Merchandise Planning vs. Buying

There is a difference between Merchandise Planning and Buying. Within a business these two functions should be separated as much as possible and should report to different managers. This is a concept that I am very passionate about and have used in many projects to improve a GMROI within retail/wholesale businesses. Inventory is your number one asset and needs to be controlled and managed properly.

There has to be a close working relationship between the two, but these two departments should also challenge each other and push for perfection.

Merchandise Planning is about the science in retail. It is highly analytical and relies heavily on data. It is about facts. Merchandise Planners most often have accounting or IT backgrounds. Without stereotyping, I have found the best merchandise planners to be from England, South Africa and the US. They tend to be more pragmatic.

Merchandise planners implement structure where chaos often exists. By using past data they plan future demand. They control the OTB (Open to Buy) and will manage how much to buy within specified, agreed, hierarchies. They will match the OTB back to budgets and forecasts and adjust for overselling or underselling (something that many retailers overlook). Referring to my article The Buying Pyramid, they love to buy for the bottom section – basic / core product – because it is logical and easy to formulate. The Merchandise Planning department should report into a senior executive that is responsible for inventory levels (if you don’t have someone responsible for this, you should) and overall budgets, usually a CFO. Merchandise Planners should also control markdowns and obsolete inventory.

Buyers are the magic in retail. They understand that trends change and that a business needs to be ahead of the trend to be truly successful. Buyers know what is happening in other markets and can translate that to their own markets.

They are more visionary and will want to push the envelope and will always be looking for the next best thing. In my article The Buying Pyramid, they love to buy for the top section, the window dressing, the fun and exciting product that few people buy. Buyers should report into a sales / marketing senior executive that is responsible for revenues. Buyers should control promotions, with the help of the Merchandise Planners.

Keep in mind that these rules, like most rules in business, are not a rigid set of rules, but a philosophy. There is not a list of ten rules to follow to be successful in retail operations. Philosophies would revolve around:

  1. Communication – merchandise planners and buyers have to work closely together
  2. Integration – data has to flow seamlessly between all areas and be accessible to everyone
  3. Discipline – there has to be checks and balances to keep things under control and the inventory sales and gross margins to budget

See Science vs Magic

See The Buying Pyramid