Navigating supply and demand challenges with merchandise financial planning (MFP)
Read our interview with Accenture’s retail planning specialists to ensure your stock, merchandising, and pricing drive revenue growth.
Today’s market is hyper-competitive, retailers face more complexity than ever, and consumer expectations for choices and quality experience are high. The macro-economic climate is driving inflation and ongoing supply chain disruption, and changing policy is leading to increased ESG regulation.
We talked to two retail planning specialists, Lauren Byrne and Verena Bode, from Accenture’s retail strategy practice to find out how retailers can enhance their strategies to ensure stock, merchandising, and pricing are driving their business and revenue growth. They believe it is more critical than ever to have the right product, in the right place, at the right time.
What are the biggest challenges retailers currently face?
Our clients across the sector are dealing with challenges from every side — whether it be consumer driven, a consequence of the macro environment, cost related, or the need for increased transparency and regulation.
Consumers expect choice and availability at all times, in all places. Omni-channel shopping isn’t just about being in-store or online, customers are now online when they are in-store. They have more information than ever at their fingertips and can easily compare products, prices, and of course, availability.
Retailers and consumers alike are feeling the pressure of inflation leading to demand volatility from a customer perspective and a greater need for discipline and precision from our clients. On the other side of the coin, disruption in supply chain requires careful contingency and scenario planning while tightening collaboration with suppliers.
Sustainability and circularity have been hot topics for years but will no longer be a nice-to-have. Increased regulation will drive the need for targeted action (e.g., new KPIs), but also increased transparency and data readiness.
It’s not easy, and it can be hard to stay focused on what really matters.
How can retailers manage supply and demand?
A big question to tackle, and for obvious reasons, it has become increasingly challenging to strike the balance between demand and supply while remaining flexible and responsive to an ever-evolving market.
We are working with our clients to drive end-to-end integration across demand and supply planning processes, tools, and data. The aim is to have a single source of truth on customer demand and supply needs across horizons and levels of detail, providing full and timely visibility to suppliers. Merchandise financial planning (MFP) is often the first step on the journey to integration. It sets the frame for my sales and inventory plans.
In our experience, success is characterized by discipline and rigor in integrated planning processes across teams, clear and unified KPIs, and consistent, high-quality data to inform all plans.
What does that mean for merchandising?
You have to be customer-centric. That means putting the customer at the heart of planning and decision-making and moving from a more traditional product-centric mindset. How is my customer shopping and how can I facilitate that?
This reemphasizes the need for integration — across processes, plans, and, most importantly, teams. Break down siloes and focus on delivering for the customer. Be flexible and agile in how you work to respond to changing needs. Dynamic tooling and visibility are central to achieving this.
Decisions should be data-driven, and processes infused with analytics. There will always be a place for the “art” in these processes, but it must be combined with the “science” (data) to shape the direction.
It sounds simple, but is this a big change for your clients?
Yes, for most retailers this is a big change. Merchandising and buying are the powerhouses of many organizations, and these functions are seen as core to success (or failure). It can be difficult to drive the science into processes and move away from qualitive, intuition-based decision-making and an overreliance on history rather than prediction in planning.
We mentioned the customer need for choice, our clients feel this acutely, and it can lead to the wrong behaviors and lack of focus. It’s about having clear merchandise financials supported by assortments that are tailored and targeted to customer groups and needs. A curated structure and selection with a clear placement of bets (i.e., depth not breadth) is what gives competitive advantage.
The change needs to be driven from the top. The results will speak for themselves (+ full price sell-thru; - markdown; - unproductive SKUs).
How do you set yourself up to remain flexible and agile in your planning?
Many retailers still haven't taken the step to turn that data into insight and infuse it into the decisions they’re making, day in and day out.
How does merchandise financial planning (MFP) help?
An MFP tool synchronizes all your data. It brings all the complex inputs from different sources together and aligns them into one single source of truth. It also considers your financial, business, and commercial objectives and from that it creates the framework. You can imagine how complex this becomes with so many different inputs.
Its role is to ensure all your financial goals are still being met and that everyone is geared toward those same goals and objectives. Crucially, it really does enable this idea of flexibility and agility that will be a real differentiator.
The obvious process need here is to take the time to clearly define your business goals and objectives and to align on your customer, product, and channel strategy. The tool is as strong as the top-down leadership direction that informs it, and the data the feeds it.
What advice would you give those considering embarking on an MFP transformation journey?
We would always encourage our clients to have a clear vision for the future — what do you want to achieve and what are the capabilities you need to achieve it? — and face into the need for true business change and transformation. There is always a danger of recreating what is being done today (e.g., take my Excel and recreate it in my tool), this limits the value from the outset. Incentivize your team to truly transform and lead in what you say and how you act.
The other thing to be mindful of is the word “capability.” The focus can turn quickly to the technology and yes, this is one important element. But the data, processes, ways of working, and organization needed to support it are just as critical. Think about the skills of the future and the need to be data fluent and analytically driven. Think about how you might structure yourselves to achieve true customer centricity and end-to-end integration.
Once strong foundations are in place, it frees up the head space to think and to respond. Where do you want to go next? How are you performing? Where are there opportunities for growth? How do I drive differentiation?
Finally, why is MFP so important in not just surviving, but thriving?
As we said, MFP really sets the frame for planning and decision-making. It outlines the ambition and should be used to ensure all assortment, price, and inventory decisions support financial plans.
The data and information provided by MFP can be leveraged across channels and functions to provide a real-time view of plans and performance, ensuring everyone is working to the same goal.
The move away from manually reforecasting and reconciling disparate spreadsheets and tools within and across teams will be transformative to day-to-day ways of working. Visibility and insight, and most importantly time, lead to clear prioritization of focus and the ability to take meaningful action, quickly.
A dynamic, data-driven, and streamlined MFP capability only serves to elevate the role of the merchandiser. Tools, data, and frameworks will provide the science, creating more time to focus on the art and growth-oriented activities.
Lauren Byrne, senior manager, retail strategy, Accenture, co-leads Accenture's Merchandising Excellence team for Retail Strategy across Europe. She has led several projects focusing on merchandising, business operating models and supply chain excellence, with a focus on planning and inventory optimization.
Verena Bode, manager, retail strategy, Accenture, has extensive expertise in business strategy and transformation along the entire value chain. Her focus is on optimization and implementation of target operating models in merchandising, assortment planning, and end-to-end planning. She oversees the selection and implementation of several supporting IT systems, most recently leading the functional design on an Anaplan MFP implementation project.