Why You Need to Manage by Variance

Here is the sixth entry of the Twelve Components You Need in Your Merchandising Plan titled: Why You Need to Manage by Variance

Many of today’s leading jewelry industry thinkers look at ways to engage and empower merchandising managers as the critical step towards improving productivity. Problems arise when employees are faced with deciding how to determine where the real issues are occurring in inventory management. Before actions are taken to correct problems, organizations have to set up the indicators that will identify key problems. This is where the right accurate data can play a huge role and management by variance plays is a key factor.

Jewelry managers solve big problems with big initiatives. But productivity gains are really about solving a series of small problems, as they occur. Managing inventory is a daily assignment and requires real time data solutions. Point of Sale (POS) systems will measure variance of what an item sold for compared to a projected sale price. This does help manage inventory profitability because companies can begin to better understand what items are moving and at what margin. Tracking aged inventory is important if a jewelry company is effective in sales promotion and knows how to move aged inventory.

What is required is the ability to measure and report on variances as each item is sold. That way merchandising managers can work to resolve problems such as slow moving merchandise or products that are being discounted more than projections. Managing by variance is designed to bring the real time information into the hands of the right people so they can make the right decision at the right time.

The reason why so many retailers do not use Open to Buy is because the numbers are always so off target. Developing a plan that includes your ability to influence shopper behaviors to select and purchase the items you propose to sell is an axiom to inventory management and marketing management. Managing by variance requires having a plan and having reports that highlight performance above or below projections. Your assumptions become critically important when managing by variance and provide much more insight into how to manage the company. Create your own management tools by establishing standards of performance for each category and developing customized point of sale reports and tracking by variance.

Management by variance can save you time and money and make it easier to make some of those inventory management decisions. When a variance occurs, top management should examine the circumstances to determine the factors that created it. By doing so, management should be able to identify the true nature responsible for a variance and take  the proper steps to correct the problem.

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