MFP or Merchandise Financial Planning, is one of those retail acronyms that is used to mean different things, which makes it very confusing. Whilst WSSI (Weekly Sales, Stock and Intake) is a term for a tool that means pretty much the same thing to everyone in retail and is software agnostic, MFP is much more nuanced. So much so that even those well-versed in WSSI and Merchandise Planning may well find themselves asking:
- What is MFP?
- Do I need it?
- What does it add?
First things first:
MFP is much more of a software term than WSSI, and consequently, each software company uses MFP to mean slightly different things. They all operate in the same context of supporting pre and in-season planning and trading at an aggregated level of the hierarchy, but the term can be used to describe various different stages.
In its purest sense, MFP includes:
- Financial target setting by the finance team – high-level
- Commercial target by the merchandise planning director / head of – high-level
- WSSI planning by the merchandise planning team – mid-level
- Location planning – done by different teams in different retailers – granular
But different software companies may use the term MFP to mean only some of the above. And they tend to state it with such confidence that it can be a little intimidating to ask “What do you mean by MFP”, but it is a very fair question and simple for them to answer.
Let’s take each of the stages/tools in turn:
Financial target
The finance team set a target for the year, season, half at the highest level of the product hierarchy (company or division) and the channel/region hierarchy depending on the size, complexity and strategic direction of the business. This target has limited metrics, usually sales based on Like for Like (LFL) growth, profit/exit margin and stock target based on cash flow. Finance will have based this on current performance, market conditions and true company profit requirements (including all costs not just commercial buying and merchandising costs). In essence, this target is about “what” we want to happen.
Commercial target
The Merchandise Director/Head of comes from a different point of view, they are looking at the current performance of the product, channels, regions, and suppliers and building their view of the future year, season, and half based on the risks and opportunities they see from a commercial perspective. The commercial target will have more metrics – typically:
- Sales
- Stock
- Intake Margin
- Profit/Exit Margin
- Cover
- Markdown
And will be at a lower level of the product hierarchy though still at the high level of channel/region hierarchy. This target is about “how” we will deliver what we want.
WSSI
The Merchandise Planner works with the same metrics as the Merch Director/Head of but at a more granular level of the time and product hierarchy – they are planning at week level and at category or even subcategory depending on the size and changeability of the business. They are taking the “how” a step further and planning the metrics in detail to establish the Open to Buy (OTB) – what product needs to be delivered by when and to where to reach the agreed sales target, whilst staying within the terminal stock targets.
The WSSI begins as a pre-season planning tool and becomes the tool everyone uses to monitor, review and react to sales performance during the trading period. It connects the past, the present and the future and will be used in multiple seasons at once as appropriate to the product lead time.
Location plans
The appropriate function works at a high level of the product hierarchy and at a granular level of the location and time hierarchy. They use history and LFL expectations to build up a picture of “where” we will achieve the targets. They will look at store openings and closures, competitor openings, channel and region growths and declines to establish the potential risks and opportunities.
Why do I need so many plans?
MFP is critical for the effective connection of your top-down and bottom-up plans, it is there to support management of sales, stock and intake, and the avoidance of high markdown costs when things don’t go to plan.
The tension between financial targets and commercial targets is critical to the profitability of the business – having a healthy tension between “what” we want to deliver to push for the best return, and “how” we will deliver it to ensure it is realistically possible is important to the health of the business. Whilst in many seasons there will be little debate, the numbers will broadly align usually, but on the season where they don’t, that debate and fully impact assessed decision can be absolutely critical.
At each of the 4 planning points, there should be a reconciliation step – not direction given and a winner but true reconciliation to ensure that the risks and opportunities have been fully stress tested and you have a sound footing for the year, half, season ahead.
Different product groupings and channels will be behaving differently, planning with MFP systems allows you to potentialise the opportunities and pull back on the declining/risk areas instead of just seeing the top line and buying into the wrong product – spotting and reacting to decreasing areas in time is just as important as getting into the newness.
Pulling this information together should be simple, with the history automatically available and used to seed future seasons, allowing teams to focus on the decisions and actions.
Without an MFP system, you may find that you have unwittingly created a cottage industry of Excel spreadsheets which pull information from myriad systems to give you what you want – whilst leaving your teams little time to do value add work.
Let’s put the question another way; how are you operating without MFP?
Benefits of using MFP
As a team of retail experts, it’s perhaps no surprise that we’re passionate about MFP at First Friday. Our clients regularly confirm its importance to them too, and often cite the ease of decision-making due to the speed at which they can assess things such as:
- How much more stock is needed to meet the anticipated level of sales
- What events might be needed to boost/maximise sales
- How much stock needs to be phased back to react to sales at lower than planned levels
… when all the data is in one place.
“Never be without MFP. It should be the cornerstone of a business. The key/art is knowing how to use it effectively to manage your business. There are big wins to be gained.” – Merchandising Director
We are almost always working on at least one MFP project, from driving design workshops, creating the process mapping and people skills required to set up and launch new software, supporting the change activity vital to ensuring that the business will adopt the new systems and processes, so realising the benefits. Working with so many software providers can mean we are well-placed to support with the selection of providers that are right for your business. And we are experts at developing and delivering training which addresses both the system and the ways of working it will support.
