Tag Archives: buying

Cash is King and Inventory is Cash

As a retailer, inventory is the most important asset on your balance sheet. Not only is it a major part of the value of your assets, but also the driving force behind generating revenue and profits. And yet, many retailers do not have a basic understanding of balance sheets and inventory, and why merchandise planning matters.

Pen, business items, and business documents with numbers and charts. Concept of workplace of the businessman.

 

Inventory, or merchandise planning, can seem complex. Ask a handful of retailers what makes a successful merchandise planner, and you’ll be given a handful of different answers. Planning sales and inventory to successfully control your cash and increase profitability is crucial if you want to survive in today’s economy.

Through my experience in working with troubled retail businesses (I was the outside consultant that discovered the inventory problem at Dick Smith), I have always increased the focus on merchandise planning. The person in charge of inventory controls the business. When this function is not controlled, the business can spiral out of control quickly.

Merchandise planners vs. buyers

While both a merchandise planner and buyer work together to keep a business running, their roles are separate. The Buyer decides what to buy and the Merchandise Planner decides how much to buy. These roles need to work closely together, but must not report to the same managers, a mistake some retailers make.

Merchandise planning is the science of Retail (see Science vs Magic). It relies on data analytics and is all about facts. They set and control the OTB. The best Merchandise Planners are highly analytical and often come from accounting or IT backgrounds.

Merchandise Planners:

  • Set and control the OTB (Open to Buy)
  • Forecast future demand (based on history)
  • Develop product hierarchies
  • Should report to the CFO/COO or someone with responsibility over inventory levels and cash flow
  • Manages obsolete stock and end of life markdowns

Buyers:

  • Is the magic and vision
  • Need to push the envelope and think outside the box
  • Identify trends and targeted demographics
  • Understand other markets and how they relate to their market
  • Should report into a Sales and Marketing function

Why are merchandise planners so important?

Ultimately, Merchandise Planners control the purse strings in the business by controlling the inventory. They set the strategy to enable your company to buy the right amount of goods at the right time and at the right price to deliver sales and margin targets.

If buyers control everything you will end up with higher sales, but have bad stock turns and obsolescence issues. If Merchandise Planners control everything, you will end up with perfect inventory, but no sales. The mix has to be right to succeed.

See also:

Science vs Magic

The Buying Pyramid

Merchandise Planning vs Buying