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Transform your Retail Financial Planning Process

Allan Saffy
Allan Saffy, Decision Inc.

As with the majority of our industries, South African retail organisations face numerous macro-economic, socio-economic, political and operational challenges. In a world where finance departments are driving to be business partners and not just financial watchdogs, the ability to facilitate relevant operational and financial plans is as necessary as having products on the shelf.

Understanding the much needed strategic adjustments retailers are making reveals the adaptations finance teams must make in order to support their business. Each of these strategic adjustments has an impact on the finance team, one way or another.

For example, the growth of mobile as an e-commerce platform over the last couple of years has seen the need for an effective view of multiple channel financial reporting and planning. Retailers still struggle to understand the precise financial effect that changing channel focus has already had, and might have, on their business. In addition, it becomes difficult to quantify the financial impact that e-channels may have on in-store sales cannibalisation. It is even more difficult to unpack the return on capital invested per channel – this implies being able to accurately derive Net Profit per channel, which is something most will struggle to do.

Imagine a world where, in minutes of financial data changing, finance is not only able to report on the current and historical ROI (return on investment) of each channel, but also on the returns each are likely to deliver as a result of future financial plans as outlined in the budget and forecasts.

It is a common trend that store presence, coupled with higher degrees of store accessibility, have a positive impact on revenue. This has  seen a large majority of retailers grow their store numbers, allowing them the opportunity to reach more consumers. As much as this is a fundamental retail principle, the processes of modelling and planning new store viability are often cumbersome and time consuming. The mere process of multi-user input, alongside the  multi-driver adjustments, is often flawed within the current technologies that finance teams use for this process. The majority tend towards complex spreadsheet models which lends themselves to a wealth of potential issues. These impact the business as it is highly probable that they will fall short in accuracy, will be far too time consuming, and are usually as flexible as an iron bar.

Retailers also face the growing challenge of increased customer expectations around exceptional service, product quality and availability. This is becoming even more of a threat as we move to an age where consumers have more choice than ever before and can access any number of suppliers to purchase products that will best suit their needs. One of the many ways that retailers are planning to combat this is by differentiating themselves from competitors through more effective front line sales staff. Planning this shift from an HR perspective includes strategies to move to more permanent employees, reduction in high staff churn (usually between 200%-300%) and increased training investment. All too often planning the roll-out of an HR strategy of this nature is disconnected from the financial impact it has and, as multiple iterations of budget cuts are rushed through the organisation, the financial view deviates more and more from the intended HR strategy.

Although this is very common in most organisations, it does not have to be the status quo. There’s no reason why the impact of HR adjustments made at the operational level can’t immediately reflect the impact on the intended HR strategy as well as the group P&L for both the short term and long term. With the right planning processes and enabling technology, limitations on business decision making of this nature can easily be eradicated.

Another planning challenge that’s not unique to retailers, but very relevant, is the quality of the plans that their business management teams produce at critical times throughout the year. The fact that, in most organisations, remuneration is linked to budgets and the likelihood that budgets will only be approved based on adequate growth determined by the latest applicable forecast, sets the scene for the start of the traditional ‘budget games’. A process that leaves the business with a shallow Q4 forecast, soft budgets and an executive team that struggles to sell the future of the business to stakeholders. The game entails each side attempting to anticipate the others’ next move, protecting against too much internal stretch and having as much budget as possible to operate the business the same as it was the year before  while being able to cash in on expected remuneration. The problem with this game is it is 80% internally focused and built for individual preservation. The external market, benefits of innovative change and achievable opportunities are often deprioritised to ensure a safe budget. Unfortunately this has no relevance in a rapidly changing and competitive retail world.

The challenge for most CFO’s is unpacking whether the last forecast before the budget cycle commences is being manipulated to produce a low budget. Whether or not companies should still even be separating their forecast and budgeting processes and moving to rolling forecasts is a topic for another debate. There are a number of processes and technologies available to finance teams that allow them to test the likelihood of business units achieving their forecasts relevant to both prior year and current year trends.

This will allow them to challenge forecasts with system generated probability assessments and ensure an accurate view of the year-end forecast in the final quarter. In addition to creating a more realistic platform for the generation of budgets, a more predictable business leads to better decisions, improved stakeholder confidence and improved financial productivity.

The benefits of innovation are not restricted to the products and services organisations have to offer and, in a world where this exact innovation determines longevity, finance teams can play their part by innovating their processes to provide the business with meaningful decision making information as well as more productive financial processes. All of which can help operations unlock potential strategic initiatives and give them a competitive edge.

Decision Inc. is an information technology and advisory company that works with finance teams to help them transform their financial planning and analytics processes. We take them from time consuming, inaccurate and low value-add processes to meaningful and efficient ones that contribute significantly to business success. We have extensive experience in implementing complex planning and consolidation transformation projects – we have helped some of the largest retailers in South Africa improve the value that their finance team offers to their line of business operations.

Making use of global best practice trends that have been pre-packaged in the world’s leading technologies, we will bring about meaningful and effective change in a retailer of any size. Our retail experience, coupled with our IP, ensure that we are uniquely positioned to help you design and build financial planning and consolidation processes that improve the efficiency of your finance teams and the effectiveness of executive decision making, regardless of the technology.

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