Inventory Planning: Start Broad, Then Break Down by Channel

As a multichannel retailer planning out inventory for various marketing channels, you should start with an all-encompassing financial plan, then work your way down to individual channels to ensure that each — retail, catalog and Internet — is appropriately stocked. Ray Goodman, vice president - technology for inventory management software solutions provider Direct Tech, described how to best go about multichannel inventory planning in a session at last week’s National Retail Federation conference in New York.

Start the process by conducting an overall financial plan at the top level for each channel and by setting goals for the year. Then, by channel:

1. Determine what’s needed to support each channel; conduct an assortment plan.
2. Conduct demand planning for each channel; look at the respective channels’ sales curves and break down what you think you can sell, when and at which channel.
3. Commence purchasing by determining allocations for each channel as well as the appropriate replenishments.

The planning process, Goodman said, necessitates an historical analysis, close attention to seasonality and an assortment plan. Assortment planning requires close attention to brand identity across channels. “Be consistent across channels with the same types of merchandise and goals,” he said. “Plan by merchandise hierarchy — by department and classification — and be sure it supports an open-to-buy plan.”

In making a financial plan, senior executives should set company and channel goals on at least a quarterly basis, Goodman said, although “a lot of larger companies conduct a constant review.” Then, review plans by channel and use that as a basis for generating your open-to-buy plan.”

In open-to-buy planning, company level plans must be balanced against channel plans. Channel plans are then balanced against merchandise hierarchy plans. “Make sure they’re tied up to channel plans,” Goodman advised, “by locking them in and bringing them altogether.”

Then compare this year’s open-to-buy plans to previous years’ plans so this year’s plan is consistent, Goodman said. Constantly compare your current plan to your budget to see where you can make changes.

“Channel planning is effective only if inventory is allocated to each channel,” he noted. “If you have two separate warehouses with the same products in each, know which products will be used to fill Internet and catalog orders, and retail store stock.”

Broken down by channel, each has its own characteristics so plan accordingly, Goodman said.

Retail: Consider all new stores, comp stores, seasonal curves and store attributes (such as climate and locale), Goodman said. Plan for initial stock quantities and back stock, as well as allocation of assortments to stores.

Catalog: Consider the number of catalog editions, titles and drops, response rate targets and the timings of mailings. “Those all affect assortment plans based on a new vs. a repeat strategy,” he said.

Internet: Consider how many different Web sites you have, landing page changes, e-mail campaigns and conversion rates. Also consider portal plans by planning for increases in volume for orders coming via Web portals. “Know what drives sales to your Web site, such as your catalog, TV ad campaigns, Sunday newspaper supplements and other modes,” Goodman said. “Then plan your assortments seasonally.

In making your assortment plans, determine your merchandise slotting and cross-channel merchandise (the items that are sold on all channels). For instance, if you have products only being sold at retail or in the catalog, “you may not want to have those items on your Web landing pages,” Goodman said. In sum, you wind up with three separate plans that come together in cross-channel forecasting, Goodman said. Keep those plans consistent across your three sales channels so you can have channel accountability.