G00219171
Retailers Embrace an MIOE Framework for
Reduced Inventory and Greater Revenue
Published: 7 February 2012
Analyst(s): Mike Griswold
Although the sales and operations planning (S&OP) process may not
resonate with most retailers, aligning merchandising, inventory and
operations execution (MIOE) certainly should. Joining these key activities
provides the framework that links the vision and strategy of the merchants
with the execution arms of the organization, such as supply chain and store
operations.
Key Findings
■
While retailers acknowledge the important role that MIOE/S&OP can play in the demand- and
supply-matching process (a Stage 2 level of maturity), most have not made the link between
conceptual MIOE and practical application.
■
A well-designed and implemented metrics framework is vital for MIOE/S&OP success. Key
metrics should include forecast accuracy, on-shelf availability, service level, costs and inventory
productivity.
■
Advanced merchandising plans that support today's changing shopper will be the impetus
behind formalizing the MIOE process.
Recommendations
■
Design your MIOE process around planning horizons, and involve the right blend of
merchandising, supply chain, store operations and finance staff to make the best decisions.
■
Use "Toolkit: How Demand Driven Is Your S&OP Process?" to determine the current maturity of
your MIOE processes, and identify how to build a road map moving forward.
■
Use the language of your organization to translate the MIOE concepts into what will resonate
with your merchandising and supply chain organizations.
■
Use Gartner's Hierarchy of Supply Chain Metrics to create layers of metrics that can assess,
diagnose and correct business performance (see "The Hierarchy of Supply Chain Metrics:
Diagnosing Your Supply Chain Health").
Analysis
George Bernard Shaw observed, "England and America are two countries separated by a common
language." Take, for example, the hood and trunk of a car (in England, these are a boot and a
bonnet), a sweater (jumper) or suspenders (braces). Retailers suffer the same challenge: S&OP
terminology and the best practices common in most other industries seems like a foreign language.
This research introduces the concept of MIOE as the retail equivalent to S&OP.
If It Looks Like a Duck … It Must Be MIOE
If it looks like a duck, quacks like a duck and swims like a duck, it's probably a duck. So, just how
different are S&OP and MIOE? When you look at the requirements, outputs and benefits, you may
just see that these two processes are birds of a feather. Consider the Gartner definition of S&OP:
■
A cyclical, monthly business planning process
■
A flexible process that can be tailored to meet the requirements of the business
■
The connection between company strategy and execution activities
■
A focus on the midterm (typically, a three- to 24-month planning horizon)
■
A framework with a goal to maximize market opportunity, profitability and customer satisfaction
What retailer wouldn't say it wants a process like this within its organization? But the barrier to
acceptance in retail has been the stereotype that S&OP only applies to manufacturing-type
industries. Looking more closely at retail planning activities, we see striking similarities to what
others would call S&OP:
■
Category planning — Creating product assortment plans across multiple categories and
channels
■
Store labor requirements — Identifying labor requirements at the store level to support
execution activities
■
Distribution requirements — Determining capacity constraints as well as product flow timings
and alternatives
■
Transportation requirements — Identifying transportation constraints
Finally, like traditional S&OP processes, these plans take place across multiple planning horizons,
with different levels of granularity, and balance varied measures of success.
MIOE: The New S&OP for Retailers
With the beginning of each year, we are reminded of what the "new" new is: Forty is the new 30,
green is the new black and so on. For 2012, Gartner recommends that retailers embrace the
concept of MIOE as the "new S&OP," with the following definition:
■
A cyclical, monthly business planning process
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■
A flexible, but structured, process that focuses on aligning merchandising strategy with
inventory and operational execution activities
■
The connection and alignment between company, merchandising and supply chain strategies
■
A focus on the midterm (typically, a three- to 24-month planning horizon)
■
A framework with a goal to maximize market opportunity, profitability and customer satisfaction
The retail MIOE process consists of three key components:
■
Merchandising — This is the process responsible for key merchandising decisions concerning
assortment (what products to carry where), space (appropriate allocation of space for an item)
and price (what retail price to assign to an item by location and channel). It also includes setting
the strategic direction of categories, the role of new items and overall support of the company's
"brand promise" with its consumers (that is, its retail strategy).
■
Inventory — This process is responsible for demand sensing, demand shaping and profitably
responding to the demand signal. It includes demand management and supply planning,
incorporating inventory management and policy decisions.
■
Operations execution — This includes the activities responsible for delivering against the
merchandising and inventory decisions. It typically involves trade-off decisions regarding
capacity and labor constraints across distribution, transportation and store operations.
MIOE Maturity Model Provides a GPS for Your Current State
On a recent trip with my 22-year-old son, I asked him to use a map so that we could find an
alternate route for our trip. His first response was, "Where's the GPS?" When I said we didn't have
it, he rolled his eyes and pulled up a GPS application on his smartphone. Gartner's MIOE maturity
model serves as a GPS device for retailers by letting them see where they are within the maturity of
this particular business process (see Figure 1).
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Figure 1. The Four Levels of Retail MIOE Maturity
Level of MIOE Maturity
Develop
Operational Plan
Resource
Alignment
Profitable Merchandise
Execution
Business
Orchestration
How do I develop a
good plan?
Can I supply to
projected demand?
How do I execute
merchandising plan
profitably?
What is likely to
happen if …?
Merchandise
Planning,
Forecasting,
Procurement
Demand Mgmt.,
Inventory
Positioning,
Execution
Constraints
Integration
of Merchandising,
Supply Chain, Store
Operations and
Financial
Planning
Integrated
Merchandising,
Supply Chain,
Store Operations
and Financial
Scenarios
Tactical
•
•
•
Reactive
Execution
Transactional
Strategic
•
•
•
Anticipation
Operational
Repeatable
Supply Chain Excellence
•
•
•
Collaborative
Predictable
Responsive
•
•
•
Orchestrated
Integrated
Agile
Demand-Driven Excellence
Source: Gartner (February 2012)
Based on our research, most retailers land in Stage 1 (Develop Operational Plan) or early Stage 2
(Resource Alignment) MIOE maturity. Many retailers find themselves in these early maturity stages
because they lack the fundamental disciplines necessary to enable sound MIOE processes:
■
A consistent, end-to-end, coordinated demand and supply plan
■
A strong governance model that provides a consistent cycle and rhythm to the MIOE processes
across short and midterm planning horizons
■
Established metrics to understand the role MIOE plays in enabling business performance
Understanding and Defining Planning Horizons Are Key to MIOE Maturity
For many retailers, planning horizons consist of what happened yesterday and what will happen
tomorrow. The MIOE process, when done well, helps retailers plan across multiple time horizons.
Retailer's in early stages of maturity start to see the emergence of four distinct planning horizons
and begin to incorporate them into their planning processes (see Figure 2):
1.
Execution — Within one week or one month activities; commodity/location granularity
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2.
Operational/short-term planning — One to 12 weeks into the future; commodity/location
granularity, as well as aggregation across a commodity and geographic hierarchy
3.
Tactical/midterm planning — Three to 18 months in the future; department and geographic
aggregation
4.
Strategic/long-term planning — Up to five years in the future; at the division or company level
Figure 2. Planning Horizons and Activities for Retail MIOE Process
Planning Horizon
Merchandising
Inventory
Operational
Execution
Strategic/Long-Term
Planning
Brand and category
strategy, new lines of
business, growth
strategy
Strategic network design, supply chain risk
analysis, growth support strategy, sales
channel support
Tactical/Midterm
Planning
Assortment planning,
open to buy, sales
channel strategies,
new product strategy
Demand and supply planning, sourcing
strategy, distribution center (DC) capacity/labor
planning, transportation strategy
Operational/ShortTerm Planning
Promotional planning,
pricing strategy, new
product launch
Delivery schedules,
allocation strategies,
replenishment
strategies
Execution
Inventory disposition
Inventory analysis and Store execution
strategies, promotional rebalancing activities
programs, execution
reactions
compliance monitoring
(Up to five years)
(Three to 18 months)
(One week to 12 weeks)
(Within week/month
activities)
Transportation
planning, store labor
planning
Source: Gartner (February 2012)
Use the Evolution of Lean/Six Sigma as a Guide for MIOE Adoption
Years ago, lean and Six Sigma initiatives lived primarily within the four walls of a factory. Today,
astute organizations see the value of these processes, pushing lean and Six Sigma deeper into the
organization's business processes and other less manufacturing-centric verticals, such as retail.
The same paradigm exists today with S&OP: Forward-looking retailers will embrace the capabilities
of S&OP and begin the journey of taking MIOE from concept to practical application. MIOE provides
the framework that enables a retailer's evolution from simple demand and supply planning to a
process that aligns merchandising, inventory and execution activities. What's the prize? Consider
this: Mature S&OP processes deliver revenue improvements of 3% to 5%, increase working capital
by 10% to 15% and can reduce inventory by 15%.
Recommended Reading
Some documents may not be available as part of your current Gartner subscription.
Gartner, Inc. | G00219171
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"Toolkit: How Mature Is Your Retail S&OP Process?"
"S&OP for Retail Requires Strong Foundational Building Blocks"
"Sales and Operations Planning Maturity: What Does It Take to Get and Stay There?"
"The Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health"
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