PURCHASING

The Role of the Buyer

Planning Purchases

Organizational BuyersBuy goods for business purchases, usually in much greater quantities that the average consumer.

*Purchases are made for Reselling and Manufacturing purposes.

Group Activity

Come up with the lowest costs of the following items to start a retail clothing store.

Hangers – 1000 (300 for Pants/shorts, 700 for shirts)

Clothing Racks – 15Polo Shirts (Men and Women) – 3 styles, 3 colors,

sizes – S, M, L, XL, XXL (45 shirts for each Men and Women)

Shorts – Men and Women – 1 style, 3 colors, 8 sizes in each (24 shorts in each color, 72 each for Men and Women)

Socks – Black (50 pairs Crew and 50 pairs Ankle) White (50 pairs Crew and 50 pairs Ankle)

Resellers

Wholesale and Retail BuyersPurchase goods for resale by forecasting customers’ needs and purchase the necessary products.

Buyers must forecast these needs in order to plan ahead to meet the demand at different times during the year.

Resellers

Six-Month Merchandising PlanPlan purchases buy preparing a budget that estimates planned purchases for a six month period.

Information used to create the six month plan

Planned Sales Use previous year’s monthly sales figures and adjust them to current goals.

Example: Last Year Sales = $100,000Expected Growth = %10

Planned Sales = $100,000 x 1.10 = $110,000

Resellers

Beginning of the Month (BOM Inventory)The amount of inventory available at the beginning of each month.

The End of the month (EOM) is the BOM of the next month.

Use previous years to help the planning.

Example:Sales = $40,000BOM = $120,000Stock to Sales = 3:1 or Inventory is 3 times the amount of sales

Resellers

Planned Retail ReductionsReductions in selling prices and shortages in merchandise or inventory.

Calculated in 2 ways:A % of planned sales Ex.) 10% of $25,000 sales = $2,500

Reducing planned reductions from previous years.Ex. Last Years Reductions = $700Desired Reductions = -5% $700 X .05 = $35 $700 – $35 = $665

Resellers

Planned Purchases (P) - FormulaP = (PS + EOM Stock + R) – BOM Stock

ExamplePlanned Sales (PS) = $10,000Planned BOM Stock (BOM) = $20,000Planned EOM Stock (EOM) = $25,000Planned Reductions (R) = $500

(10,000 + 25,000 + 500) – 20,000 = $15,500

This number is the retail value of the purchase. Not the actual cost for the buyer.

Six Month Merchandise Plan Practice

    February March  April May June July Total

Sales

Last Year 82,000 96,000 90,000 100,000 94,000 80,000

Plan 90,200 105,600 99,000 110,000 103,400 88,000

Actual

   

Retail Stock BOM

Last Year 328,000 336,000 297,000 360,000 291,400 224,000

Plan 360,800 369,600 326,700 396,000 320,540 246,400

Actual

   

Retail Reducations

Last Year 12,300 14,400 13,500 15,000 14,100 12,000

Plan 11,685 13,680 12,825 14,250 13,395 11,400

Actual

   

Retail Purchases

Last Year N/A N/A N/A N/A N/A N/A

Plan 110,685 76,380 181,125

Actual

Resellers

Open to Buy (OTB) The amount of money left for buying goods after all other expenses have been considered.

P (Planned Purchases) – (goods received +goods ordered) = OTB

Then calculate the markup percentage to determine the OTB at cost.

If the markup is 45% the OTB at cost is 55% of OTB100% - 45% markup = 55% OTB at Cost

Six Month Merchandise Plan Practice

Once you have determined the planned purchase amount it is time to determine how much you will actually have able to spend. Each month an order is made that will allow you to have $15,000 on hand and $2,000 on order. You are then in charge of the remaining purchasing. Determine for May, June, and July the Open-to-Buy (OTB) and the OTB at Cost. The markup for your products is 42 percent.

  OTB OTB at Cost  May      April       June    

Resellers

Planning Purchases – For a Chain StoreThe buying for all branches in a chain store operation is usually done at a centralized location called: Centralized Buying

Creates a unified image and a system of product availability. Buyers can see where product sells quickly or slowly

Discounts can be negotiated because of the quantity of goods being purchased

When a store needs extra inventory or wants to carry a specialized product and the store makes the order it is referred as: Decentralized Buying