Merchandise Planning systems should be the vehicles for tactical implementation of an integrated strategic vision. In order to begin to answer this question, therefore, we need to ask how Merchandise Planning fits into the overall corporate planning process.
In order to be able to control the business, the directors will define the Critical Success Factors (C.S.F.s) of the business. Achievement against these will be measured using Key Performance Indicators (K.P.I.s). A K.P.I. is a measure, which, if achieved or exceeded, means, in turn, that a critical success factor is being achieved. These K.P.I.s will typically be a part of high level plans that provide strategic direction over a period of several years.
In order for these high level plans to be implemented we need to turn them into functionally based plans that can in turn be translated into concrete action. There may, for example, be a C.S.F. of increasing bottom line profitability by 5%. This may be translated into the setting of K.P.I.s in several discrete areas such as Human Resources, Property Management and Merchandising.
Within Merchandising this goal might result in several K.P.I.s being set relating to targets for buying-in margin, stock-holding levels and mark-down percentages. The implementation and monitoring of a plan to meet these success factors will hopefully result in the eventual purchase by a customer of a specific item in a store. If measurement of the relevant K.P.I.s indicates that the success factors are being achieved, then the plan has been successfully implemented. If not then urgent tactical action may be required. This is why a plan must be seen as a living entity and not something that is done once and discarded until the variances are discovered at the end of the selling season.
Understanding this strategic framework leads us to a clearer definition of what the processes are and how they must fit in with the company’s overall processes. Merchandise Planning needs to span the activities between setting long term , high level goals for sales, margin and investment for the business, right down to the allocation of space within an individual store for a defined S.K.U.. At each stage of the planning process the high level goals are tested and inputs from functional management enrich the detailed versions. Gaps are analysed and variances are explained or reconciled.
The end result of the planning process should be a detailed set of targets (e.g. a purchase order budget) and instructions (e.g. a planogram) that can be reconciled with the original corporate targets, with any divergences being clearly explicable. These plans may be numeric (an Open to Buy) or graphical (the results of range creation collage software, or space planning software).
It is equally important to realise what they are NOT. Merchandise Planning is not a transactional process. Thus, setting a purchase order budget within an Open to Buy system IS merchandise planning. Creating a purchase order is not. Deciding how a certain line may be ranged and testing an allocation pattern is planning. Creating the actual allocation is not.