Integrating Supply Chain and Merchandise Planning Presented by :

Nancy Marino

Contents The Art Of Merchandising Meets Supply Chain Science - 3 Pillars Of Retail: Supply Chain & Merchandising - 5 Planning - Getting Execution Right - 17 Customer Driven - 26 Integrating Supply Chain and Merchandise Planning

August 30, 2016

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The Intersection Of Art & Science! Let’s look at where we are today. Is it somewhere in the early exciting phase of retail transformation…or are we held back by the fear of failure?  We are at the intersection of the art and the science of retailing, converging on technological steroids, serving an omnipotent consumer who expects and demands satisfaction wherever they may be, whenever, how and how often and instantaneously.  Traditional brick-and-mortar retailers across all channels are in the process of seamless integrating technology, the Internet and mcommerce into a Digital Channel Model, while at the same time mining “big data”, configuring apps and selecting from the endless stream of experience enhancing gizmos, gadgets and augmented reality for the delight of their shoppers.  eCommerce pure plays are trying to get big, as fast as Amazon!  Advanced pure plays now understand that Digital Commerce needs to have physical stores to be everywhere the customer wants them to be: –

Warby Parker, Bonobos and behemoth Amazon

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Pillars Of Retail: Supply Chain & Merchandising  Retail is a complex industry to manage. Between the unpredictable seasons, finicky customers, and a volatile economy it presents a worthy challenge.  Two foundational business capabilities in Merchandising, and Supply Chain determine a Retailer’s ability to compete. -

Merchandising gets the Customers

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Supply Chain gets the Products…

 At the highest level, it is a simple concept. Buy, Distribute, and Sell. And as long as you can do that profitably, you are in business. That is where the rub is – profitably – an average retail department store can have tens of thousands of items to start with and adding to that is the sheer number of independent variables, that a retailer must contend with, in planning and in the execution….it is mind boggling.  However, understanding the two key processes in merchandising and supply chain can make or break a retailer. Building functional capabilities in these areas to flexibly address business needs can give a retailer competitive edge.

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Merchandising & Supply Chain Get the Customer’s Attention: Merchandising  Merchandising is one of the most integral and challenging functions within the retail company. Delivering on the expectations of today’s “commerce anywhere” generation requires a seamless merchandising process, one that can support a transparent retail experience, at scale and across multiple channels and geographies.  Merchandising truly defines Retail. It is what makes a retailer unique, and provides the “niche.” It provides the retailer its “identity.”  Wal-Mart shoppers know they will get “lowest prices,” but not necessarily the service, or variety.  Upscale retailers like Neiman Marcus on the other hand are “identified” more with service and a “lux image.”  Merchandising has various sub-functions. It has a financial aspect and an assortment aspect.  The Supply Chain defines the competitiveness of the retailer.

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Age Old Adage Truer Than Ever Merchandising has always been about: -

Right product Right place Right time Right price Right size

Being Global / Multi-Channel means getting this right is more important than ever!

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Merchandising Discipline Begins with the processes that:     

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... strategy, design, people,

process, technology, and performance management

CREATES (Product Design) PLANS (Planning, Supply Chain Forecasting and Assortment) ALLOCATES (Merchandising) MANAGES (Planning & Supply Chain) FULFILLS (Logistics)

....are ALL involved, to varying degrees. This is why Process Integration, along with Process Design, is so essential.

Merchandise Planning: A Consistent Process  Similar Thought Process Season to Season  Alignment Across Division / Department  Consistent Partnership & Expectations  Well Defined & Understood KPIs  Good Reports Requiring Little Manual Intervention

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The Challenges: Integration Across The Business

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Integration Creates A Seamless Merchandising And Supply Chain Network  Informed merchandising leads to being right more often. Corporate forecasting based on sales trends is not good enough. Retailers must create synergy between corporate and the enterprise for a “bottoms up approach” for informed decisions.  Customer-led insights: Harnessing customer insights to enable retailers to create better products, leading to higher margins.  Culture of fast innovation: Accelerating concept-to-shelf time and shifting the way retailers approach product innovation.  Partner network enabled: Forging innovative arrangements with network partners to collaborate on more differentiated products.  Being fast.  Repeatable platforms: Finding synergies—from product to product and season to season—for faster, more flexible production.  Integrated planning: Combining plans that connect each stage of the product value chain—from merchandising to assortment to replenishment.  Multichannel supply chain: Developing a multichannel supply chain backed by a dynamic order management system, allowing cost-effective fulfillment across channels.

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The Goal - Business View: Product. Placement. Price. Promotion.  Merchandise planning is primarily the top-line play for a retailer. Its’ importance does not diminish for mature retailers, though the strategy for mature companies normally shifts from top-line growth to bottomline improvement; and therefore, cost control becomes more important than growing the top line. And that is where Supply Chain becomes most important.  Business strategy alone can direct, but does not deliver. It can set the direction, provide objectives, specify the desired corporate goals, but does not take you there.  Meeting the expectations of customers by providing the right product in the right place at the right price to meet demand.  Supply chain capabilities define the cost basis, and hence directly affect the competitiveness of a retailer. After the cost of merchandise, supply chain costs are the most significant costs for a retailer. Even a small savings on these costs can mean millions of dollars directly going into the bottom line and supply chain costs are directly controllable through better planning, optimization, and execution.

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What Does It Take To Win? To state the obvious, if consumers have unlimited and instantaneous access to whatever they want, either a key tap away or in a store, then to win their purchase over hundreds of equally compelling competitors, retailers will need to:  Provide online and offline shopping experiences that are so compelling that will make their consumers neurologically addicted.  Develop seamless integrated Multi-Channel distribution platforms that will pre-emptively deliver the products/services first, faster and more often.  Be able to successfully implement strategies and must have a vertically integrated value/supply chain.

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The Connected Customer - At All Times Personalizing Shopping  Brand image & communication  Targeting your customer - Gender (appeal to Women, Men, Kids,…) - Social Group/Tribe (Eco friendly, fashionistas,…) - Value awareness (price only, value conscious, fair trade,…)  Availability (sizing and choice)

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Transformation Of Channel New Challenges - New Opportunities  Buy Anywhere….Pickup Anywhere….Return A Lot….Ship Everywhere from Anywhere…Click to Collect….Localized Assortments….Endless Aisles….Brand Extensions….Global.. Franchise….Available to Promise Economic Order Quantities… Service Levels…Lean Inventory Management…Ship From Vendor…Third Party Fulfillment Centers….Ship from Store…Consolidation Centers….Paid Search…Conversion Rates….Backorder Forecasts.. Capacity Plan…Flow Plan…Sample….Design Test and Learn…Exit Strategy……Transfer Consolidate….Back Stock….Floor Ready… Promote…Promote…Promote ...  If you don’t put the right product in front of the customer none of this matters!

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Business, Functional & Strategic Alignment For Execution

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Integrated Planning Overview

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Merchandise Planning Top Down Merch Plan Division / Department

Store Plan

Assortment Plan

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 Merchandising and Planning align thru Receipt & IMU reconciliation at key intervals throughout a season.

Bottom Up Merch Plan Merch Cat / Class

 Finance, Planning, and Merchandising will come together on Sales, Inventory, Cost, etc on a monthly basis.

Style / Line Plan Basics / Key Item Plan

 Sales / Store operations provides input at critical milestones to ensure the assortment aligns with consumer demand.

Purchase Orders Allocation Replenishment

 Marketing develops programs aligned with merchandising strategies and in conjunction with financial objectives.

Supply Chain Planning

Supply Chain Planning:  To create the best possible Supply Chain forecast by capturing demand as close to its source as possible, and achieving this with the least effort.

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The Story So Far Top Line Findings:  Retailers continue to be challenged by consumer predictability but often fail to realize that this is as a result of the increase in cross-channel shopping, where pricing and inventory availability is transparent - understanding that organizational conflict between merchandising and supply chains get in the way of a rapid response to shifts in consumer demand.  Accept It – Times Have Changed: A buy anywhere/get anywhere selling model is a basic business tenet…that means defining the store’s role in the supply chain from being purely on the receiving end, to being an active participant, as both a destination and a source of inventory, since the customer “carries the store with them.”  “Go Faster:” The supply chain is both slow moving and the most

complex, and is the source of the biggest opportunity to actualize profits!

 Follow “King Arthurs” Example: Of a management roundtable as it relates to retailers and their supply chains meeting to resolve issues should be standard for S&OP!

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Are You Adapting As Fast As The World Around You?

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Today’s All Channel Digital Universe

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Supply Chains Are Complex Bridging the Gaps Caused by Supply Chain Complexity:  The supply chain is becoming more complex but running them does not need to be complimented as feature-to-function rich scalable and flexile solutions can bridge the gap and generate faster return on investment.  Customers are demanding more services, greater visibility and value, and delivery times are getting shorter. In order to take advantage of the efficiencies offered by technology there is a need for integration with data collection services, such as RFID readers to improve efficiency.  The requirements of a streamlined supply chain that drive value across the supply chain can be sorted into four critical performance areas: - Synchronization of end-to-end activities – from raw material to the delivery of the end customer – improves visibility and collaboration. - Increased efficiency by tracking and measuring key events to improve and drive productivity and transparency across the supply chain. - Minimize inventory costs and optimize the distribution process through demand planning. - Maximize customer service data to support more complex operational needs and on-time reporting.

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The Goal - Visibility Visibility to drive down costs and exceed consumer expectations:  Consumer demands and market conditions are constantly shifting impacting the need insure that the merchandising plan is based on up-to-date, accurate customer and competitor data? Need to ask…if the planning and sourcing processes are fully integrated with logistics and delivery? Insights, integration and collaboration across the merchandising and supply chain ecosystem, will ultimately drive down inventory levels and the cost associated with placing the right products on the shelf to meet customer demand.

The advantage - Keep stock of your inventory and keep your customers by:  Enhance buying, sourcing, inventory levels, and overall item management by optimizing core merchandising and supply chain decisions.  Improve merchandise, assortment and space planning by planning and executing buying decisions with an aggregated view down to the shelf in response to customer demand and trends.  Optimize supply chain planning, forecasting and replenishment by using consumer demand data to provide an integrated set of order forecasts which gets products from suppliers or distribution centers to the shelf at the right time.

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View Of Global Strategy Flow

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The global supply chain strategy flow simplifies a typically complex set of processes by leveraging the power of customer, product, and supplier information to drive accurate and timely decisions yielding higher margins and satisfied customers.

Marketing & Customer Strategy

Merchandising Strategy

Promotional Planning

Business Review

Assortment Planning

Financial Op Plan

Supply-chain Strategy

Network Planning

Source

Execute

Product Selection

Promo Execution

Product Development

Product Sourcing

Logistics Planning

Item/PO Mgmt

Presentation (POG)

In-Season Management

Customer Experience Retail Wholesale

Allocation / Replenish

Logistics Execution

Organizational Alignment and Performance Management Portal/Business Intelligence Application and Data Infrastructure

Business Analysis

Post-Season Analysis

Markdown Management

Plan

Markdown Management Rolling Operation Forecast

Corporate Strategy

Post-Season Analysis

Know Your Customer: Who - What - Where

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Technology For Success Creating the Right Recipe:  Multi-Channel is testing the mettle of retailers as nothing has before. It requires not only high quality in every ingredient, but also the ability to blend them all together into a five-star customer experience.  With digital-commerce functioning as a thriving sales channel, and social media as the next generation of customer communication and mcommerce applications that will generate sales in the future, Tier 1 retailers are caught in a situation where their channel-segregated planning and merchandising processes fail to maximize their customers' shopping experience.  While the use of technology has done much and will continue to advance the integration of consumer behavior data from various channels, retail merchants must break out of their physical- store or digital-commerce channel focus, to see the overall customer profile. Good merchants will strive to provide a compelling shopping experience for the customer, regardless of the sales channel.

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Enhancing The Customer Experience

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What Are Retailers Needs For AllChannels?  One consistent Brand Image.  Integrated solutions that share services, data, inventory e.g. Merchandise Planning and PLM.  Multi shopping points.  Flexible supply chain to protect service levels and fulfilment.  Total complete picture of Brand demand – increased channels doesn’t always increase demand as there can be cannibalisation.  Understanding consumer purchasing habits – retailers now open “24/7.”  Flexible assortments reflective of customer profiles by channel.  Consistent pricing and promotions strategies.  One-to-One Marketing – or perception of direct customer service – customized to the needs of the customer.

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Critical Success Factors

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Turning Tactical Supply Chain Design To Global Strategy

 Today it is critical to the overall business strategy for the supply chain to be integrated with merchandising as a core business function, and use this competency as a competitive advantage. By optimizing the end-to-end business process to improve service levels, identify major cost savings, reduce risk, and stay ahead of other companies within their market segment to improve costs, efficiency and performance.  Required components: Technology, People, Process. Having great technology and great people, but no corporate process for supporting the team members with leadership and implementation strategy will limit improvement to overall operations and profitability KPI’s.  Three phases to creating a center of excellence: 1.

Go after quick wins: enables justification for longer term projects.

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Establish a shared service center: visibility from design, merchandising and the supply chain to see across the entire business to optimize the true end-to-end business functionality.

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Put parallel focus on game-changes: Team effort in collaborative tactical functions - chain operations for a competitive advantage, leveraging costs for greater ROI.

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Global Merchandising Strategic Planning Leading Practice for Global Brands

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Benefits

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People - Power - Places - Product Placement The 5 P’s are the cornerstone of retail strategy and in the new age where the customer is value-conscious, always on, mobile-enabled, armed with information and has an abundance of product and channel choices retailers need to be able to execute to create a “WOW’ consumer experience:  People: Increasing focus on employee engagement and productivity within and outside the four walls.  Power: Consider the growing role of the multi channel brand and how social influence and global supply chain play into the environment.  Places: What are the trends shaping the future for consumers to purchase, exchange or make returns, be that via physical store, catalog, mobile or ecommerce website?  Product: If product is not right nothing else matters….followed by getting the right inventory across all channels and expanding delivery options!  Placement: Creating and executing a clear and effective brand placement strategy that reaches a wider number of customers.

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Key Takeaways: Customize. Connect. Converge. Collaborate Successfully engaging customers by way of the Multi-Channel is no easy task. At a minimum, it requires retailers to: • Develop a consistent view of customers across channels. • Leverage – in real time – demand generation and fulfillment data across stores, e-commerce, mobile, search and social. • Manage consistent master data for customers, products, marketing and locations across channels. • Utilize business intelligence – including predictive analytics and data visualization – to quickly identify actionable insights. • Establish enterprise inventory visibility and multiple fulfillment capabilities. • Link marketing, merchandising and the supply chain along customer centric lines. • Create localized/personalized experience through product, marketing and other touch points.

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GET IN TOUCH Nancy Marino

516.448.9994

[email protected]

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