buying handling
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Merchandise buying & Merchandise buying & handlinghandling
Chapter 9 – Part 1Chapter 9 – Part 1
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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
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Dollar Mdse PlanningDollar Mdse Planning
Mdse. MgmtMdse. MgmtAnalysisAnalysisPlanningPlanningAcquisitionAcquisitionHandlingHandlingControlControl
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Dollar Mdse PlanningDollar Mdse Planning
MethodsMethodsBasic stockBasic stockPercentage variationPercentage variationWeeks’ supply Weeks’ supply Stock to sales methodStock to sales method
GRMOI modelGRMOI model
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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
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$ Mdse Planning$ Mdse Planning
FirstFirst: : determine salesdetermine sales
SecondSecond: : determine determine inventory neededinventory needed Dollars invested in inventoryDollars invested in inventory
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$ 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
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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 </>
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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..
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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
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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
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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
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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)
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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
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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
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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
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Dollar Mdse ControlDollar Mdse Control
Open to Buy (OTB)Open to Buy (OTB)Dollar Control mechanismDollar Control mechanism
Venture moneyVenture money
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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
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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????
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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
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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