Merchandise Financial Planning: What Happens When Budgets and Buying Don't Match

The budget changed. The stock commitment did not.

A season begins with a plan to sell 1,000 apparel units. Trading weakens and the team now expects 850, a 15% reduction. There are 200 opening units and 900 already on order. The original plan left 100 at the end; the lower outlook leaves 250. Nothing new has been bought, yet the expected stock left over has increased by 150.

Merchmix is a connected platform for retail planning and operations. Core is its planning product. Budget Builder is part of Core, where the team can inspect sales, units, prices and profit assumptions. MFP/WSSI brings weekly sales, stock, intake and financial assumptions into the merchandise plan.

Put a unit requirement behind the sales target

The original 1,000-unit budget assumes an average selling price of $100, giving $100,000 of sales. At the same price, 850 units gives $85,000. The reduction is a volume change. A $15,000 fall caused by discounting would be a different assumption, with different unit and margin implications.

The Budget Builder workspace lets the planner switch between Sales, Units, ASP, Growth, Profit, GP% and Cost. ASP means average selling price; GP% is gross profit as a percentage of sales. Use those measures to explain what sits behind the financial total, rather than treating a money target as a purchase quantity.

Use the weekly grid to expose the mismatch

The animation starts with weekly sales of $30,000, $35,000 and $35,000. Its proposed scenario changes those figures to $25,500, $30,000 and $29,500, totalling $85,000. At the unchanged $100 selling price, that is 255, 300 and 295 units.

Budget Builder shows a merchandise hierarchy across periods, with Week, Month, Quarter and Half controls. Its Summary opens an allocation breakdown. Inspect the relevant departments and weeks so the team can see where the lower assumption sits. A seasonal total alone does not identify which week or merchandise area is overcommitted.

An approved version and a scenario have different jobs

Budget Builder displays the approved active version, its read-only state, version controls and any reopen request. That is a clear distinction: an alternative calculation is not the approved working budget. Keep the baseline visible while discussing whether to change it.

The article animation keeps v1 approved and labels the 850-unit position as a proposed scenario. It does not complete a reopen approval or claim to save a revision. Confirm the permitted workflow and the responsible approver before changing the active planning position.

Count existing orders before using the buying allowance

Open to buy, or OTB, is the remaining buying allowance under the selected plan and calculation basis. It needs the relevant period, valuation basis and existing commitments. A lower sales outlook changes the planning question, but it does not cancel the 900 units already ordered.

In the worked example, 200 opening units plus 900 on order minus 850 sales leaves 250. Keeping the original 100-unit closing target would imply 750 units of intake: 850 sales plus 100 closing minus 200 opening. That is 150 fewer than the existing orders, not 150 units available to order again. There is no room for further buying under this plan because existing orders already exceed the intake requirement by 150 units. Supplier terms and approval determine whether any commitment can change.

In MFP/WSSI, search for OTB to isolate OTB_COST, OTB_UNIT and OTB. The grid provides trend lines and period controls, so the team can inspect when the allowance changes. Read the unit measure separately from the monetary measures and keep the selected merchandise scope consistent.

The animation presents the commitment gap as positive magnitudes: 45, 50 and 55 units across the three periods, totalling 150. The cost gap is $6,000 at the assumed $40 unit cost; the selling-value gap is $15,000 at $100 per unit. The rows are labelled as a commitment gap, so these amounts describe stock already committed above the requirement. They are not an available buying allowance. The horizon view brings the period allocations together.

Look at profit as well as the sales reduction

The Profit Workspace includes a hierarchy with ASP, Margin, Units, Sales and Profit, plus levers for volume, price, cost and markdown assumptions. This gives the financial discussion a clearer basis: establish which input changed and what the resulting calculation means.

At a $100 selling price and $40 unit cost, the original 1,000 sales units yield $60,000 gross profit. The proposed 850 units yield $51,000. Gross margin stays at 60%, but gross profit falls by $9,000. These are simplified product calculations before other expenses; a constant percentage does not mean the profit target is unchanged.

Connect the chosen budget back to MFP/WSSI

Budget Builder includes a control to synchronise the budget with MFP/WSSI. Once the appropriate budget decision has been approved, use the supported synchronisation workflow and check its outcome before relying on the receiving plan.

The additional 150 closing units carry $6,000 of stock at the assumed $40 cost each. That is inventory exposure, not an automatic $6,000 loss. Keep it separate from the $9,000 gross-profit reduction on the lower sales volume. MFP/WSSI helps put the sales and intake timing back alongside the financial assumptions.

Give the buyer an explicit decision

The useful output is a clear instruction about the gap: accept the higher closing position, investigate an authorised order amendment, or change another evidenced assumption. Each option needs an owner and a known planning basis. Approving the lower budget alone resolves none of the supplier commitments.

Before the next buy, establish which version is approved, how the 850-unit outlook changes the weekly plan, and which of the 900 incoming units can still be changed. Then confirm the supported hand-off. The goal is a buying decision that fits the chosen plan and the commitments the retailer actually holds.