Integrating Merchandise Analytics and Inventory Planning to Ensure Growth and Profitability, Part 1

August 9, 2017 | Author: Kathleen Schultz

At the CohereOne summit this past May, George Mollo and I gave a presentation on integrating merchandise analytics and planning. However, I realized that many of you were unable to attend the Summit—and missed our presentation. Knowing how these two subjects have a great impact on every company’s growth and profit, I thought I would give you a brief summary.  

George and I like to say, “It’s all About the Stuff!” for one simple fact. What you sell to your customers is what drives your company’s success or lack thereof. If you don’t have the right stuff at the right prices, at the right time, and deliver on customer expectations, your chances of success are very slim, no matter how great your marketing and creative may be.   

We divided our presentation into five major components; Key Metrics, Importance of Relationships, General Merchandise Strategies, Merchandise Planning Strategies and Cardinal Rules of Business. In this week’s installment, I’ll provide you the highlights of the first two.

Key Metrics (or Key Performance Index/KPIs) vary by function. Merchandising and Inventory Planning need to know each other’s key metrics but are responsible for using their own KPIs to guide their work. If you’re not using the right metrics to measure your performance and guide you in the future, it will be very difficult to be successful. Choosing the right metrics is critical and they must be quantifiable, unambiguous, tactile, and must help determine progress towards a goal. The timing for reviewing these metrics depends on the individual metric. Some should be reviewed daily or weekly, and others not until a season or promotion is completed.

The KPIs will also be different based on who uses or needs the information—Corporate, Operations, Merchandising, Marketing, etc. For instance, Merchandising KPIs include gross and net margins, average price point by category, as well as overall vendor performance analysis, etc. Inventory Planning KPIs include fill-rates, back orders, inventory turns, etc. Corporate KPIs include gross and net sales, average order value, expenses, profits, etc. And these are just a few examples of KPIs a company should use.

Furthermore, it is important that the Key Metrics for all departments be SMART—Strategic, Measurable, Attainable, Realistic and Timely. One of the dangers when developing KPIs for your company is that the KPIs don’t measure the data that will guide what changes you need to make to ensure reaching your company’s goals. That is why we stress using SMART metrics. An example of a Measurable Metric is when your merchants analyze product performance of each category along with the price points offered. This should be done not only for the current season but also with respect to historical trends. An example of a Strategic Metric for your merchants is whether the offerings support your brand position. Remember, your merchandise is your brand.

For Inventory Planners, one example of SMART Inventory Planning is Fill-Rates. These affect both current and future growth and profits. If a company has low fill-rates, not only does this impact the bottom line (higher operational costs due to back orders) but also potential future sales when the customer is made to wait for their order. The result is a double whammy, due to not doing a good job of maintaining inventory levels.

The second component we presented was the Importance of Relationships. We identified five Cross-Functional Collaborative Solutions: Development of a Strategic Business Plan, Using Key Metrics, having a Solid Organizational Structure, Developing Cross-Functional Business Teams, and using a Cross-Functional Planning Process and Calendar.

When implementing a Cross-Functional calendar, some of the keys elements it should contain are: performance analysis review, a marked-up catalog, trend updates, pre-season kickoff meeting, and the hand-off meeting between merchandise, inventory planning, marketing, and creative-as well as the other disciplines within your organization.

In Part 2, I will share with you the highlights from our presentation focused on General Merchandise Strategies and Merchandise Planning Strategies.

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