May 16, 2023

The Benefits of Improved Merchandise Plan Reconciliation for Retailers



Peter Leith
VP of Product

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When retailers start, merchandise planning is fairly straightforward. With low SKU count, limited distribution channels and a founder with a few friends (likely with a laser-focus on a customer need to fill), deciding what to buy can be done on a spreadsheet. In fact, our open-to-buy template (in Google sheets or Excel) enables this early need. 

But quickly, as the business grows in demand and headcount, the creation and reconciliation of the merchandise plan across the business becomes cumbersome and error-prone. In this article, Peter Leith, Toolio’s VP of Product, explains the benefits of an integrated retail planning solution in improved plan reconciliation.

How this pain shows up on your CFO desk

Retail CFOs and CEOs rarely tell us their reconciliation processes are broken. Instead, the challenge they come to us with is commonly phrased as:

“I was surprised by our inventory levels during our quarterly planning meeting.” 

Whether those levels are too high or too low, CFOs are often blindsided by inventory investments. This is typically a symptom of individual planning members planning their category or department bottom-up, without reconciling their plans with the top-line financial projections and goals of the business. Add in stores and wholesale and the reconciliation impact continues to expand.

Why is merchandise plan creation and reconciliation so painful to begin with?

Creating and reconciling merchandise plans across business functions can be a complex and challenging process due to several reasons:

  1. Data accuracy and availability: Merchandise planning requires accurate and timely data from various sources such as sales history, inventory levels, customer demand, and market trends. However, data may be incomplete, inconsistent, or outdated, which can affect the accuracy and reliability of the merchandise plan. We typically see this particularly painful in receipts management.

    Individual team members, when left to plan in Excel can make in-the-moment decisions that have a big impact on the business. Take for example, a merchandise planner not inputting receipts, because they aren’t important for the timeframe they’re planning, but then another team member picks up that spreadsheet, changes the timeframe and all of a sudden the data is completely erroneous. You may have someone making buying decisions absent of an entire category’s receipts. 
  2. Multiple departments involved: Merchandise planning involves multiple departments such as finance, merchandising, sales, and operations, each with their own objectives, metrics, and processes. These departments may have different priorities, perspectives, and approaches, which can lead to conflicts and miscommunications during the planning process.
  3. Uncertainty and variability: Retail is a dynamic and unpredictable industry. Customer demand, competition, and supply chain disruptions impact the merchandise plan in unpredictable ways. This uncertainty and variability can make it difficult to create a plan that is both accurate and flexible enough to adapt to changing circumstances.
  4. Complexity of calculations: Merchandise planning involves complex calculations such as inventory turnover, gross margin, and sell-through rates. These calculations may be time-consuming and error-prone, particularly when done manually or with outdated software tools.
  5. Communication and collaboration: Effective merchandise planning requires collaboration and communication among different departments, but this can be a challenge when teams are working in silos, using different tools or different variations of the same spreadsheet, and have limited visibility into each other's workflows.

Ways to improve reconciliation

Let’s simply use the exact challenges listed above to identify ways to improve this process.

  1. Data accuracy and availability: One source of truth is critical to reconciliation. To solve this, the key is to plan and reconcile in a system ingesting your real-time sales, receipts and inventory data. Many teams have this real-time data in an ERP that they need IT help to query or in a data warehouse where they use a BI tool to manipulate (but that BI tool doesn’t have their merchandise plans data). When retailers invest in a true merchandise planning tool, like Toolio, all that critical data flows into merchandise planning purpose-built fields and tables.
  2. Multiple departments involved: The key to improving department conflict is to not attempt to shoehorn everyone into one way of planning. It’s okay for different teams to have different metrics they plan for and even separate calendars (finance on a fiscal calendar, Merchandising on retail calendar). The key is to give each team the flexibility to plan in the way they need, but the organization the ability to reconcile those plans into one view for visibility. Toolio allows for this in our multi-plan functionality where departments have customizable flexibility and we act as a translation layer to reconcile disparate plans into one view. 
  3. Uncertainty and variability: If only there were a way to make supply chains more reliable or avoid recessions! But it is possible to get ahead of such disruptions. With robust scenario planning, retailers can rapidly create variations of their plan to accommodate potential adjustments. From simple percentage growth projections to complex seasonality curves, using a tool that makes this easy means more time can be spent analyzing the results and collaborating as a team about the best path forward.
  4. Complexity of calculation: This one is so simple in a merchandise planning tool like Toolio. With hundreds of pre-built metrics, long gone are the days of Googling a metric to build an Excel formula (that someone will edit and mess up)! Plus, if the business needs a custom metric, building that out is a breeze too.
  5. Communication and collaboration: Because most teams are still in spreadsheets, communication and collaboration for plan changes is challenging. By moving reconciliation to a tool, a store plan can be reconciled with a merchandise plan with a finance plan or a day-level plan. This greatly enhances the visibility to the organization as a whole and reduces the time to try and do all of this (terribly) in spreadsheets.

What these improvements mean for the bottom line

Okay, so some of the above will result in time-savings, but retailers are in the business of ultimately improving GMROI, so what are the hard dollar benefits of focusing on reconciliation?

  1. Time savings. Time is money and the amount of time saved from not having to pull data from systems-of-record and adjust it to another format is substantial on its own. Add to that the reduction in errors that require double work or the time communicating version updates and questions about the accuracy of the data and Toolio users estimate they get 35% more time back in their week to focus on decisions that move the business forward.
  2. Improved buying. Without reconciliation to financial targets set in the planning process, buyers would likely overspend the budgets and result in excess inventory and margin degradation. A robust reconciliation process ensures the buys remain in line with budgeting and can result in margin improvements between 1 and 5%
  3. Speed of action. With unpredictable supply chains and changes in macroeconomic conditions, changes restated plan reconciliation with the lowest level optimization of inventory is important to make sure that changes are noted and strategies are altered. This can result in improved in-stock rates on the right products without additional inventory investment often resulting in in-stock improvements of 5% to 25%

In Conclusion

In summary, creating and reconciling merchandise plans across business functions can be a real pain due to the complexity, variability, and collaboration required to create an accurate and flexible plan that meets the needs of multiple stakeholders. However, with the right tools, processes, and communication strategies, retailers can streamline the planning process and improve their chances of success.

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