Merchandise planning is software that helps a retailer decide which products to sell in each season, how many of each to buy, and how much money to spend on each category. A category is one kind of product, such as men's shirts or children's shoes. The plan starts from forecasts of what will sell in each store. The people who use this software are a retailer's merchandisers and buyers. A merchandiser plans the money and the quantities. A buyer chooses the actual products from suppliers.
The plan is made from the top down and from the bottom up. From the top down, the finance team sets a sales target for the season. The software splits this target across categories, regions and stores, using past sales and a demand forecast. From the bottom up, the buyers pick the range: the list of styles, colours and prices that the stores will carry. The software checks that the two plans add up to the same totals.
Consider a footwear chain with 80 stores across Maharashtra and Karnataka, planning for the monsoon season. Last year, rain sandals sold out by mid-July in its coastal stores, while leather shoes stayed unsold. The software forecasts this year's monsoon sales for each store. It suggests spending ₹6 crore on rain sandals and floaters, up from ₹4 crore, and less on leather shoes. It also suggests different ranges for different stores: more children's styles in stores near schools, and fewer in malls.
The plan gives each category an open-to-buy amount. Open-to-buy is the money still left to spend on new stock this season, after counting what is already in the stores and what is already ordered. When a buyer places an order with a supplier, the open-to-buy falls by that amount. So no category can spend more than its plan allows.
The software reads what each store actually sold from the retail POS, the billing-counter system. It can also use retail measurement data, which shows what sold across the whole market, not just in this chain.
After the plan is approved, other tools take over. Merchandise allocation splits the bought stock across the stores and sizes. Supply-chain planning makes sure that the goods are made and delivered in time. Later in the season, price and promotion optimisation decides the offers and markdowns for what does not sell.
How is merchandise planning different from a planogram? Merchandise planning decides which products a store carries, and how many. A planogram decides where each of those products goes on the shelf.