Defining an Effective Operating Model
Having completed a 5-week brief at an international department store group to create a seasonal merchandise plan we were asked to implement our recommendations to introduce merchandise planning across the business.
With a high brand mix the retailer had become very buying led and this had resulted in significant overstocks and a rollercoaster of sales and profit performance. Recognising the need for greater control, the finance team had stepped in to implement greater discipline. Whilst a finance team had absolutely imposed control they were not commercially focused enough to maximise the opportunities.
This is where merchandise planning comes in: analytical enough to be able to quantify risks and opportunities, commercial enough to be forward-thinking and realise the potential.
The first step was to ensure we were all on the same page about what merchandise planning is – the leadership team was fairly international and different countries use the terms buyers, merchandisers, merchants, planners to refer to quite different skills. So our training team ran an off-the-shelf Introduction to Merchandising course with the senior leadership team.
All of our trainers have done the roles in real life so we were able to facilitate a very productive set of sessions where the leaders could sanity check their understanding by sharing examples of their ways of working and challenges. It was a very constructive two-way conversation that meant their knowledge increased and our understanding of their business developed.
Using this insight, we:
- Modified our standard Operating Model for retailers with a high level of newness
- Reflecting terms that were familiar to them
- Including processes which were specific to their model
- We used this as a base for workshops
- Walking through the activities for a single season, by function
- Ensuring all the leadership team understood how other retailers similar to them work
- We asked them to talk to us about their business at each of the 6 stages (Strategy, Plan, Buy, Move, Trade, Learn) of the Operating Model and stress tested against the proposal
- We explored the challenges
- Worked down to the root causes
- Captured dependencies
- Revised the model where there were true differences from the vanilla proposal
In a department store setting where there are multiple product types and business models it is critical to align the common touchpoints, the elements which are genuinely true for all before getting into the very real differences.
Electronics and Fashion do not operate in the same way in the detail, but at the macro level they go through the same stages and robust management of the whole requires clear comparisons and visibility. Equally system investment must be sure it is the most efficient possible looking at both the difference and the similarity between areas. Starting from what’s common gives you the best chance of maximising this.
Working this way deepened their understanding of merchandise planning as well as aligning the leadership team on a shared end goal and giving them ownership of that vision.
By capturing the dependencies, benefits and challenges during the workshops we were able to create a prioritised plan to move them towards the end state on which they were all agreed, so building commitment from the beginning.
For this retailer, 1-2-1 coaching of their senior merchandise planning team was a critical recommendation as none of the individuals had seen this way of working and needed in-depth support throughout the cycle to enable them to lead and develop their teams.
We broke down the next steps into quick wins and mid to long-term requirements. For example, in common with many retailers, they needed to work on the organisation of their data to support analysis and ongoing system development, which can take a little time. Alongside this, we built training on basic concepts of merchandise planning such as how to plan Basics vs Fashion product, how to do size breakdowns effectively, how to manage stock balances across seasons, etc, in order to begin upskilling the teams.
Implementing a new operating model is a journey and requires both capacity and capability to grow. This retailer is operating in a market where expertise is scarce and together we are building the team from within, piloting organisational change and being mindful of the different emphasis for each area in the business.
Already their data is in much better shape, and they have pragmatic tools to build their understanding of the connections which lead to consistent performance. Their ranges are better structured with commercial thinking at the heart of delivering results.
By developing pragmatic tools initially and using them as their capability increases, they are able to refine the way they want to work and ultimately select systems which will give them genuine benefit.