Merchandise buying & Merchandise buying & handlinghandling

Chapter 9 – Part 1Chapter 9 – Part 1

OutlineOutline

dollar dollar merchandise merchandise planningplanning 4 methods4 methods

Dollar Mdse Dollar Mdse controlcontrol

Open to buy Open to buy Inventory makeupInventory makeup

Vendor selectionVendor selection Vendor – buyer Vendor – buyer

negotiationsnegotiations Terms of Terms of

contractscontracts Handling: Handling:

receiving, receiving, shrinkage controlshrinkage control

Dollar Mdse PlanningDollar Mdse Planning

Mdse. MgmtMdse. MgmtAnalysisAnalysisPlanningPlanningAcquisitionAcquisitionHandlingHandlingControlControl

Dollar Mdse PlanningDollar Mdse Planning

MethodsMethodsBasic stockBasic stockPercentage variationPercentage variationWeeks’ supply Weeks’ supply Stock to sales methodStock to sales method

GRMOI modelGRMOI model

GMROI modelGMROI modelanalysis of mdse performanceanalysis of mdse performance

(Gross Margin/Net Sales) x (Gross Margin/Net Sales) x (Net Sales /Ave. Inventory at cost) (Net Sales /Ave. Inventory at cost)

==(Gross Margin/Average Inv. at Cost)(Gross Margin/Average Inv. at Cost)

Gets the Gets the gross margin dollarsgross margin dollars generated for generated for each each dollar investeddollar invested in inventory in inventory

$ Mdse Planning$ Mdse Planning

FirstFirst: : determine salesdetermine sales

SecondSecond: : determine determine inventory neededinventory needed Dollars invested in inventoryDollars invested in inventory

$ Mdse Planning$ Mdse Planning

4 methods4 methods to determine to determine inventory needsinventory needs

•Basic stockBasic stock

•Percentage variationPercentage variation

•Weeks’ supply Weeks’ supply

•Stock to sales methodStock to sales method

1. Basic stock method (1. Basic stock method (BSMBSM))

Needs a Needs a given inventory levelgiven inventory level continuouslycontinuously

Base levelBase level of inventory investmentof inventory investment

Levels </> Levels </> in same amount as sales </>in same amount as sales </>

1. Basic stock method (1. Basic stock method (BSMBSM))

Used for Used for low turnoverlow turnover mdse mdse Fewer than 6 times/yearFewer than 6 times/year

Used also for Used also for erratic saleserratic sales..

4 BSM elements4 BSM elements

Ave. Monthly sales for seasonAve. Monthly sales for season TOT Plan Sales for season / # months in TOT Plan Sales for season / # months in

seasonseasonAve. stock for seasonAve. stock for season

TPS-Season / est.TO for seasonTPS-Season / est.TO for season

4. BSM elements4. BSM elements

Basic stockBasic stockAve. Season stock – Ave monthly Ave. Season stock – Ave monthly

season salesseason salesBOM at retailBOM at retail

Basic stock + Planned monthly sales Basic stock + Planned monthly sales stock @ retailstock @ retail

2. Percentage Variation (2. Percentage Variation (PVMPVM))

UsedUsed: High TO rate: High TO rate More than More than 6 x6 x /year /year

AssumesAssumes:: % fluctuations% fluctuations in monthly in monthly stockstock

• (from ave. stock) (from ave. stock) Is Is ½ fluctuations½ fluctuations in in salessales

• from ave. salesfrom ave. sales

PVM formulaPVM formula

BOM stock =BOM stock =Ave. stock X ½ (1+Planned Sales Ave. stock X ½ (1+Planned Sales

for month)for month)Divided by Divided by

• (Average monthly sales)(Average monthly sales)

3. Weeks Supply method (3. Weeks Supply method (WSM)WSM)

Grocers, convenience, etcGrocers, convenience, etc Inventory planned Inventory planned weeklyweekly not monthly not monthly

Set to Set to predetermined # weeks supplypredetermined # weeks supply Related to Related to desired Stock TOdesired Stock TO

4.4. Stock to Sales (SSM)Stock to Sales (SSM)see chapter 8see chapter 8

BOM = ratio of stock to salesBOM = ratio of stock to salesAmount of mdse needed at Amount of mdse needed at

BOMBOM to to support estimated salessupport estimated sales for for

that monththat month

4.4. Stock to Sales (SSM)Stock to Sales (SSM)see chapter 8see chapter 8

S2S ratio sources:S2S ratio sources:InternalInternal: company historical : company historical

recordsrecordsExternalExternal: industry records: industry records

Dollar Mdse ControlDollar Mdse Control

Open to Buy (OTB)Open to Buy (OTB)Dollar Control mechanismDollar Control mechanism

Venture moneyVenture money

Elements for OTBElements for OTB

Planned salesPlanned sales + Planned + Planned reductionsreductions + Planned + Planned EOMEOM - - BOMBOM________________________________________________________ Planned purchasesPlanned purchases at retail at retail - Mdse - Mdse on orderon order & other $ commitments & other $ commitments OTBOTB

Buying errorsBuying errors

Mdse priced too high or too lowMdse priced too high or too low Wrong merchandise purchasedWrong merchandise purchased Too little / too much stock on handToo little / too much stock on hand Too many vendorsToo many vendors Didn’t identify seasons hot itemsDidn’t identify seasons hot items Not letting vendor assist purchase orderNot letting vendor assist purchase order Others????Others????

Consider consequencesConsider consequences

SalesSales are lower/higher than plannedare lower/higher than planned

ReductionsReductions Higher or lower than plannedHigher or lower than planned

ShipmentsShipments Delayed or canceledDelayed or canceled

stopstop

Part 2Part 2 Inventory PlanningInventory Planning Selection of Mdse sourcesSelection of Mdse sources

Part 3Part 3 Vendor negotiationsVendor negotiations Mdse handling – in-storeMdse handling – in-store