Demand Planning v Merchandise Planning
Generating profitable sales is the aim of all retailers and having the right product at the right price in the right location at the right time is absolutely essential. As always, it's easier said than done, so any insights in this regard are going to give the retailer a competitive advantage and make them more profitable.
Demand Planning is a critical function where the primary aim is to predict future sales orders. Typically it is driven by statistics (sales history) and possibly some independent variables, such as weather, seasons or events. In the classic demand planning process the business also seeks input from suppliers and customers - although in many retailers this is impossible as the customers are anonymous and too numerous to consult. Having generated a sales plan, the inventory plan can be generated to ensure there is adequate stock to achieve the sales.
Merchandise Planning is also a critical function where the primary aim is winning customers with the right merchandise offering. Having expressed it like that, we can immediately start to see a shift in emphasis from simple sales demand to entire product offering. Merchandise Planning involves:
Building a Range Plan (Assortment Plan) - having a balance of product, price points, attributes, end uses etc built around a structured product hierarchy.
Managing the stock throughout the season by not only pulling the supply lever (increasing/reducing/cancelling orders) but by applying the markdown and promotion lever.
Breaking plans and performance down to regions/climate grids/stores.
Allocating the stock.
Managing the product life cycle.
Reviewing the profitability of all the products - invest in the wanted items and divest the dogs.
Forecasting is still very much at the heart of merchandise planning but it is more holistic than just forecasting sales for a single product line.
Many retailers have demand planning functions in their organisation (and no merchandise planners per se) and are are extremely successful, so it's not a flawed process by any means and it probably suits certain product categories - maybe those that have long life-cycles. These same retailers offer comprehensive ranges, so at some point in the past, or perhaps by osmosis, range plans take shape and products come and go.
Other retailers have sophisticated merchandise planning roles, especially in fashion where product life cycle is short and customers' preferences are fickle.
Is one model better than the other? Is one right and one wrong?
In the final analysis, perhaps all retailers are practising the principles of merchandise planning and maybe the difference is those that do it knowingly in a structured fashion and those that do it in an unstructured way. The most important thing is to reflect on what you are doing, learn from others' experience and seek to improve.
