Why does inventory management and merchandise planning play such a big role in the success of a fashion business?
Whilst we all love to design, buy, merchandise and sell great products – the no 1 cost you will have in your business is inventory, yet many small and medium businesses do not invest in the right systems and processes to manage it or maximise its earning capacity.
Guest Author Deborah Donehue
Any financial or business advisor will tell you that 9 out of 10 businesses do not fail through lack of sales, rather they lack cash flow. Why? In the instance of retail, it is because their cash is tied up in in-efficient stock and they haven’t allowed for the cost of new stock requirements effectively in their cashflow budget.
When we look deeper into the reasons, many of these businesses had inadequate management rigour around the visibility of their inventory, and their planning processes to manage sales & inventory targets.
So let’s start by defining the difference between Inventory Management and Merchandise Planning.
Inventory Management and Merchandise planning are two distinct concepts.
Inventory Management is the process of tracking your inventory from the point of purchase, its transit, and delivery, through to where it is receipted, stored, and transferred to its point of sale and subsequent fulfilment. Inventory Management ensures you have a clear and accurate view of where your stock is in your network or the pipeline and whether it is available to sell or move to where it can be sold.
Merchandise Planning is the process of selecting, forecasting, purchasing, managing, and pricing products with the objective of maximising productivity and return on the inventory investment.
In summary without inventory management and planning processes operational, you are putting your business at high risk of excessive and unproductive stock or worse, disappointing customers, losing sales through the stock not being available where it is needed and devaluing your brand.
When we work both processes together, we are not only managing what we own, but we are enabling the business to make effective decisions on future sales, inventory, profit and cash flow.
So. Why should a small to medium-sized fashion business invest in an Inventory Management system?
Implementing an inventory management system is crucial for several reasons. It can greatly impact their efficiency, customer satisfaction and overall ability to drive continuous growth.
Here are the top three reasons.
1. Efficient Inventory Control and Optimisation:
An inventory management system helps in tracking and managing stock levels accurately. It enables businesses to know what items they have in stock, how much they have sold, and when to reorder. This is critical in reducing the risk of overstocking and understocking whilst reducing holding costs and stockouts. Efficiently managing inventory ensures that products are available when customers want them, ultimately leading to improved customer satisfaction and brand credibility.
2. Real-time Decision Making and Analytics:
Inventory management systems provide real-time data and analytics on sales trends, popular products, and inventory turnover rates. This information empowers the business to make data-driven decisions regarding purchasing, pricing, and promotions. With insights into where and what is selling well and what isn’t, the business can adjust strategies and decisions in play to maximise profits and minimise costs.
3. Enhanced Customer Service and Experience
An inventory management system allows businesses to fulfil customer orders accurately and promptly. With accurate real-time stock information throughout the supply chain, businesses can immediately confirm product availability and provide reliable delivery estimates. All of this contributes to a positive customer experience, increases customer satisfaction, and builds trust not only with your brand but with your team.
Ultimately, an inventory management system is a fundamental tool that empowers fashion businesses to streamline operations, make informed decisions, and provide excellent customer service. It optimizes inventory control and cash flow, aids in real-time decision-making, and enhances the overall customer experience. All essential factors for a sustainable growth trajectory in this competitive landscape.
Merchandise Financial Planning (MFP)
Compliments inventory planning and offers additional benefits to a fashion business. While inventory planning focuses on managing stock levels efficiently, MFP takes a broader financial approach, encompassing budgeting, sales forecasting, assortment planning and overall financial management related to merchandise.
Here are the top advantages for investing in an MFP principle on top of inventory planning for a fashion business:
1. Comprehensive Financial Management:
An MFP process and tools enable businesses to create detailed financial plans and budgets for merchandise categories, considering various financial aspects such as sales targets, margins, markups, markdowns and expenses. It allows for a holistic view of the financial health and performance of the business, aiding in better financial decision-making and forward strategic planning.
2. Sales and Revenue Forecasting:
MFP systems assist in forecasting sales, revenues and costs of stock and markdowns based on historical data, seasonality, overlaying market trends and other initiatives. This helps in setting achievable sales targets and aligning inventory requirements accordingly. Accurate sales forecasting is crucial for effective inventory planning and enabling the total business to have visibility and accountability to deliver the plan.
3. Assortment Planning and Product Mix Optimisation:
As an outcome of having a high-level merchandise financial plan, the team are enabled to drive better assortments and product mix to optimize sales and profitability. Hand in hand with this you are able to understand the cost and benefit of delivering your design-led, customer-centric range in the channels in which you participate. It helps in determining the right mix of products (width & depth) to offer, considering the factors of customer preferences, trends, pricing strategies, and profitability goals. Balancing the assortment ensures that the inventory aligns with the market demand and key financial objectives including cash flow.
4. Cross-Functional Alignment:
MFP facilitates collaboration and alignment across various departments such as finance, merchandising, and marketing, operations, and supply chain. It ensures that the financial goals are in sync with merchandise strategies, is executable at all points of the plan, and enables all teams to work towards a common financial objective, contributing to the overall success of the business.
In closing, incorporating Merchandise Financial Planning alongside inventory planning will enable your business to achieve a more comprehensive and strategic approach to managing what you love most – your products and your customers. Knowing what you have achieved, what is in play and what is ahead of you is the key to driving a collaborative, sustainable financial performance, and growth trajectory. Now that is exciting!
With over 20 years of experience in the retail industry, Deborah has developed a passion and expertise for merchandise planning, buying, and management, as well as systems and process re-engineering. Deborah has led and supported multiple teams and projects across various categories, channels, and markets, delivering results and value for some of the leading retail brands in Australia. Combining her retail experience with a passion for coaching and mentoring, Deborah collaborates with individuals and businesses to help them achieve their personal and professional goals.
Guest Author Deborah Donehue
How we can help at Fashion Equipped
If you would like to find out more and assess your business readiness for effective inventory and merchandise management, we offer consultations to help you define a clear and effective plan for managing your next biggest asset. Stock!
Email us at info@fashionequipped.com.au
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