Requirements Gathering Questions for Retail FP&A

This is a response I made to a question posed by @CommunityMember128799 in this post here. I thought it would be helpful to have it in our retail group knowledge base.

 

With regard to retail specifically, there are several themes you're going to want to take as it relates to FP&A and pretty much all finance related applications in Anaplan. I'm not going to mention the questions to ask for a specific FP&A use case (like how to consolidate the GL, or generate financial documents like income, balance sheet, cash flow and shareholder equity - assuming you already know that) but rather the nuanced nature of retail that will enable the processes in Anaplan: Note: I'm going to avoid some of the real estate planning as that is pretty generic to the industry.

  • Inventory Valuation
  • Accounting
  • Financing
  • Calendars | Time
  • Master Data

Inventory Valuation

Inventory is the working capital for the retailer. While this theme can be lumped with Accounting there are some very specific questions related to inventory that need to be asked. You have to know which valuation method the retailer is using so you can utilize the historical transaction data. Typically, Finance will obtain forecasts from the merchandising team but the inventory valuations don't always align, nor do the calendars (discussed in another theme). To enable Anaplan, you have to make sure the inventory valuation is converted correctly in a common way.

  • Do you use cost averaging, standard costing, or retail inventory method to value your inventory? If LIFO is used how is this reconciled with all the other inventory planning?
  • How does the merchandising team value inventory? 
  • How are you projecting the inventory receipts?
  • What are the conditions that move inventory from unowned to owned? (owned means the inventory is the retailer responsibility and is moved from an open order to the stock ledger).
  • Does the merchandising team provide Finance their projections using the same inventory accounting used by Finance?
  • What differences are there and how/where is this reconciliation managed? Spreadsheet, 3rd Party Tool?
  • Does the company utilize direct ship to stores or customers, or does all inventory get received in a distribution center?

Accounting

  • Explain how the stock ledger is maintained, how often is it updated, and what line items are needed, and how are they defined? Typical line items: Receipts, In-Transit, Net Sales, Markdowns (if RIM is used), Sales Discounts (if cost averaging is used), Shrinkage, Ending Inventory, Gross Margin
  • Are imports utilized? How and where are all the cost components maintained?
  • How is the currency exchange managed? Is there any hedging and how does that factor into the use case?
  • What are all the sales channels used? Typical is wholesale, retail, and e-commerce but there's also leased departments (store in a store), concession, affiliate, outlet, close-out, franchise, and pop-ups. Are there any special accounting considerations needed? For example, the lease agreements with lessee's.
  • How are store opening and store closing costs accounted for? How are the accruals maintained? Accounting rules used? Sensitivity to the data - who is able to see it?
  • Do you need to consider comparable stores? Meaning a comparison between stores open last year that are open this year?

Financing

  • Explain the capital budgeting process?
  • Rules of thumb for projection horizons? (this is needed for NPV calculations)
  • Cash Management (needed for cash flow analysis). Collections, Disbursements, Banking, Investments, Currency Gain/Loss
  • What are your typical Cash Sources: Net Sales, AR collections, credit card payments and interest, Layaway, Leased Depts, Vendor rebates, Investment income, property sales
  • What are your typical Cash Uses: Inventory Purchases (once owned), Payroll, Rent, Lease settlements, Taxes, Insurance, Utility, Transportation, Advertising, Professional Services (you, most likely), Benefits, Bonuses, Capital expense, debt service, shareholder dividends
  • Royalties? Can go both ways. Depends on who owns the brand.
  • Do you need to use scenario planning - portfolio management? Is there an assignment of the initiative to an individual sponsor?
  • How are the initiatives tracked to show performance and do you need any consolidation, rollups?
  • What happens if the initiative is multi-year?

Calendars | Time

  • What is the calendar used by Finance?
  • What is the calendar used by other planning teams upon which you rely? For example, merchandising will typically use a 445 calendar and Finance will use a Gregorian Calendar. 
  • How are these calendars reconciled?
  • If 445 is use, how is the 53rd week calculated and in which month is the extra week added?
  • How is the 53rd week comp'ed?
  • Is there any need for time zone conversions? Stores / transactions can be in different time zones.
  • Daily light savings?
  • How are holiday shifts handled? For example, Easter or Christmas?
  • Any special considerations on how the Pandemic of 2020 should be handled?

Master Data

  • Describe the product hierarchy needed?
  • Describe the location hierarchy needed?
  • Describe the vendor hierarchy needed?
  • Where are these hierarchies maintained and how reliable is the source? How frequently are they updated?
  • Where are all the properties of the hierarchies maintained? Do any of them need to be maintained in Anaplan?
  • What other hierarchies are needed?
  • Do you need placeholder line items (e.g., a new cost center that hasn't been added yet but will be needed for planning)?
  • What is the expectation in Anaplan with regard to a current hierarchy?
  • Who has the authority to Add, update, delete (change) the hierarchy in Anaplan?
  • How should discrepancies be handled in Anaplan?

Additional Reading:

Textbooks I highly recommend

  1. Retail Accounting and Financial Control, 5th Edition, Robert M. Zimmerman, John Wiley & Sons, 1990.
  2. Retail Auditing, A Practitioners Guide, Leo F. Griffin, John Wiley & Sons, 1998