Merchandise Financial Planning (MFP) is the process a retailer goes through to map financial targets – whether that’s topline targets, profitability or inventory levels – into detailed merchandise, channel, sales, margin and buying/intake plans.
It’s a top-down strategy ensuring business alignment at the executive level, with merchandisers and planners able to cascade the agreed targets into plans with a much finer level of detail. Within this financial framework, different teams can build assortments and know where to invest, for example in private label goods or a specific distribution channel. It’s the process of reconciling all plans into business objectives for strategic growth.
However, developing a merchandise financial plan in spreadsheets can take weeks and sometimes even longer when a minor change needs to be reflected in multiple places. The inability to work with real-time accurate information that can be instantly updated in plans leaves teams exposed to falling into the trap of either having an overflowing inventory and the associated costs of overbuying or running out of bestseller stock. Both of which can amount to missing financial targets.
Eliminate Complexity, Overproduction, and Heavy Discounting
Modern product offerings are complex, stocking the everyday basics alongside seasonal product categories. Companies need a solution that accounts for varying factors when developing an MFP. These might include the different shelf-lives of their permanent and seasonal products as well as size and color combinations, product groupings and more.
Pair varying shelf-lives with high refresh rates, short production cycles, economic challenges and supply chain disruptions and you’ve got a constantly changing, always evolving merchandising loop with many, many moving pieces. Visibility, agility and teamwork are now more important than ever.
1. Address the Limitations of Spreadsheets
At any given time, merchandisers manage at minimum three seasons of inventory: past, current and upcoming. Combine these with thousands of products with different stock age and multiple point of sales in a spreadsheet, and you’ve got a tangled merchandising mess.
At the same time, digital shopping has also transformed the customer journey and the access companies have to data related to product, location and customer.
Trying to manipulate even one season of customer, trend and sales data on spreadsheets or outdated planning systems is just too difficult, complex and archaic especially when taken in a real-world context where uncertainty is higher than ever before. A modern innovative planning software solution frees up teams overwhelmed in data and automates many planning functions, efficiently crunching vast amounts of data. Built-in AI technology guides decision-making with suggestions of where to buy, develop and invest, to maximize business performance and growth. Enable teams to spend less time sifting through aggregate data and more time interpreting organized, qualitative data.
2. Create Dependable Demand Forecasts
Many companies already manage thousands of SKUs across collections, channels, stores, geographies and customer and regional preferences. These complexities quickly create financial, strategy and time complications for planners, merchandisers and buyers.
A planning software tool allows planners and merchandisers to work at very granular levels of analytics to ensure product is allocated correctly to eliminate overproduction, gain optimal levels of stock and accurately replenish stores.
A modern solution enables teams to build MFPs using powerful data insights, predictive models and historical data to generate expected-demand predictions you can rely on. Merchandisers even have the option to sandbox scenario-based stock and seasonal plans to survey the potential impact of even the slightest change.
These might include, adding more products at:
- A particular price point
- A specific range of time
- Selling through a new channel
Before your product is even created, an accurate MFP then helps to decifer:
- The average cost of the product
- Average retail price it should be sold at
- Average discounted price
3. Understand Trends and Know Where to Invest
For overworked teams, creating a merchandising plan can take weeks. One small change in product development or product availability can throw the whole project out. Teams drowning in data and spreadsheet chaos lack the time and visibility to do the analysis necessary to build plans that accurately reflect where and what to invest in while aligning the merchandising strategies to financial goals or sales strategies.
One of the most compelling aspects of a merchandise financial planning solution is the system’s ability to analyze past figures to verify which strategies have worked historically and what haven’t.
Leveraging an AI planning solution to build an MFP enables you to quickly and accurately examine what products your customers are buying. Merchandisers can easily plug this data into the sandbox and forecasting view to create a dependable loop for future sales predictions and merchandise planning.
MFP software also analyzes the expenditure of your merchandising strategies, identifying financial opportunities and inefficiencies. Pinpoint exactly where to reduce overspending, understand underperformance and where to remove unnecessary discounts to realign and hit your financial targets. It’s also handy for recuperating bleeding profits by identifying and reducing waste and overproduction within your existing strategies.
Invest in Centric Planning
For a company to grow, product collections and assortments must be developed in alignment with a merchandise plan’s financial constraints and goals.
Centric Software®’s planning solution is built by retail and fashion planning and product development experts, specifically for the retail market. It’s highly intuitive and powerful, so teams can quickly and efficiently create accurate plans making it easy to map out your product ranges and assortments. A robust planning system not only leads to improvements in operating and product margins, but also reduce time to market and employee stress.
Centric Planning also works with Centric Visual Boards, a visually-driven solution to flip the MFP process around and work visually, while still connected to living financial data.