If you’re a cannabis retailer, you know that quarterly business planning and forecasting won’t cut it in today’s dynamic cannabis market.
An onerous regulatory environment and fierce competition in many state markets continue to erode profit margins, and a continued lack of available growth capital means that cannabis retailers must watch cash obsessively. Operationally, retailers must anticipate the complexities of current sales channels, evolving customer preferences, seasonal demand and promotions, inventory levels, and other fulfillment challenges. These unique market conditions and operational complexities combine to make the notion of a quarterly forecasting process seem outmoded.
As a result, traditional financial planning and analysis (FP&A) strategies must be adapted for these market and operating realities. Cannabis retailers must align financial and nonfinancial data, demand planning processes, and drive communication in near real time to enable accurate reporting. The goal is to stock the right products, at the right time, at the right place, at the right price, regardless of volatile market factors.
Read on to explore five of the top planning and forecasting challenges cannabis businesses are currently facing and how to address your operational challenges to thrive in any market.
Challenge 1: Unconnected systems — and unconvincing planning results
Q: My company has implemented cannabis-specific point solutions for point of sale, inventory and assortment planning, procurement, and financials, but none of the solutions are integrated. As a result, teams are disconnected and cannot share information and planning results. For instance, when customer demand forecasts change, inventory planners aren’t immediately aware of the revision and cannot adjust their forecasts accordingly. How do we integrate these unconnected systems?
A: A successful financial planning strategy relies on integrated systems. While cannabis tech is still relatively immature compared to traditional retail technologies, strong integrated technologies are emerging that enable faster and better decision-making. In addition, cloud-based analytics and data visualization tools are wonderfully adept at taking in data from disparate sources and presenting actionable data insights in real time. Either way, businesses need a single place to connect financial planning components such as supply chain and inventory planning, for instance, with those of corporate finance, CRM, and HR. That connection breaks down functional silos and harmonizes data across functions, enabling teams to review the same numbers at the same time.
Long-term impact: Integrated planning strategies supported by integrated systems improve the accuracy and speed of financial forecasting, as well as enhance collaborative decision-making. This gives retailers the tools to sharpen inventory planning and better manage demand, promotions, and inventory turns.
Challenge 2: Over-reliance on spreadsheets
Q: My finance team makes heavy use of manual spreadsheet-based systems for budgeting and forecasting purposes. This seemed fine when we were small, but as we grow the labyrinth of spreadsheets seems to be so complex that only a few people know how they operate, and we frequently find errors. There has to be a better way!
A: Spreadsheets are easy to use, and it’s not uncommon for smaller companies to use them as a quick and dirty way to budget and forecast the business. However, they have their limitations. There is tremendous value in being able to view and manipulate data across multiple systems in a real-time way, having controls in place, and departmental collaboration. Spreadsheet programs were really not built for this kind of enterprise usage, which is why a lot of companies struggle with this issue. Tools specifically built for integrated planning are better suited for turning disparate data into actionable data, in a way that obviates a lot of those headaches.
Long-term impact: Familiar spreadsheet-based programs are wonderful tools, but not fit-for-purpose for growing cannabis retailers. Consider an upgrade to a cloud-based planning platform to increase collaboration, reduce errors, save time, and increase the quality of forecasting insights.
Challenge 3: Inventory planning in the dark
Q: My inventory planning and procurement teams often have no idea what the finance and marketing teams are forecasting. How can we increase visibility among departments to improve forecast accuracy?
A: An appropriate planning strategy enables real-time information-sharing and collaboration across teams. Your FP&A systems should be supported by preconfigured reporting and dashboard capabilities that help planners understand current performance and monitor forecasting activities across teams and divisions. When one planning team updates a forecast, all stakeholders should be able to review the changes and update their forecasts accordingly.
Long-term impact: Implementing a centralized planning system can help stakeholders unify their efforts across functions to bolster the accuracy and sharing of forecasts. Planners will be able to work from a single script to break down functional silos and ultimately cultivate a business culture based on collaboration.
Challenge 4: Managing promotional periods and markdowns
Q: Every 4/20, we stock up to support holiday promotions that sometimes result in markdowns in unsold inventory. Inevitably, the planning team miscalculates sales for both periods, and that ties up needed working capital and ultimately erodes profits. How do we gain actionable insights into our promotions and markdowns to improve our margins and profitability?
A: Shelf life notwithstanding, retailers often hold merchandise until it must be sold at discount. Businesses must consider holistic planning methods, changing market conditions, and better systems to make better purchasing decisions, manage disparate vendor lead times, and track sell-through data by both category and SKU. Good forecasting models enable retailers to understand sell-through and reduce excess buying, stock-outs, and markdowns.
Long-term impact: A financial planning strategy must harness data analytics to improve purchasing decisions, effectively negotiate pricing with suppliers and distributors, and lessen the impact of inventory sold at profit-busting markdowns.
Challenge 5: Ineffective bottom-up and top-down forecasting
Q: My company’s planning function performs bottom-up and top-down forecasting, but this exercise doesn’t seem to improve our planning outcomes. We think that’s because we are not striking the right balance between the two. What should we do?
A: A bottom-up forecast is built on granular components, such as projected sales of a specific SKU and the average cost to purchase that item. A top-down forecast, on the other hand, identifies the total size of the market for a specific product and how much of that market a retailer expects to capture. Businesses must combine top-down growth and margin-based models with a detailed bottom-up roster of sales representatives and revenue forecasts by location.
Long-term impact: A hybrid bottom-up top-down analysis delivers a broad view of long-term revenue and profit potential, identifies patterns, and allocates resources for future growth. It also helps retailers understand what specific products will sell, and therefore what to purchase and stock.
Cannabis industry retail insights
Based on the questions above, retail planning and forecasting challenges fall into three broad categories:
1. Connectivity and visibility: Integration of and access to forecasting systems, processes, and data across all relevant teams and functions
2. Planning and forecasting agility: An ability to identify and respond to unpredictable swings in sales, demand, promotions, seasonality, and customer preferences
3. Process and performance enhancement: Ongoing efforts to eliminate outdated, manual processes and improve the speed and accuracy of reporting tools
Addressing these three areas will require a coordinated planning strategy supported by enabling technologies. To get started, you’ll need to define the objectives for your planning program and identify the inefficiencies that are the greatest barriers to planning success. You’ll also need to determine the systems, data, and processes necessary to addressing these issues and supporting cross-functional collaboration and planning.
Feel free to reach out to our team for more information or to discuss your specific planning challenges.
Subject matter expertise
Principal, Performance Improvement
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