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Master Anaplanner/Community Boss

Re: Retail: The Most Important Supply Chain Equation for Anaplan | Part 1

@CommunityMember122145 (Lindsay)

What an awesome set of questions +10 kudos, seriously. 

The Trifecta!

I refer to the "trifecta" as flex rules or inverse calculations where any of the line items can be editable. Blue Yonder (formerly, JDA) software handles this quite easily as you may already know. In Anaplan it can be simulated but it's not the same, as it's more like Excel. The good news is that I have written an article on my personal website here and intend to rewrite it for the Anaplan site very soon that solves this challenge in Anaplan. TBH, this is one of three major hurdles Anaplan faces when competing with Blue Yonder directly in the merchandise planning space. This is why I took the time to document how to do it in Anaplan. Will likely make a best practice out of this - would you like to collaborate on it?

Additional Dimensions!

Anaplan is known for its ability to handle more than PxLxT. It's so incredibly powerful with dimensions - even the aggregation rules which, at first, don't seem intuitive if you're used to Blue Yonder because the modules in Anaplan act more like a relational database than one gigantic cube like Blue Yonder. That gives you the ability to relate modules together pretty much any way you want. A good example is in the Apparel world where "season" is not really a time dimension but a product dimension. So season, a product dimension, may have different begin and end dates based on the gender or locale. For example, Mens Sweaters may have a floor set in September for Minneapolis and December for Florida. All these attributes of season can be looked up and you can create really powerful calculations for planning based on that. It's really one of Anaplan's strengths!

Additional Dimensions on the Balance Set

Which brings us back to the balance set. Adding additional dimensions does not change the physics of the inventory balance set. The ending inventory must be reconciled to the beginning inventory plus the additions minus the reductions. At any level, and at any unit of measure, on any dimension. Yes, it's a lot of design work but that's why I recommend all supply chain implementations start with a simple equation. You can always build from there.

For example, using our season dimension: With seasons, we generally see apparel retailers do one of the following: extend the season, carryover the product to the next season, or transfer the product to a different kind of season (like making it replenishable-basic). In this case we would put logic in to "transfer" the inventory. Just like in accounting we'll have a transfer-in and a transfer-out. The transfer logic can also be used for wholesale, transferring from a regional DC with one currency to another DC that uses a different currency, or for stock protection where some a global buy is made and inventory is allocated to wholesale, retail, and e-commerce.

 

I really appreciate the questions and your interest Lindsay! I hope we can keep this conversation going.


Jared Dolich
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Certified Master Anaplanner

Re: Retail: The Most Important Supply Chain Equation for Anaplan | Part 1

Great article @Jared Dolich .  I enjoyed reading this.  Reminds me much of my days in the Retail world.  I just have a few comments about the article.

 

  • Your article mentioned "A permanent markdown is one where the inventory valuation is reduced permanently to reflect changes in business conditions".

Wouldn't it be better to call reductions to the inventory valuation as that (i.e. inventory valuation adjustment)?  A permanent markdown to me means a retail price adjustment rather than a reduction in the inventory valuation.  As far as I know, the inventory cost would only need to be adjusted down if you cannot sell it for at least the cost value (net realisable value).  So, if the "permanent markdown" results in a price that is still above the cost of the item then no inventory valuation adjustment is required.  The company just gets a lower margin.  However, if the retail price adjustment results in a net sales value that is less than the inventory cost of the item, then there would have to also be an inventory valuation adjustment.

 

My suggestion here is that from a terminology point of view, markdowns (permanent or temporary) always affect retail price whereas inventory valuation adjustments always affect inventory cost.  This way, we can have one set of terms for Inventory activities and another for Sales activities when logical to do so.  I would even dare say that companies should adopt using a Definitions Document to ensure that all stakeholders within their business speak the same lingo at meetings.  

 

Also, are the "Additions" and "Reductions" table in this section meant to be activities that only impact the inventory units/cost?  If so, should the "Temporary Markdowns (Discounts)" be included in the list? For the same reasons mentioned above, I view these as impacting the margin but not the inventory units/cost.

 

  • With regard to the Seasons topic where there is a hard beginning and end season, wouldn't it be an option to have a season attribute for each product (or product category) over time? This would mean that a product can only be allocated to one season at any point in time.  This said, regardless of the date an item was received or sold it would be categorised based on the season attribute set for the product for that time period.   As an example, a summer product that is set to have a Summer season attribute for all months of the year would be captured as part of Summer sales regardless of what month in the year it was sold.
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Master Anaplanner/Community Boss

Re: Retail: The Most Important Supply Chain Equation for Anaplan | Part 1

@m.angeles11 

Really appreciate the interest and some great suggestions.

Permanent Markdowns

Your suggestion is terrific when using cost averaging for valuing the inventory. Because the only way you can actually calculate a markdown is to come up with some benchmark for "retail" which, as we know changes all the time. Some retailers will set an MSRP, for manufacturer's suggested retail price, or FP, for full price. All discounts or markdowns would be taken as an "adjustment" as you suggest from that top price. 

Permanent markdowns plays a much more significant role in inventory that is valued at retail to begin with. Meaning, the inventory is valued at retail on the general ledger (stock ledger too) and it is estimated. This is not as common as it used to be but this allows retailers to "estimate" their inventory valuation without having to take a stock count since units play no role in determining the valuation. Taking a permanent markdown is more significant because it will lower the inventory on the books.

Some great resources for retail inventory valuation if you want to go further:

  • Leo F. Griffin, "Retail Auditing: A Practitioner's Guide", 1998. p254-256
  • National Retail Merchants Association, NRMA, "Retail Inventory Method Made Practical",1971
  • Robert M. Zimmerman, "Retail Accounting and Financial Control 5th Edition", 1990

Markdowns as an Inventory Reduction

You are correct. Only on the retail valuation would we reduce the inventory by the markdown amount. If all markdowns are temporary, or at POS only, then you can just as easily call them adjustments, although I wouldn't recommend it. Maybe call it Markdown Adjustments. Because "adjustments" to retail valuations is impacted by a unit change. Say for instance, I count my inventory and find that 10 units are missing. I adjust my unit balance set, but this will also have a retail implication too. If we mix all the adjustments together, we'll need another way to break them out for analysis. Better to just break them out from the beginning as a suggestion.

Seasons

You nailed it. For apparel retailers, there is nothing more important than the definition of a season (well maybe the definition of style-color). Seasons is a product attribute, not a time attribute. The "summer" may begin at any time based on the floor set for that particular location or that particular product type.The trick is to set a time attribute on the season but it needs to be 2-dimensional: Product AND Location. 

@m.angeles11 thank you for taking the time to share your reactions. I hope you'll keep the conversation going!


Jared Dolich