Improving financial forecasting – and profits – with retail-ready analytics
BackgroundA global retailer with $14 billion in annual U.S. sales relied on unconnected manual processes for financial planning and budgeting across thousands of stores and seven e-commerce sites. This approach was not only time-consuming, inefficient, and prone to inaccuracy, it also hindered information sharing and collaboration among 50 planners and 900 merchants. The company also knew that its data was siloed among functions and teams, which limited access to reliable data for forecasting.
ChallengeThe retailer needed to implement an integrated forecasting and reporting tool to more efficiently track inventory, sales, and revenues. Its financial forecasters used outdated manual processes – including more than 2,000 Excel spreadsheets scattered across seven discrete systems and several business units – that were rife with inefficiencies. Consequently, forecasting was ineffectual, prone to error, and resource intensive; simply uploading forecasts to a financial data aggregation system squandered 1,400 man hours a year, while providing little analytical and decision-making capabilities. Together, these constraints limited the company’s ability to accurately forecast and manage buying patterns, seasonal assortments, inventories, and supply-chain performance. But like most retailers, the company lacked the resources and expertise to independently design, implement, and integrate a unified system.
The retailer asked CohnReznick to help it implement automated tools and processes to better monitor inventory and plan forecasts across widespread U.S. locations, business units, and teams. Our advisory team suggested an Integrated Business Planning (IBP) strategy that unifies people, processes, and technologies for financial budgeting. We first met with the retailer’s planning stakeholders to better understand forecasting needs, current processes and technologies, and business operations.
Next, we created a single-merchant open-to-buy tool to help the retailer automate and manage inventory across its seven e-commerce websites. The tool enables planners to track sales, profit, and inventory at the subcategory level for a rolling 18 months. We configured the system to measure performance across all websites and roll up to an across-the-board total. Planners can evaluate performance across brands in a single system, and pass along unit sales and inventory forecasts to the supply chain team for estimating capacity and labor needs.
CohnReznick also implemented an assortment-planning tool that allows the retailer’s apparel team to analyze past-season sales of categories and items to accurately determine demand for upcoming shopping flashpoints. The tool uses advanced statistical forecasting to predict the sales curve for each item and recommend a weekly item-level sales plan, which is especially helpful for gauging sales performance of seasonal SKUs. We also implemented promotional-planning capabilities that identify items sold at extreme markdown – think Black Friday – and calculates the impact of these sales on overall sales and profit goals. The flexible tool allows the retailer to adjust the margins of promoted items to improve outcomes. We also created an environment for no-sweat collaboration and exploration of whatif analyses associated with various scenarios.
The unified IBP solution has enabled the retailer to lower inventory and workforce costs, reduce stockouts, and enhance margins. Planning staff can now more accurately forecast sales, profit, and inventory for a rolling 18-month period across all websites.
This has enabled the planning team to generate forecasts on a weekly, rather than monthly, basis and has eliminated a threeweek communication gap between the merchant and supply chain teams. What’s more, the IBP solution has sharpened forecasting precision to within 6% accuracy, compared with a previous average of 15%. This enables more precise downstream planning, and has driven down shipping delays and delivery costs. At the same time, elimination of manual processes associated with maintaining and uploading 2,000 spreadsheets has improved employee productivity and job satisfaction.
The unified system also enabled the retailer to trim inventory on hand from 12.5 weeks in 2017 to an average 9.76 weeks in 2018, a 22% improvement. As a result, the retailer saves on warehouse, facilities, and labor costs while simultaneously expanding sales. The company predicts that profits will climb an additional 19% in 2019, which would enable it to boost profits by almost $1 billion over two years.
Subject matter expertise
CPA, Partner, CohnReznick Advisory
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