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For retail, a blueprint for strategic merchandise planning

January 24, 2007

It's a winning formula: provide a differentiated selection of goods that customers want and you increase sales. But getting the merchandise right is a complicated process, especially for big retailers and chains.

Consider the elements that come into play. Retailers must make significant investments in their supply chains, inventory, and retail space and layout. It's not just about having the right items in the right place at the right time. It's also about minimizing losses from out-of-stock situations or markdowns from too much stock.

As retail analyst Dana Telsey of Telsey Advisory Group suggests, markdowns may get customers in the store, but they cut into profits. So the more desirable full-price items a store has, the more profitable it can be.¹

Retailers also have to engage all parts of their organization – merchandise, finance, marketing, and operations – to work together to share insights, set targets, model and forecast sales, and optimize investment in inventory. That's difficult to achieve if each department operates as an independent silo, or feeds into a manual, disconnected planning process.

Retailers seeing the limits of "best-guess" planning: RILA

A recent study by the Retail Industry Leaders Association (RILA) says more retailers are seeing the limitations of manual, best-guess planning and operations. For better results, they're moving toward an enterprise-wide, data-driven environment based on facts. That requires more investment in business intelligence and enterprise planning software.

"Retailers still rely on experience and intuition to make decisions, but increasingly they believe the numbers. They're installing new tools to make those numbers actionable," says Cathy Hotka, SVP, Technology and Development, at RILA.²

Blueprint: Strategic Merchandise Planning

Enter the IBM Cognos Strategic Merchandise Planning Blueprint. Developed by the Cognos Innovation Center for Performance Management™, it provides preconfigured policy and process models that help retailers jump-start their merchandise planning operations to drive profitable growth.

The integrated framework includes planning, metrics, and reporting. With it, chains can plan sales, margin, gross profit, and stock by division, channel, department, or category. It's a single enterprise platform for top-down and bottom-up planning – so all parts of the chain work with the same information and plan to a single set of financial goals and business objectives.

Year-over-year comparisons and exception-based planning

With top-down target setting, merchandise executives develop annual merchandise sales and gross profit plans for divisions or channels. Returns, promotions, markdowns, and supply chain costs can all be established using corporate standards.

Calendar adjustments let staff do meaningful year-over-year comparisons and projections to accommodate demand patterns for floating holidays.

Exception-based planning allows planners to adjust line items and model financial implications of changes to sales, costs, and gross profit. Staff can also access sales and inventory information to calculate stock levels and valuation.

And planners can forecast the impact of markdowns and promotions on inventory value and margin. Each may have a different percentage value and can be applied to a specific percentage of inventory, to protect profits.

Featuring BI and planning capabilities

The Merchandise Planning Blueprint is built on Cognos planning and business intelligence software. IBM Cognos 8 Planning is a Web-based, high-participation solution for modeling, planning, budgeting, and forecasting.

It lets retail management define the process, models, and content required to meet financial targets, and then distribute pre-populated, Web-based templates to category merchandise planning contributors across the organization. It helps chains achieve consistent operating performance through highly collaborative, real-time planning.

Coupled with IBM Cognos 8 Business Intelligence, the Blueprint lets retailers identify and measure key metrics, produce standard reports, and conduct analysis around critical information such as past and present sales, margins, shrinkage, supply chain costs, gross profit, and inventory evaluation. The result? Better-informed, more effective decision-making to optimize sales, margin, and stock.

Summary

IBM Cognos Performance Blueprints take the guesswork out of merchandise planning. Retailers gain the ability to plan accurately and make the most of strategic investments in inventory and store operations – so the right goods will be in the store at the right time. And consumers will be more inclined to buy.

Find Out More Live Web seminar: Performance Management, Changing the Retail Equation Feb. 13, 1 PM ET. More about IBM Cognos Performance Blueprints Visit the Cognos Innovation Center for Performance Management

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Sources

¹ Jayne O'Donnell. Retailers try to train shoppers to buy now. USA Today, September 25, 2006

² Cathy Hotka. Seven Steps Survey: The state of performance management among retail leaders and what it means to you. Retail Industry Leaders Association, October 2006.