Merchandise handeling

Handling Merchandise

Six-Month Seasonal Dollar Merchandise Plan

• To procure a net profit by providing an instrument that plans, forecasts, and controls the purchase and sale of merchandise.

• To research previous results to repeat and improve prior successes and to avoid failures.

• To integrate the various merchandising activities involved in determining the purchases necessary to achieve the estimated sales plans.

Elements of Six-Month Seasonal Dollar Merchandise Plan

•Planning Sales

•Planning Stocks

Planning Sales

1.Forecasting future Sales Volume For The

Entire Period in terms of % increase or decrease over the same season last year.

2.To set the individual monthly sales goals.

Planning Stock

Objective : To maintain adequate assortment. : To balance dollar investment in

stock and sales effected.

Planning Stock Net Sales for the period1.Stock Turnover for the period=-------------------------- Avg. retail stock for same period 2.Average Retail Stock =

[(Sum of beginning inventories)+(Ending inventory)]/Number of Inventories

Stock turn for the monthsX12 3Annual Turnover Rate = -------------------------------------- No. of Months

Planning Stock

For the year, infants department had net sales of $20,00,000.The average retail stock during this period was $5,00,000.What was the rate of stock turn?

The hosiery dept. planned sales of $2,000,000 with a stock turn of 4 as the goal. What should be the average stock carried for the period under consideration?

Planning StockFinding Average Retail Stock and the Turnover

Sales BOM Stock

January 10,000 January Ist 13,000

February 8,000 February Ist 12,000

March 14,000 March Ist 17,000

April 16,000 April Ist 19,000

May 12,000 May Ist 15,000

June 14,000 June Ist 18,000

July 10,000 July Ist 14,000

August 6,000 August Ist 10,000

September 12,000 September Ist 16,000

October 11,000 October Ist 15,000

November 12,000 November Ist 15,000

December 15,000 December Ist 18,000

December 3Ist(Ending Inventory)

13,000

Planning StockFinding Annual Turnover Rate

Month Sales Stock in Hand

Feb 1st 20,000 50,000

Mar 1st 27,500 60,000

Apr 1st 35,000 75,000

May1st 32,500 70,000

May 31st

(Closing Inventory)

60,000

Planning Stock4. Gross Margin Return on Inventory(GMROI)= =(GM% X Turnover)/(100%-Markup%)

Above is based on the concept that GMROI=How much is made per sale X How long it takes to sell

it/How much was paid for it.Q. Gross Margin =40% Turnover =2.5 Markup =50% GMORI =?

b

Planning Stock

5.Stock-Sales Ratio =Retail stock at a given time in the period/Sales for the period

In the month of February, The boy’s dept has retail stock of $1,20,000 and planned sales for the month were $20,000.Find Stock-Sales Ratio.

6.BOM Stock=(Planned Monthly Sales) X (Stock-Sales Ratio)

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

Planning Stock

7.No. of weeks supply =Weeks/Desired Turnover A Department has a planned stock turnover of 4.0 for the six

month period. Determine the number of week's supply needed to achieve the desired turnover,

8.Planned Stock for the week=Average Weekly Sales X Number of week’s supply

A department has an average weekly sales rate of $9,800 and a planned turnover of 4.0 for the six month period. Calculate the amount of stock to be carried.

Planning Stock

BOM Stock figures by basic stock method1.Average Monthly Sales=Sum of monthly

sales/No. of months2.Average Inventory=Sum of Monthly

sales/Turnover3.Basic Stock=Average Inventory-Average

Monthly Sales4.BOM Stock=Basic Stock + Planned Sales for the

Month

Planning Stock

• In an accessories department that has planned a turnover of 4 for the fall season ,the estimated sales are as follows-

Calculate BOM stocks using the basic stock method

August 28,000 November 36,000

September 30,000 December 40,000

October 32,000 January 26,000

Open to Buy

• Total Merchandise Requirement=(Planned EOM stock + Planned Sales + Planned Markdowns)

• Planned Purchases=Total Merchandise Requirement – BOM Stock

• OTB for the month=(Planned Purchases-Goods on Order-Goods already received during the month)

Open to Buy

• The merchandise plan shows that the planned purchases for September amounts to $17,000.The store’s record indicate that from September 1 to September 15 the department received $8,300 worth of new goods and there is an order of $700 for September delivery. What is the Open-to-buy for the balance of the month?

Open to Buy

• A buyer has planned January sales of $60,000,with an opening stock planned at $50,000, A closing stock of $30,000,and markdowns planned at $500.If the orders that have already been placed for January delivery amount to $ 10,000 at retail, what is the buyer’s January open to buy?

Open to Buy

• On September 15, an infant’s department has a stock of $26,000 and merchandise on order amounting to $700.The planned sales for the balance of month are $8,000,with planned markdowns for the balance of month at $500.The stock planned for September 30 is $31,800.What is the OTB for the balance of month?

Inventory

• Physical Inventory : The retail Dollar Value of all goods physically present in a periodic stock count.

• Book Inventory (Perpetual or running book Inventory):Statistical records that show the value , at retail , of goods on hand at a given time.

Shortages & Overages

Any discrepancy between the book inventory and Dollar inventory is classified as shortage (shrinkage) or overage.

Causes : Clerical Errors Physical merchandise losses

Vendor Selection

Many factors might be considered while selecting a source like-

• Compatibility of the merchandise Offered in terms of price points, style and consumer preference.

• Vendor Distribution Policies :Exclusivity to avoid competition. This may require placing large Orders.

• Promotional merchandise policies :Preference in closeout deals so that bottom line can be bettered in case of special sales events.

Vendor Selection

• Advertising Allowances : To stretch the advertising budget, contribution from vendors is sought. The concept is known as cooperative advertising.

• Shipping and Inventory Maintenance : Ability to handle large orders, willingness to fulfill even small orders and Speed of delivery for orders and reorders.

• Competitive Pricing : Other factors being equal Best priced merchandise should be chosen.

• Adherence to Purchase Order : Vendors should religiously adhere to the parameters set by buyers.

Evaluating Vendors

• Advertising and promotional allowances• Compliance with shipping instructions• Adherence to special requests• Time frame for reorders• Reliability in terms of exclusive distribution

Evaluating Vendors

Periodically the buyer must weigh and measure the contribution of each resource in every price point. A number of records are kept for the purpose like-

Resource Diaries :Important information about each resource like type of merchandise offered, location, contact people, importance to store, terms of purchases made in the past etc. is maintained in loose leaf files. This need to be updated on regular basis.

Evaluating Vendors

Principal Resource List : The document lists company’s principal resources ranked by the total purchasing done with each resource.

It gives a trend of growth or decline with each vendor on a seasonal or annual basis.

Any decline in relative growth of a supplier requires further determination as to whether the resource should be replaced or problem could be rectified.

Evaluating Vendors

• Vendor Analysis Forms : This features a presentation of gross margin for each style of each vendor.

Negotiating and writing the orders

Cash Discounts :Reductions in selling price awarded to retailers for prompt payment of their bills.

• 2/10 n/30=2% discount if paid within 10 days and no discount if paid within 30 days, after which interest may be charged.

• 8/10 EOM=8% discount if paid within 10 days after the end of month of delivery.


• Trade Discount :Different trade discounts are offered to different type of customers based on business classification of that customer like-another manufacturer, a wholesaler, a retailer or sometimes an ultimate consumer.

• Quantity Discounts :Offered as an incentive for buyer to place larger orders. However overbuying of an item can result in a markdown wiping of the benefits of Quantity discount.


Seasonal Discount :Seasonal products are offered on discount for buying prior to the beginning of season.

• Buyer must assess his/her storage capacity as well as capital requirements.

• Buyer must also guard against problems related to early purchase like early selection of colour, price changes and OTB.


• Advertising Allowance :Vendors pay up to one half of the costs of retailer’s advertisement for vendor’s products.

• Post Dating :Negotiating for additional period of time before bill becomes due and still take advantage of cash discount. This enables the retailer to sell some of the merchandise before payments must be made.


• Transportation Cost :Buyer should try to negotiate with the buyer to share the transportation cost as it forms a part of cost of merchandise.

• Size of Shipment : It is less expensive to ship a full container load than a partial one. Buyer should consider the timing of purchase so that one large order can be placed instead of many smaller ones.


• Timing of delivery :Ordering should be done far enough in advance to take advantage of low cost transportation as rapid transportation like airfreight or courier is costlier than slower modes of transportation like waterways or railways.

• Selection of Carriers :Best choice should be made after comparing the rate schedules of different carriers.


• Packing Considerations & Insurance Protection :

Different options should be considered as also the party who will bear the cost-Vendor or retailer.

Negotiating and writing the orders Anticipation :• Extra discount if bill is paid before the end of the cash

discount period otherwise simple discount.• Anticipation=Amount of bill X Daily Rate of anticipation X

Days prepaid.• A bill for $100 subject to terms of 2/10 n/60 dated March 1

is to be paid on March 7.If anticipation is allowed at 12% per anum .what is the amount to be paid?

Anticipation = (100-2) X(12/365) X 54 = $1.74 100 Amount Due = $100-$2-$1.74 = $96.26

Evaluating Vendors

Other Information Used For Buyer Evaluation :Accuracy of quantities shipped and billedAbility of vendor to meet delivery datesPricing AccuracySubstitution historyReturn historyHandling of adjustmentsTerms of purchase

Evaluating Vendors

• Advertising and promotional allowances• Compliance with shipping instructions• Adherence to special requests• Time frame for reorders• Reliability in terms of exclusive distribut

How to Negotiate

*Setting Limits -Amount of merchandise needed in terms of

value as well as units for a profitable season.*Justifying the Offer -Special sale to be held by the store -New designs may present some risk -Merchandise is being late in the season*Splitting the Difference

Writing the Order

• Written order is a type of contract. It should therefore be written with extreme care.

• It is practically easier for accounts and godown personnel if all departments use the same form.

• It should be made in sufficient number of copies for proper processing at different departments.

• Legal conditions should be clearly set forth.

Business

Merchandise handeling