The retail business environment is very complex, which is why efficient planning that streamlines operations is an increasingly important competitive advantage. In this sense, Merchandise Financial Planning has a special role to play, which is why in this article we talk about how this financial planning can help your organization and how you can develop it efficiently.
What is Merchandise Financial Planning?
Merchandise Financial Planning or MFP is a process that seeks to align the company’s high-level financial objectives (budgets) with the tactical plan at the merchandise level.
Its objective is to determine the sales and margin budget for the next period (year, season, etc.) incorporating the necessary merchandise variables (collections, products, channels, countries, etc.) in order to define the purchasing needs.
In many cases the MFP is the first budget to be made as it allows to define and manage what will be sold, where and when, at different levels of granularity.
Due to its multiple purpose, a merchandise financial planning usually includes:
- Financial strategic plan: which defines at a high level the sales and margin target for a period.
- Top-Down Plan: which increases the level of detail of the strategic plan to a level with a business sense, offering:
- More detail at a territorial level
- Granularity by sales channel
- Data at a lower level of the product hierarchy (collection, sub-family, brand, etc.)
- Including key parameters such as global discounts and rebates
Challenges in Merchandise Financial Planning.
The rationale behind this process is simple and has been there for decades: anticipate demand to plan inventory needs while respecting financial capacity.
The challenge is that in today’s complex reality, this “simple” objective is difficult to execute. Especially if financial management depends on information that is spread across spreadsheets and any changes need to be reflected in different places.
This situation can create many problems when developing an MFP, including:
- Finance teams may need weeks to collect, organize and analyze all the data needed to develop the plan.
- Working manually can lead to data errors that in practice result in overstocking or out-of-stocks of top-selling items.
- Forecasts will lack precision, which means that the decisions made will not be the best or will depend on biases that may compromise profitability.
- In addition, all of this will place a significant workload on teams, as any adjustment is complicated and will require long lead times to complete.
Today’s retail is very demanding: products with very short life cycles, high update frequencies, with production orders that must be planned months in advance, interruptions in supply chains, etc. It is a complex system with many moving parts that make management difficult, so it is necessary to rely on specific tools to achieve better results.
Why robust retail planning solutions are important.
Creating an effective MFP requires a system that handles data management and creates an agile, collaborative planning process.
This allows organizations to plan a year or a season at both a high level and at a certain level of detail, involving key people in the company and even creating multiple scenarios, all in a matter of hours or days. In this way, teams stop wasting time swimming in data to focus more on their planning and future impact, generating more effective action plans.
A robust retail planning tool allows you to work at any level of granularity in real time to generate initial budgets that are no longer just owned by the finance team, but are a job that combines the global view of finance with the detail of the merchandise teams.
In addition, as we said at the beginning, MFP also plays an important role in-season, as it allows to understand and evaluate the actual results against the objectives set. Integrating the MFP process into a global solution allows you to track sales and margin vs. the initial budget forecast at the beginning of the year/season, all in the same environment.
Advantages offered by retail planning software:
In addition to everything we just mentioned, having a tailored planning solution for your retail business will help you to:
- Increase profit margins by reducing waste through better forecasting of full-price sales across products, categories and channels. In addition, well-executed planning ensures good use of resources, avoiding over-investment in inventory and optimizing cash flow.
- Improve flexibility and agility when making decisions based on external factors. In addition, this agility also allows for more frequent forecasting to allocate smaller lots accurately, which increases available cash flow.
- Improve the quality of work of the teams by reducing the stress generated by the labor-intensive and time-consuming work of dealing with dozens of spreadsheets full of errors or outdated information.
- Generate a more collaborative work environment, where different users and teams make their contribution from their area of responsibility, resulting in an initial budget that combines the visions and expertise of finance + merchandise.
- Obtain more specific and in-depth reports, as you can introduce regional and/or promotional variables to enrich the analysis: different calendars by area, promotions by country, split between full-price, discounted and sales, etc.
- Save time and resources thanks to the efficiency of the software, allowing you to free up staff for more important tasks such as strategic analysis.
Streamline your Merchandise Financial Planning process.
It’s time to leave the chaos of spreadsheets behind and transform your planning processes. Using a customized solution will allow you to focus on what’s really important: interpreting information and using it to make decisions.
Merchandise Financial Planning brings together data from different teams at different levels, which is complex to reconcile. Using specific planning software allows for greater collaboration to achieve more refined, efficient plans based on quality data.
In an increasingly dynamic and competitive retail environment, the ability to maximize management efficiency becomes a key differentiator. Adopting a robust software solution not only represents an investment in efficiency, accuracy and agility, but also in sustainability and future growth.
If you are looking for a specialist partner to help you with this, do not hesitate to contact us.
