Control Your Stock and Cash Flow with Merchandise Financial Planning

Retailers today are in a constant balancing act – they need to satisfy their customers needs for choice, availability and value while making a profit for the business. This can be tricky but one of the key ways retailers can acheive the perfect balance is through effective planning.

The Right Process Can Make All the Difference

The first step in the chain of internationally recognized best practice processes for retailers is to set the right plans.

Retailers need to set realistic and achievable sales, margin, and intake plans that will deliver the required level of profit at minimal risk. Once these plans are in place, they need to then pick the right product and put it in the right location at the right time in the right quantity. While every company plans differently, the main goal of a retailer is finding the right product and selling it at the right place and at the right time. Having the right plans to begin this process will help to ensure success.

Setting the right plans is the very start of meeting your customers needs. Merchandise Financial Planning, is the typical term for the high-level strategic and operational value-based process that retailers use for planning and managing sales, stock, margin, and intake by product group and is one of a number of different plans that retailers use. It is a critical part of the retail tool kit that will help cash flow management and stock control.

Why is MFP so Important?

Merchandise Financial Planning helps the retailer to understand which product categories are more or less profitable and make decisions accordingly. It also allows them to plan overall stock and intakes so that cash flow is managed while maintaining optimum value. It is a top-down stock controlling tool that ensures you aren‘t holding onto more stock than you need to.

Setting these plans gives your business consistent focus and direction, while ensuring a common objective across the company. These plans, in an essence, provide a roadmap for the organization‘s goals. If you don‘t know where you‘re going, how will you know when you get there? That‘s the beauty of the Merchandise Financial Plans – they establish internal and external benchmarks for a retailers performance and ensure that cashflow and resources are managed appropriately. Having a consistent direction across the organization, from the purchasing team to the finance team to the directors of the organization, also allows for informed business decisions at any given point, which can be especially helpful when something unprecedented, like COVID-19, arises.

Forecast vs. Plan

When we discuss Merchandise Financial Planning, it is important to distinguish these plans from forecasts. A forecast is an evolving estimate of future performance based on all the information present. A plan is the benchmark against which future performance will be measured and is a snapshot of the current forecast taken at agreed poitns in the planning calendar. The process of planning refers to setting the plans for a specific period, which are often a year or more in advance due to the lengthy supply chains and product lead times with which retailers are dealing.

The outputs from Merchandise Financial Planning are planned sales, stock, intake and margin plans by product group for a financial period, as well as a revised short term performance forecast for the current trading periods. Another big output is the Open to Buy availability. Open to Buy is the buying budget, i.e. the amount the buyer has to spend on new or replacement product and stock for replenishment. Open to Buy will decrease as purchase orders are raised, but can also be increased if sales, markdowns or discount forecasts are increased. Knowing the Open to Buy availability is crucial for those in the purchasing department that are choosing the right products for their customers.

Effective Merchandise Financial Planning

At the moment many retailers use Excel for Merchandise Financial Planning, which, while better than doing everything manually, is still difficult to maintain and update. Excel can be a great tool for some things, but when it comes to Merchandise Financial Planning, it means a lack of coordination across the business with poor Open to buy management and no company overview of performance.

That’s why we at AGR Dyanamics have created the Merchandise Financial Planning module that supports internationally recognised best practices. Our new module offers effective and timely Open to Buy management while being easy to use, configurable and provides visibility of processes across the business.