The topic of planning has long been treated with great ambivalence in fashion companies. In times of comfortable growth, “planning” usually receives little attention. “It’s going well” and investments are primarily made in customer-oriented areas – new campaigns, the online shop or the branch network are intended to further fuel sales development.
For this reason, brands and retailers have made limited investments in their planning skills for many years, which are now urgently needed in a much more demanding market environment. The high volatility on the sales markets combined with great uncertainties in procurement have made it increasingly difficult for retailers to coordinate assortments, quantities, orders and capacities. The result is that sales rates, stocks, price reductions and costs often no longer allow sufficient profitability.
While a few years ago full-price sales of over 75 percent were the norm, many retailers are now happy when they reach 60 percent and others try to sell at least 50 percent of the goods at the originally planned price. The correspondingly increased price write-downs on the remaining stocks are hailing the dealers’ margins. In this regard, too, there are only a few brands on the market that manage to keep price reductions below twelve percent of net sales, which was considered the gold standard for many years. Today, most are above 15 percent, sometimes over 20 percent, with correspondingly negative effects on profitability.
In addition, as a fashion company, it can hardly be justified from a sustainability point of view that considerable parts of the purchased stock are only sold in the sale as “overproduction” – if at all. Both profitability and sustainability require a more advanced approach to plan product ranges and requirements in a customer-oriented manner and to use resources efficiently.
As a result, improving planning is currently high on the agenda of many fashion companies. Planning is often still carried out there on the basis of a historically grown combination of the most diverse, unrelated systems and Excel spreadsheets. So it is not untypical if the assortment planning for your own branch business takes place in an old system solution, the wholesale planning in another tool, with the demand forecasts with your own artificial intelligence (AI) is experimented with and on the procurement side inventories, production capacities and materials are determined with a mix of Excel and different systems. The result: The individual functional areas each have their own view of “the truth”, coordination costs a lot of effort and target figures still differ significantly, even in the order phase. In addition, the analytical capabilities in the various areas – from merchandising to sales to procurement – lag far behind the possibilities of current technology.
Fashion companies are lagging behind when it comes to integrated planning solutions
Consumer goods companies, which are about ten years ahead of fashion companies in terms of integrated planning solutions, show that this can also be done differently. The need for a technological renewal and actual integration of planning was recognized there much earlier and tackled consistently.
Many fashion companies, on the other hand, have largely lost the ability to synchronize plans related to finance, distribution, purchasing budgets and assortments with planning for production capacities and materials as they have evolved over the years from in-house production and outward processing to ‘free on board’ sourcing. This is now taking revenge in an environment in which the dynamics on the procurement markets require full transparency. This is the only way to ensure that goods can actually be procured within the expected time and product costs. This does not mean that companies are increasingly returning to PLV and their own production, but a clear trend towards greater control of the value chain can be observed. This relates both to the management of suppliers, including the preliminary stages, as well as to capacities and materials. The need for transparency with regard to sustainability at all levels acts as a further amplifier of this development.
The acute need for action in many companies in the fashion industry now means that the topic of “new planning” is often tackled hastily without adequately coordinating the needs of the operative business with the technical implementation of a new planning solution. Once a system provider has been selected, it is often enough that the system “goes live” as quickly as possible. As a result, old processes and methods are transferred to a new, actually much more powerful system. However, the actual business benefit falls far short of the original expectations. It can be said that rapid implementation does not automatically mean a faster return on investment.
Company-specific planning model
Even if the implementation of new planning systems today is mostly agile, it is still essential that there is clarity in advance about which measurable results are expected. This also includes a target image in relation to future skills. Due to the fact that sales planning, assortment planning, operational requirements planning and procurement planning are very closely related, it is also necessary to understand and design the dependencies. This is the only way to ensure that the various pieces of the puzzle will later fit together. In addition, the following applies to processes: beware of overly generic “best practices”. There are tried and tested ways along the planning process to improve the results of planning, but these depend to a large extent on the business model. This applies in particular to the role of wholesale, retail and online, the international nature of the business, the procurement structure and the development of the logistics network.
A planning model must therefore always be company-specific if it is to be successful. External examples help to understand the relevant design options, but ultimately decisions should always be made in relation to one’s own goals and framework conditions – there is no “one-size-fits-all”. Furthermore, it is important to be careful when designing future processes and methods. The variety of options offered by the latest planning solutions on the market tempts you to incorporate too much complexity into new planning approaches. Not everything that is possible makes sense. In addition to the risk for implementation, this also applies in particular to user acceptance. It doesn’t help anyone if a highly complex algorithm returns a result that operational planning teams cannot understand and trust. In these cases, the teams then quickly return to parallel planning in self-made Excel spreadsheets.
The field of relevant system providers for planning solutions for fashion brands is manageable. The key question is whether to choose a holistic planning platform that can cover almost all planning processes, or whether the better way is a combination of different solutions, each with its strengths in certain areas. It is important not only to consider the technical aspects, but also the ability to map the future processes and methods that are actually necessary to improve planning.
Another important question concerns the use of self-developed analytical skills. Large fashion companies in particular have made significant investments in building their own analytics and AI teams in recent years. As part of a future planning process, such capabilities can be used in selected areas to differentiate from the competition. However, the mistake must not be made of wanting to develop everything yourself without having an advantage over existing standard solutions. Otherwise, it takes too much time to “reinvent” functionalities that are widely available on the market, misusing the scarce and valuable in-house analytics skills.
Many fashion retailers and brands are currently launching initiatives to improve their planning. It is hoped that this wave of attention to the planning issue will be more sustained than in the past, so that actual improvements in profitability and sustainability are achieved.
About the author
Peter Rinnebach is Managing Director at Accenture, a service provider in the field of corporate and strategy consulting as well as technology and outsourcing, and is responsible for merchandising and planning in Europe. He has been helping fashion brands and retailers improve their planning skills from concept to execution for over 20 years. His customers include leading fashion companies – from luxury brands to sportswear brands to vertical retailers.