Merchandise Planning vs. Pricing and Markdowns: A Discussion with Paula Rosenblum on Retail Blind Spots – Part II

In recent “Blind Spot” research on softlines, hardlines and grocery retailers, Paula Rosenblum, managing partner of Retail Systems Research (RSR), found that retailers are struggling with underperforming inventory and people issues. In Part I of this series, Rosenblum discussed retailers’ obsession with pricing and markdown solutions, while not appreciating the value of good merchandising. Here are more excepts from that discussion.

SCN:      The biggest problem for grocers (see: What’s in Grocery Retailers’ Merchandise Planning Blind Spot?) is underperforming inventory caused by the merchandising and supply chain organizations not working together, perhaps because they aren’t incented to do so. How would you get them aligned and what are the benefits?

Rosenblum:  This is a senior management issue. People do what they are paid to do. This is my point of view—people don’t do what you ask them to do, they do what they are paid to do. If you want the merchandising and supply chain teams to work together, you can’t just evaluate supply chain based on their cost as a percentage of revenue, and evaluate merchandisers on the speed with which they turn inventory. The supply chain team is looking at most economic order quantity—the most efficient way to deliver product rather than the most efficient way to flow it through stores. Because this team is incented on their costs as a percentage of sales, it is in their best interests to deliver larger loads less frequently. If you can better align the organization so the supply chain team is thinking about how to better meter product in, then you will get a better result.

I would incent the supply chain organization on inventory return on investment. The benefit would be that they would start to see the advantages of metering the product in in smaller drips and drabs more frequently.

SCN:      A recurring theme across all of the retail blind spot reports is that people issues and resistance to change are bigger inhibiters to merchandising success than lack of technology. What should retailers do to overcome these people issues?

Rosenblum:  This has been an issue forever, for as long as I have been in retail. It is a function of human nature—people don’t like to change. It’s really that simple. The way you overcome this, besides the incentives I mentioned earlier, is to find those people in your organization who are less change-averse and risk-averse than others, and put them in leadership roles—not with responsibility for technology projects, but as spearheads of the projects from the user-community side.

Leadership matters, so when you find people who are open to change and get them involved in projects early-on, people will follow them. You can’t expect everyone to be a leader, it may not be in their DNA. But you can find leaders.

I don’t just say this from the perspective of an analyst. I say this from the perspective of a practitioner who had to implement a lot of projects that were struggling when I arrived at a company. When I was in IT, I found myself in two different roles: one involved cleaning up computer messes and the other was to bring in new technology. It turned out that for both of these roles you needed the same thing. You needed people who were open to change, who were more interested in seeing a technology succeed than they were in maintaining the status quo. If you find those people and put them on the project team, they can drive the change home and create the processes and procedures that the rest of the project team will adhere to.

That is true of anything technology related. Ironically, it is also true within IT. Even though IT is meant to be a change agent, you find that IT people are often the most resistant to change. It is up to a clever IT management team to find the IT people who are interested in change, and users who are interested in change, then put them together to make the project team. This team will drive these projects home, will create new processes to make things more efficient, and get people excited about new things to come. It is the only way you can get projects done effectively.

There are so many projects that are a technical success but are cultural failures, and that equates to a failed project. Putting supply chain and IT leaders on the project team will help to avoid that.

SCN:      Thank you for all of your insights on your research, Paula.

See also:

What’s in Hardlines Retailers’ Merchandise Planning Blind Spot?

What’s in Softlines Retailers’ Merchandise Planning Blind Spot?

 

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