Professional Documents
Culture Documents
Merchandise Planning
What is it?
It projects the sales goals of a store and then forecast specific merchandise
purchases in dollars which typically covers a six-month period or a year.
Methods?
1. Top Down Planning
2. Bottom up planning
Increased Turnover.
Reduced amount of markdowns.
Improved maintained markup.
Maximized Profits.
Minimum investment in inventory.
1. Sales-to-Stock Method
It involves maintaining inventory in a specific ratio to sales. The stock-sales ratio is
calculated using the following formula:
Stock-sales ratio = Value of inventory / Actual Sales
The stock-sales ratio indicates the relationship between planned sales and the
amount of inventory required to produce those sales, and is used to calculate BOM
stock levels which is as follows:
BOM Inventory = Stock-Sales Ratio * Planned Sales
3. Percentage-Variation Method
The percentage variation method is recommended when the stock turnover is more
than six-times a year. The concept behind stock planning with this method is that
inventory levels should be related to actual changes in sales. Buyers, still require a
minimum amount of stock, but that minimum doesnot remain constant for each
month.
Using this method, the actual stock on hand during any period would vary from
average monthly stock by only half of the months variation from average monthly
sales. Planned BOM would be calculated using the following formula:
Fresher Merchandise
Fewer markdowns and less depreciation
Lower Expense
Greater Sales
5. Higher Returns
Limitations of High Turnover
Excessively high stock turns can mean the retailer is buying in too small
quantities. If so, then the retailer is
1. not taking full advantage of available quantity discounts.
2. adding to the costs of transportation and handling
3. danger of losing sales because of stockouts.
OPEN -TO - BUY
Not all the planned Stock is purchased at the beginning of the month. Purchase
decisions are distributed throughout the month in order to take advantage of new
merchandise line, to re-order fast selling merchandise, or acquire off merchandise to
use in promotional sales. In addition, you may have outstanding orders,
commitments to vendors that have not been delivered. The value of these
outstanding orders will reduce the planned purchases for the month. As a result, you
must be able to calculate, on a specific date during the month, the amount of
merchandise to be purchased during the remainder of the month. The remaining
purchases are defined as Open-to-Buy. It is the amount the buyer has left to
spend for a period and is reduced each time a purchase is made.
Calculating OTB
OTB = Planned Purchases Merchandise on Order-Merchandise Received
Planned Purchases
5. Increase sales
6. Improve stock turnover
7. Hold back purchase dollars to reorder fast-selling merchandise, to take
advantage of off-price merchandise, or to sample new merchandise.
Basic Stock Planning
For basic merchandise, planned purchases can be calculated without using sixmonth merchandising plan. The quantity of basic stock to purchase is determined
using the basic stock plan, The purpose of the plan is to determine the amount of
merchandise a retailer must have on hand or on order to have sufficient amount of
merchandise available during the period. To make these calculations information
about the rate of sale, reorder period, delivery period, and reserve stock levels.
The following formula is used to calculate the maximum amount of any basic
merchandise item that should be on hand and on order at any given point:
Maximum = Sales Volume per Week (Reorder Period + Delivery Period) + Reserve
Rate of Sale: You must first determine the weekly unit sales of each item by
analyzing the past sales records.
Reorder Period: It is the amount of time between orders for merchandise.]
Delivery Period: It is the time between the placement of the order and the time the
merchandise is on the sales floor. Enough merchandise must be available in the
store to cover the time it takes the vendor to deliver the merchandise once it has
been ordered.
Reserve / Safety Stock : It is the amount of merchandise that is necessary to meet
unanticipated sales.
Maximum: It is amount of merchandise that must be on hand or on order at any
reordering point
Minimum : It is the point at which order should be placed.
Minimum = Rate of Sale * Delivery Period + Reserve
In using the basic stock plan, buyers will develop a basic stock list. The basic stock
list provides information such as description of the item, the retail price, the cost, the
maximum, rate of sale, and the minimum reorder quantity.