Financial productivity issues related to assortment diversity and supply chain merchandise replenishment strategies

Purpose – The purpose of this study is to examine the ability of supply chain merchandise replenishment strategies to minimize merchandise plan errors when assortments are diverse. Design/methodology/approach – Sourcing Simulator 2.1, a computer simulation of the merchandising process, was used. Sourcing Simulator generated a total data set of 4,320 and determined financial outcomes of the merchandising processes based on multiple scenario inputs. Findings – The impact of supply chain merchandise replenishment strategies on merchandising performance outcomes significantly differed, depending on assortment diversity and merchandise plan errors. The ability of supply chain merchandise replenishment strategies was limited in minimizing problems inherent in diverse assortments and over‐volume errors. Research limitations/implications – Sourcing Simulator does not necessarily simulate merchandising processes and performance in real retail stores but principles developed through simulation can be applied in retail stores. Future research based on real information is suggested for additional realistic understanding. Practical implications – The study suggests that apparel and retail firms should develop both up‐front assortment planning and replenishment strategies, considering the level of assortment diversity. Originality/value – Based on Behavioral Theory of the Apparel Firm, the study contributes to understanding the importance of merchandising functions in an apparel firm. In addition, the study illuminates assortment diversity as an important factor of merchandise planning, especially when apparel and retail firms plan replenishment strategies to minimize merchandise plan errors.