Buying Systems

Staple and fashion merchandise

Buying systems for staple merchandise

Provide info to buyers concerning: Sales velocity Inventory availability Amount on order Inventory turnover Sales forecast Quantity to order per SKU

Basic components of a staple ordering system

Basic stock list Inventory turnover Product availability Forecast Order point Order quantity

Basic stock list

Most basic component Describes each SKU Summarizes inventory position

Quantity on hand + quantity on order=quantity available

Inventory turnover

Turnover is net sales/average retail inventory

Can look at inventory for a specific item or SKU

Product availability

The percentage of demand for an item a retailer wishes to fulfill

Forecast

Simple trend analysis Exponential smoothing

New forecast = old forecast + a(actual demand – old forecast)

Order point

Quantity below which inventory should not dip below, or item will be out of stock before the next shipment arrives

Order point = [(demand/day)(lead time + review time)]+ backup stock

Order point practice problem

James is the replenishment buyer for the hosiery department of a small discount chain. He checks his inventory once a week, and orders take five days to arrive once placed. The store typically sells 12 pair of men’s tan socks each day. Backup stock is 24 pair. What is the order point for men’s tan socks?

Buying systems for fashion merchandise

Incomplete information Objectives

Maintain adequate assortments Regulate the dollar investment of

stocks in relation to sales to obtain a satisfactory balance

Starting point: planned sales

Planned sales=Last year’s sales (% increase or decrease)

To determine, consider: Last year’s sales Fashion trends Economic trends Local conditions Market factors Previous growth rates

Another consideration: turnover

Stimulates sales Reduces markdowns Lowers cost of goods sold Decreases expenses

Interest Merchandise taxes Operating expenses

Turnover

How often, on average, merchandise cycles through a store

Calculating turnover

If average retail stock and sales for the period are known Turnover= net sales for a

period/average retail stock for the same period

Turnover practice problem

For the year, the infants’ department had net sales of $2,000,000. The average retail stock during this period was $500,000. What was the rate of stock turn?

Calculating average stock when planned sales and turnover are known

Average retail stock= planned sales for a period/turnover rate

Practice problem

The hosiery department planned sales of $3,000,000 with a stock turn of 5 as the goal. What should be the average stock carried for the period under consideration?

Calculating average stock

Average retail stock = (sum of beginning inventories + ending inventory for a given period)/ number of inventories

Stock-sales ratio

Used to balance planned monthly sales with planned monthly stocks

Vary from month-month depending on seasonal factors

Historical figures, or published figures

Calculating stock to sales ratio

Sales to stock ratio = retail stock at a given time/sales for the period

Practice problem

On February 1, the boys’ wear department had a retail stock of $120,000. The planned sales for this month were $20,000. Find the stock-sales ratio for the month of February.

Calculating BOM stock

When planned sales and stock-sales ratio are known

BOM stock = planned monthly sales * stock-sales ratio

Practice problem

The fabric department planned sales of $40,000 for the month of July. Experience in the department showed an 8.2 stock-sales ratio was successful. What should be the planned BOM stock for July?

Reductions to inventory

Markdowns Employee discounts Shrinkage

Markdowns

Reductions in initial selling price Objectives

Stimulate sales of merchandise to which customers are not responding satisfactorily

Attract customers by offering bargains Meet competitive prices Provide open-to-buy money to purchase

new merchandise Create special promotions

Causes of markdowns

Buying errors Pricing errors Selling errors Off-price promotions or multiple

sales Broken assortments

Employee discounts

Type of markdown Employee benefit

Shrinkage

Reductions in inventory caused by shoplifting by employees or customers, by merchandise being misplaced or damaged, or by poor bookkeeping

Common causes of shrinkage

Clerical errors Physical merchandise losses

Planned purchases

Planned EOM stock+ planned sales for the month+ planned markdowns for the month total merchandise requirements for month- planned BOM stock planned purchase amount for month

Practice problem

From the following planned figures for the lingerie department, calculate the planned purchase amount for June: Planned stock June 1 $ 38,000 Planned sales for June $ 100,000 Planned markdowns for June$ 5,000 Planned stock for July 1 $

40,000

Open-to-buy

Amount of unspent money available for purchasing merchandise

OTB for the balance of the month

Calculating open-to-buy at the beginning of the month

Planned purchases - merchandise on order Open-to-buy

Practice Problem

If planned purchases for June are $107,000 and merchandise on order is $52,000, what is the OTB for June?

Calculating open-to-buy for the balance of the month

Planned purchases - merchandise received to

date- merchandise on order Open-to-buy

Converting to cost

Planned purchases at cost= planned purchases at retail (1-MU%)

OTB at cost= OTB at retail (1-MU%) This is how much you can actually

spend!!