Good planning — and taking advantage of today’s modern data resources, analytics and science rather than relying on guesswork or emotion — is one of the keys to being a successful retailer.
That was the message during a gathering of Oracle Retail customers earlier this year in New York where a panel of retailers discussed how they are using Oracle Merchandise Financial Planning to help manage investment in inventory and increase profits. Panelists included Eduardo Smaniotto, senior supply chain director for Brazil’s Paquetá; Frazier Blair, vice president and general merchandising manager of Orvis Corporation; and Chad Stroup, senior manager of business insights and analytics with The Walt Disney Company.
The three companies are very different, but each shares the need for good planning.
Paquetá is both a shoe manufacturer and shoe retailer, Brazil’s largest by far in either category. The company makes around 65,000 pairs of shoes a day, operates 154 multi-brand stores plus about 140 franchise stores and has about 16,000 employees.
Orvis is a fairly complex company, Blair said. The core of the brand is fly-fishing, though Orvis also sells men’s and women’s apparel, accessories, dog paraphernalia, hunting gear and other outdoors-related merchandise. It operates in six categories in two countries (the United States and the United Kingdom), is both a wholesaler and a retailer, and has a substantial direct sale operation, both through catalogs and its website.
As a large global operation, Disney is even more complex; Stroup’s operation serves the retail outlets at California’s Disneyland and Florida’s Disney World, on Disney’s cruise ships, in the company’s non-park resort properties and in its theme parks in Hong Kong and Shanghai.
“What we wanted to do was to go out and drive sales, which meant planning sales, planning profit and then planning inventory.” — Frazier Blair, Orvis
Balancing science and emotion
Paquetá had a sort of two-pronged motivation, Smaniotto said, one of which is that shoes are a fashion-based business. “We know fashion changes very rapidly,” he said. “It used to be that you were facing changes every four or five months. Now it’s starting to change every month. So planning is definitely important.”
The other side of the coin was the desire to impose some science on the business behavior of the company’s buyers. “Buyers are easily impressed with new merchandise,” Smaniotto said. “They frequently act on emotion and buy too much of what they don’t need. A lot of money is at stake when you have a planning system that simply provides support for the decisions of the buyers.”
Smaniotto says fashion buying is 90 percent technical and 10 percent emotional. The technical part involves understanding both the company’s sales history with current and previous merchandise as well as current trends.
“At the end of this,” he said, “the 10 percent of emotion comes in, where you really do have to have a little feeling to choose one among 10 options.” But, he notes, the intellectual part has to be there first. “We have a lot of stores, so if you make one mistake, it can be a big one.”
Planning to drive sales
For Orvis, the decision to implement a planning solution was not to impose control on buying, but to support a change in business strategy. “Even before the implementation,” Blair said, “we had become very proficient at managing the company’s inventory risk. What we wanted to do was to go out and drive sales, which meant planning sales, planning profit and then planning inventory. When we thought about that journey, what we knew we needed to do was to implement the foundational system first. We started there and went live in July of 2017. Now we’re starting to do discovery around the next steps.”
“Planning has been planning for years. Plan the sales, plan the inventory, next week see what happened, calculate the cost of change. But now, with all this very structured data, we’re able to do analytics we couldn’t do before.” — Chad Stroup, The Walt Disney Company
At Disney, the primary impetus wasn’t planning at all; it was forecasting. The in-house Disney retail business is heavily driven by events — movie premieres, new theme park attractions — which in turn can produce unexpectedly intense demand spread across a very large inventory. “Once we got forecasting in place,” Stroup said, “it was clear we needed to replace our existing planning system. There can be thousands of products to support a theme. We’ll sell, like, five of the items, but we realized we had to make sure we managed inventory properly to achieve our plan.”
Stroup said he encountered some initial management resistance to implementing the new planning system. “Finally I made a business case for it and got the money. I made it clear that the way we’re going with franchises, and the films and events we’re doing, we needed a system that could really help us manage the inventory.”
“Before, there were a lot of discussions about who had the right number. Everybody had a spreadsheet — the buyers had a number, the planners had a number, finance had a number. Now there are no more discussions. There’s just one number.” — Eduardo Smaniotto, Paquetá
How planning changes
“Planning has been planning for years,” Stroup said. “Plan the sales, plan the inventory, next week see what happened, calculate the cost of change. But now, with all this very structured data, we’re able to do analytics we couldn’t do before. We’re running programs and algorithms that automatically define the cost of change and produce reports for our merchants and planners that say, ‘Hey, this is what happened, this is where the issues are, these are the things you have to address.’ No longer do you have to go into the system and look for that.”
Smaniotto said there have been extensive changes within Paquetá, for several reasons. One is that the company now obeys the classic Oracle maxim: Have one version of the truth. “Before, there were a lot of discussions about who had the right number,” he said. “Everybody had a spreadsheet — the buyers had a number, the planners had a number, finance had a number. Now there are no more discussions. There’s just one number.”
Beyond consistency, Smaniotto said, the Merchandise Financial Planning tool has been very helpful to Paquetá in dealing with the current state of the Brazilian economy. “Our economy has been struggling for three years,” he said, “and our sales have been dropping drastically. You’re selling less, so you have to buy less. But buy less of what? Where do you cut?”
Paquetá has used MFP to plan the cuts so as to produce the maximum reduction in inventory with the minimum effect on sales. “We end up canceling 21 categories of product, which brings us down 10 percent on inventory and only 2.5 percent on revenue.”
The Orvis implementation is new, but Blair and her colleagues are already able to see some basic changes in the business. “The whole company is now working to be aligned around a plan,” she said. “Before we started this project, we were often investing before we had a plan and reconciling afterward. Now we have a plan from MFP and everybody — the inventory teams, the planning teams, the financial teams, the marketing teams — rallies around it. That’s a tremendous difference from when we started.”
Peter Johnston, a freelance writer and editor in the New York City area, can be reached at firstname.lastname@example.org.