Question and Answer — How to Break Six Bad Retail Planning Habits
Retail has changed a lot in just the last few years, never mind the past 10 or 20 years. On the webcast, How to Break Six Bad Habits of Retail Planning, featuring RSR Research co-found Paula Rosenblum and Logility Director or Retail Business Consulting Jim Brown, we explored many of the processes (or habits) implemented a decade or more ago that are still at the heart of today’s retail operations. In order to keep pace with today’s market and be prepared for the coming wave of even more demanding customers, retailers must eliminate their old and outdated habits before they can achieve improved profitability, greater sell-through and increased service levels.
For many, this process is easier said than done.
During the webcast we received many questions from the live audience. Paula and Jim have taken the time to respond to several of the questions here on the Voyager Blog.
Q: Change involves people, process and technology. Which do you think is the hardest to fix?
Paula: I believe the people side is the hardest. Some people are honest and say, “I don’t like change.” Others say, “I am excited by change.” The reality is, no one likes change. When you are doing a repetitive activity, you get into a rhythm with it. Change their activity and disrupt their rhythm, and you’re bound to hear complaints.
When I was a practitioner, any implementation failures I experienced were not technological, they were cultural. A smart manager will get employees involved early and help them feel like they are part of the process rather than victims of it. Find out their pet peeves in their existing worlds and make sure you fix those first. If you make them part of the process change, you have a far better chance of succeeding.
Q: One challenge we face is centered around organization structure or management. For example, direct-to-consumer may report into a different executive or planning team. How can there be “one plan” when there are competing goals and MBOs? Who gets credit for the sale or return?
Paula: The short answer is, you can’t. For years, our RSR survey respondents have reported that a significant merchandising challenge is the absence of integrated planning between cross-functional teams. This has been made worse by the proliferation of selling channels.
The responsibility here is on senior management to align incentives and eliminate competing goals. It is an omni-channel world and multiple parties may have to get credit for the same sale or return. This is a continual challenge and relatively old story that most retailers have moved beyond yet is long overdue for a resolution.
Q: Today’s 20 to 30 year olds really embrace technology yet many companies are asking them to become spreadsheet jockeys. How do we get them to understand what the planning systems do, and how they calculate needs to get beyond what you termed “blind trust?”
Paula: The younger workforce will not be satisfied being spreadsheet jockeys if they’re invested in their jobs. If they’re not invested, they’re not likely to care one way or another. Retailers are definitely in a place where they have to find ways to motivate their workforce.
In terms of helping them understand what planning systems do and how need is calculated, you must create a training program, or find an existing one. I believe some colleges already have this. Consider asking your sagest planner to take on a new task, or find someone who can help. Your software vendor is a good resource, and I recommend asking them for input as well.
Jim: They will not find job satisfaction manipulating spreadsheets. There is a balance between blind faith and being in the weeds so much that you lose perspective of the business. When I grew up, cars were mechanical devices that you had to know and work on before you could really rely on them. Today, cars are an electrical piece of equipment that seem to work every time, but you still have to know how they operate, maybe just not to the same degree.
Before retail optimization systems were widely available and proven in our customers, businesses, you had to create your own. You had to be intimate with the calculations and data sources. Today, many of the “mechanics” can be done for you, but you still need to know how to make the right decisions when presented with choices, and to look for opportunities within the business. It is important we move planners beyond blind trust in the systems and encourage them to understand how and why the systems generate the recommendations that they do. Definitely connect with local universities as well as your solution provider to better understand how to engage your planners. For example, at Logility we have our Logility University program to help develop our customers’ capabilities and mature their processes.
Q: At one point retailers were allocating up to 70% of their merchandise, but that no longer seems to be true. What is the right amount to allocate?
Paula: There was a time when allocating 70% was indeed a best practice, but not because you want to allocate “as much as possible.” It was more around creating an impactful assortment, and the “as much as possible” model tended to come out of the math that calculates turn. If you bring merchandise in sooner, you have the longest possible time to sell it. This is an old practice and it creates bad behaviors and excess cost across the supply chain and stores. I can guarantee it leads to more markdowns. It is possible that over time, as we get our arms around the sources of demand better, and eCommerce growth rates stabilize, it will be a good practice to allocate larger volumes up front. However, we hear far too many reports of demand uncertainty to recommend doing that at this time.
Q: What is the typical ROI horizon on initiatives to knock down some of these bad habits?
Jim: Some of these have a very rapid payback, provided you have the systems that support the best practice alternatives to the bad habits. Blind trust in technology, as an example, can be dealt with swiftly as long as your systems provide transparency and you can audit the results. If you have “black box” systems, then they may never gain the trust needed to rely upon the system to perform optimally. Reliance on spreadsheets can significantly hamper the success of a new system deployment that supports your organizations business requirements.
Often, it is likely that a number of the issues we discussed in the webcast may be intertwined and limiting your success. A business assessment may be the first step to moving away from these bad habits.
Q: How long does it take to move from a spreadsheet environment to a more formal planning process?
Jim: The short answer is four to six months. The long answer is “it depends where you are moving from and where you want to go.” Getting a “best practices” model of a top-down / bottom-up merchandise financial planning system is straightforward and we have a proven methodology. I would advocate a crawl-walk-run process that phases that basic process in quickly and then iterates functionality at the pace your organization can manage.
Starting with a simple process and getting that rolled out quickly will get your organization moving in the right direction, and the feedback you get from the users will direct the next steps better than if you just started designing the “ultimate solution.” Many organizations are accustomed to a big bang delivery of an IT system where they only get one chance to design it right. They try to anticipate every need and create the ultimate, idealized business process. Business optimization solutions need to be flexible and need to evolve not only with the changing business, but also with the users knowledge.
Q: What if a team doesn’t have deep math skills? Do they have to evaluate the planning models or does the software automatically select the right one?
Jim: Deep math skills are not required. For example, Logility Voyager Retail Optimization will support the users as they work through a planning process guiding them through a business focused planning process with the opportunity to apply their business knowledge about a company’s products to achieve the desired planning objectives.
Q: Can you explain the lower allocation and Point-of-Sale (POS)-based replenishment again?
Jim: Logility Retail Optimization allows you to plan for and react quickly to consumer demand. As we highlighted in one of the bad habits, retail traditionally would allocate a high percent of inventory out to the stores as quickly as possible. I remember hearing the phrase, “you can’t sell products out of the warehouse.” This is no longer true in an omni-channel environment, and even for your stores, getting the merchandise to the stores sub-optimally has a real cost in markdowns or transfers. This approach also meant retailers could not react quickly enough to trends to fill in more than a few long life products.
Today, we have customers that minimize the initial distribution (allocation) to the stores, so they can react to consumer demand and replenish the stores based on real sell through. This transformation has improved full price sell through, stores turn rates and customer satisfaction.
The fundamental challenge in retail is one of balance. More specifically, balancing the need to achieve the company’s fiscal objectives, execute effec
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