A Primmer in E-commerce Planning

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Your brick and mortar operation has finally worked out the kinks that were evident within planning operations. The merchandising and planning functions appear to be in sync, everyone is looking at the same data with the same mindset, and all is right with the world, right? Well, not exactly. Your CEO has decreed that the company web site will be up and running within the next six months and "there's no reason my planning director can't handle it."

Quite frankly, the planning director can handle it if he or she takes the time to understand the nuances of a web based business that differ dramatically from the typical brick and mortar operation.

In some ways, developing a plan for a web site can be easier than for a store. For one thing, you can manage exactly what the customer will see. This is not always the case within a store, where no matter how you try, the merchandise you planned to be in front of the store got pushed to a side isle, and the rounder with little back up inventory is now right in front of the main checkout.

E-tailers can manage the inventory presentation much like the traditional catalog merchant. You only need to show the customer what you have to offer, and nothing else. The great advantage over the cataloger is that the e-commerce merchant does not have to commit a picture to print 6 to 7 weeks prior to mailing date. The technology of e-commerce makes it certain that the site can be managed daily from an availability perspective.

However, even with the ability to interactively manage the presentation, the "B" word will be in use: backorders. In e-commerce planning, much like in a mail catalog, backorders must be accounted for in the planning process. Basically, you must plan how many orders will be taken, what rate of backorder will be realized and how many of those backorders will be filled. This last part is the rub. The longer the backorder lead time, the higher the tendency for the customer to cancel the order. Backorder cancellations can result in dramatically less sales and higher ending inventories unless anticipated properly during the planning cycle.

A long backorder fulfillment cycle will also increase an item that retailers new to the catalog and e-commerce arena rarely think about: returns. Returns will be an issue with your site, even if you create no backorders. The simple fact is that customers who buy via mail catalogs and e-commerce sites will return a portion of their purchases. This will be especially true in any line of apparel, where fit and styling can be less than revealing on a catalog page or on a web site. There are two rules of thumb that can be relied upon when planning a return rate: A) the higher the price point, the higher the return rate, and B) the longer the backorder period, the higher the return rate even when finally shipped.

By taking these nuances to heart and incorporating them into an integrated planning process similar to that used to manage brick and mortar, the planning director need not fear the somewhat uncharted web waters.