Professional Documents
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PPT 13-1
Chapter 13
Buying Systems
McGraw-Hill/Irwin
PPT
13-2
Levy/Weitz: Retailing Management, 5/e
Merchandise Management
Planning
Merchandise
Assortments
Retail
Communication
Mix
Buying
Systems
Buying
Merchandise
PPT 13-3
Pricing
PPT 13-4
Fashion Merchandise
Predictable Demand
Unpredictable Demand
PPT 13-5
Forecas
t SKU
Sales
PPT 13-6
Order
Merchand
ise
Monitor
Sales
and
Inventor
y
Compare
Inventor
y to
Basic
Stock
List
Considerations in Determining
How Much to Order
Basic Stock Plan
Present Inventory
Merchandise on
Order
Sales Forecast
Rate of Sales of
SKU (Velocity)
Seasonality
PPT 13-7
PPT 13-8
600
500
400
300
200
100
0
80
85
90
95
100
Units Available
150 -
Order 96
Cycle
Stock
100 Buffer
Stock
50 -
0-
3
Weeks
PPT 13-11
Buffer Stock
We need it so we wont loose sales, complementary sales, and customers
Buffer stock is dependent on:
-Forecast interval variance (Forecast interval = lead
time + review time)
-Variation in Demand (actual demand - forecasted
demand)
-Time to Get Product from Supplier
-Time to Get Product from Distribution
Center
- Product availability requested of IM systems
PPT 13-12
Forecasting Demand
Forecasting -- extrapolating the
past into future using
statistical and mathematical
methods
Objectives:
Ignore random fluctuations
in demand
But be responsive to real
change
PPT 13-13
Forecasting Sales
Exponential Smoothing
Old
Forecast
84
Old
Forecast
96
x (Recent Old)
Demand Forecast
.5 x (72
ranges for 0 to 1
PPT 13-14
96)
Order Point
Order point = the point at which inventory
available should not go below or else we will
run out of stock before the next order arrives.
Assume Lead time = 0, Order point = 0
Assume Lead time = 3 weeks, review time =
1 week, demand = 100 units per week
Order point = demand (lead time + review
time) + buffer stock
Order point = 100 (3+1) = 400
PPT 13-15
PPT 13-16
PPT 13-18
Six-Month Merchandise
Budget Plan for Mens Tailored Suits
PPT 13-19
Open to Buy
Monitors Merchandise Flow
Determines How Much Was Spent and
How Much is Left to Spend
PPT 13-21
PPT 13-22
PPT 13-23
Open-to-Buy for
Current Period (I)
Projected EOM stock =
Actual BOM stock
+ Actual monthly additions to stock (what was
actually received)
+ Actual on order (what is on order for the
month)
- Plan monthly sales
- Plan reductions for the month
PPT 13-24
Open-to-Buy for
Current Period (II)
Open-to-buy =
Planned EOM stock (from merchandise budget
plan)
Projected EOM stock (based on what is really
happening)
PPT 13-25
Allocating
Merchandise to Stores
Fewer Sales,
More Inventory
More Sales,
Less Inventory
1.5
2.5
3.5
12
1.5
10
PPT 13-26
Breakdown by Store of
Traditional $35 Denim Jeans in Light Blue
(1)
(2)
(3)
TYPE OF
STORE
NUMBER OF
STORES
% OF TOTAL
SALES, EACH
STORE
10.0%
(4)
(5)
(6)
SALES PER
SALES PER
UNIT SALES
STORE (TOTAL
STORE TYPE
PER STORE
SALES X COL. 3) (COL. 2 X COL. 4) (COL. 4/$35)
$15,000
60,000
429
6.7
10,000
30,000
286
5.0
7,500
60,000
214
PPT 13-27
ABC Analysis
Rank - orders merchandise by some
performance measure determine which items:
should never be out of stock.
should be allowed to be out of stock
occasionally.
should be deleted from the stock selection.
PPT 13-28
Vendor Analysis
Multiattribute Method
PPT 13-29
100
10%
90
B
20%
Sales
80
70
60
50
70%
40
30
20
No Sales
10
0
10
A
5%
PPT 13-31
B
10%
20
30
40
50
C
65%
60
70
Percentage of Items
80
90
D
20%
100
Description
Week 1
Week 2
Actual-to-Plan
Actual-to-Plan
Plan Actual Percent. Plan Actual Percent.
20
15
-25
20
10
-50
30
25
-16.6
30
20
-33
1011 -Lg
16
-20
20
16
-20
1012 -Sm
25
26
25
27
35
45
29
35
40
14
1012 -Lg
25
25
25
30
20
PPT 13-32
Evaluating a Vendor:
A Weighted Average Approach
n
*Pij
i 1
PPT 13-33
Ij
Pi
= Not important
10
= Very important
Evaluating a Vendor:
A Weighted Average Approach
Performance Evaluation of Individual
Brands Across Issues
Issues
Importance
Evaluation
of Issues (I)
(1)
(2)
Vendor reputation
9
Service
8
Meets delivery dates
6
Merchandise quality
5
Markup opportunity
5
Country of origin
6
Product fashionability 7
Selling history
3
Promotional assistance
n 4
Overall evaluation =
Ij *Pij
i 1
PPT 13-34
(4)
9
6
7
4
4
3
6
5
3
298
(5)
4
4
4
6
4
3
3
5
4
212
(6)
8
6
4
5
5
8
8
5
7
341
PPT 13-35
Advantages of RIM
The retailer doesn't have to cost each time.
Follows the accepted accounting practice of
valuing assets at cost or market, whichever is
lower.
PPT 13-36
PPT 13-37
Disadvantages of RIM
PPT 13-38
Steps in RIM
Calculate Total Merchandise Handled at Cost
and Retail
Calculate Retail Reductions
Calculate Cumulative Markup and Cost Multiplier
Determine Book Inventory at Cost and Retail
PPT 13-39
PPT 13-40
Ending book
inventory at retail
Ending book
inventory at cost
Cost
Retail
Beginning inventory
$ 60,000
$ 84,000
Purchases
50,000
70,000
- Return to vendor
(11,000)
(15,400)
Net Purchases
39,000
54,600
Additional markups
4,000
- Markup cancellations
(2,000)
Net markups
2,000
Additional Transport.
Transfers in
- Transfers out
Net Transfers
Total Goods Handled
PPT 13-41
1,000
1,428
2,000
(714)
(1,000)
714
(1,000)
$100,714
$141,600
Cost
Retail
Gross Sales
$ 82,000
( 4,000)
Net Sales
Markdowns
6,000
- Markdown Cancellation
(3,000)
Net Markdown
3,000
Employee Discounts
3,000
Discounts to Customers
Estimated Shrinkage
Total Reductions
PPT 13-42
$ 78,000
500
1,500
$ 86,000