to include products into NOOS programs because they believe this product sell at a high rate and hence availability controlled through a NOOS supply program is a guarantee for success. This product side push ignores any hard evidence in form of sales data.

The Retail View

The behavior of an SKU can change from day to day and store to store. A Pareto based replenishment program, re-calculated daily including the adjustment of supply parameters such as order quantity and target stock levels, ensures that store and speed differences are reflected directly in the replenishment decisions.

Each SKU per store and per day can have a different rhythm of supply. The replenishment orders, calculated daily, need to reflect the “selling” speed. System wise such an approach in an integral part of the dynamic buffer management logic used in the Retailisation DMS (Distribution Management System) solution. The daily Pareto analysis determines if a product is a fast mover, a slow mover or a non mover. Depending on that classification the correct targets and hence replenishment quantities are calculated.

The Conclusion

It is time to change the replenishment approach from static ERP based supply programs to a more dynamic approach based on store to store as well as daily life cycle differences. Dynamic buffer management is the answer to this challenge.