Management 2000 Benefits

Inventory

Retailers make money from the stock that they purchase, and this can be managed continuously in terms of Gross Profit and Stock Turns using Management 2000.

Management 2000 has been designed to assist the retailer to measure and maximise the profit that is made.

As a by-product of using Management 2000 the Retailer can very accurately value the goodwill of the business and determine if it is increasing or diminishing.

Budgets And Open To Buy

Budgeting Overview

Generally retailers create budgets for one or more of the following purposes:

Financial Control - The Open To Buy Budget

An Open To Buy provides the highest level of stock control. All other stock management functions are performed after you understand your open to buy position. The Open To Buy report is retail summarised.

Two key factors contribute to a retailers bottom line:

	Gross Profit
	Stock Turns

Most other financial measures are a subset of of these two. The Open To Buy report is particularly powerful for analysing and controlling both these items, including many of their subset measures. Because open to buy budgets are at a high level, however, they are less useful for operational staff wanting to control their day to day merchandising functions.

Operational Control - The Bottom Up Budget

Generally, the open to buy budget answers the question "What are my financial goals for this season?". The bottom up budget, however, answers the question "How am I going to achieve these goals?". It is a process of converting the sales budget from the open to buy into detailed purchasing and promotional plans. Usually these plans are at an individual style/colour level.

Often it is useful to analyse a prior seasons sales at a detailed level as a basis for developing this season's bottom up budget. It is important however to ensure that you don't miss new opportunities or evolving trends by focusing on the past.

Motivation - The Employee Sales Budget

It is ultimately the sales staff that either achieve or fail to achieve a sales budget. Your ability to motivate your sales staff with clear goals and focused training will greatly enhance your ability to achieve sales goals.

Again the employee sales budget is derived from sales on the open to buy budget. It is spread across branches and days and ultimately allocated to employees for individual sales goals.

Creating An Open To Buy Budget

Creating a budget is the first step towards using an open to buy to control stock. Usually it involves the following steps:

1. Create a sales budget for the period, for example a season.

2. Forecast your opening stock at the start of the period.

3. Budget your closing stock at the end of the period. If you are over stocked at the start of the period, your closing stock may be lower than your opening stock if you intend to progressively reduce stock during the season.

4. Budget your orders, markdowns and write offs to achieve your forecast closing stock.

5. Review your stock turn to ensure it is appropriate and modify your budget if required.

6. Budget your purchase GP, and sales GP.

Comparing Open To Buy Budget To Actual

Comparing actual movements to the budgeted movements and taking action to remedy problems is the second step toward open to buy control.  A few scenario's follow:

Problem 1 : Sales are below budget.

Result : You are over stocked at the end of the period.

Possible Solutions : Identify the top selling styles with the view to repeating them using the Topstock and Supplier Analysis reports.

Identify the poorer performing styles with the view to promoting or discounting them to clear them. Again use the Topstock and Supplier Analysis reports.

Plan value adding promotions to increase sales. Use the Frequent Shopper and promotions modules to promote to existing customers or to create general promotions aimed at all customers.

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Problem 2 : Purchases plus outstanding orders increase potential purchases above budgeted purchases.

Result : You may be over stocked at the end of the period.

Possible Solutions : Use the Order Analysis report to identify outstanding orders which can be cancelled.

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Problem 3 : Markdowns are above budget.

Result : If the markdowns are the result of markdowns on the shelf, future gross profit on sales will be reduced when the stock is sold. If Discount and Promotion markdowns on sales caused the increase, gross profit on sales has already been affected.

Possible Solutions: Use the Discounts Analysis report to determine the cause of actual markdowns on sales. For example, one or more employees or branches may be issuing discretionary discounts well above average.

Use the Shelf Markdowns report to determine the source of markdowns on the shelf.

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Problem 4 : The GP on sales is below budget.

Result : You are not achieving your budgeted profit.

Possible Solutions : A poor GP can be caused by a number of factors:

Your potential GP on purchases is below budget. Use the supplier analysis report to determine the suppliers which contribute the most and least to your GP, and adjust outstanding orders or future purchasing strategies accordingly.

Discounts on sales are above budget. Use the Discounts Analysis report to determine the cause of actual markdowns on sales. For example, one or more employees or branches may be issuing discretionary discounts well above average. Identify markdowns on the shelf using the Shelf Markdowns report and reduce them if appropriate.

Creating A Bottom Up Budget

The open to buy budget forms the basis for the bottom up budget, with the bottom up budget's purpose to begin to achieve the sales, stocking and gross profit targets in the open to buy.

Often past history provides a good basis for developing a bottom up budget. The Seasons Sales Analysis provides detailed information which is useful for this purpose.

Your implementation of the bottom up budget will depend on your organisation's stocking methodology. Some retailers commit to 100% of their seasons stock at the beginning of the season. For these retailers there is little room for error and their ability to control their future mid season is limited. The focus is on clearing the stock committed to at the start of the season. Bottom up budgeting is not so useful for these retailers except at the season start where the budgeting can often be achieved using a specifically designed spread sheet.

Other retailers carry base stock, commit to a percentage of their stock at the start of the season, and leave room for mid season reorders. For these retailers, bottom up budgeting becomes more relevant particularly for base stock and mid season reorders. The Season Planner report is an ideal method for developing bottom up budgets. Each plan can contain one or more styles, or a story. Sales and purchases can be budgeted for a plan and these are compared to actual and outstanding orders as the season progresses. Plans are particularly powerful if they are combined with a marketing strategy focused specifically on the plan stock.

Creating A Branch Daily Sales Budget

The open to buy sales budget may be allocated to branches on a daily basis, and be used to provide goals for branches and sales people.

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