For retail merchants, the discipline of Financial Planning & Analytics (FP&A) may seem remote from the core activities of selecting, buying and selling goods to shoppers. Yet it is critical to the planning process, and can be seen as the “beating heart” of planning for retailers. It is also a core function of Integrated Business Planning (IBP) which can be defined as the “ability to translate the strategic plan into a strategy that coordinates the company, can be measured and can be checked.”
Despite the important role it plays, FP&A — the core of IBP — is not a reality for many retailers who are still in the early or middle stages of digital transformation. Yet the benefits are numerous and significant, with five key area where FP&A excellence can truly transform a retail business:
- Merchandise financial planning. While merchandising may be regarded as the core “creative” aspect of the retail business, it is also the primary driver of revenues. FP&A brings greater certainty about the financial impact of merchandising choices.
- Category planning. Category management is a multi-factor activity, where moving one lever can impact others in unexpected ways. This is an area where data automation built into an FP&A platform can speed decision-making and evaluation of alternatives.
- Store operations. Operators can ensure on-shelf availability and high service levels by leveraging highly reliable demand forecasts with local granularity. The forecasting functionality is also vital for planning initial allocations for new stores.
- Sourcing. Understanding the total cost of goods and applying those data to support fact-based supplier negotiations is another way retailers are gaining an upper hand. Managers can easily compare and contrast alternative sources that incorporate cost of delivery, lead times and past reliability
- Supply chain/logistics. Retailer practitioners can gain greater flexibility when responding to unexpected supply disruptions, both within the corporate distribution infrastructure and external to the organization. FP&A enables a more agile and responsive process for confronting unexpected events that can affect delivery quantities and timing.
Financial planning is absolutely vital to the formulation and execution of retail strategy, and of central importance is its strong overall capability to manage cash flows, operational costs and inventory investment. While at the moment the need for stronger planning and human decision making is driving innovation, there are exciting and innovative possibilities to explore for retail enterprises who make FP&A a priority now, including around things such as routine decision-making. There is significant potential for retailers who have taken FP&A to heart, and in today’s new normal, the need to adopt it has never been greater.