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Buying systems for staple merchandise
Provide info to buyers concerning: Sales velocity Inventory availability Amount on order Inventory turnover Sales forecast Quantity to order per SKU
Basic components of a staple ordering system
Basic stock list Inventory turnover Product availability Forecast Order point Order quantity
Basic stock list
Most basic component Describes each SKU Summarizes inventory position
Quantity on hand + quantity on order=quantity available
Inventory turnover
Turnover is net sales/average retail inventory
Can look at inventory for a specific item or SKU
Forecast
Simple trend analysis Exponential smoothing
New forecast = old forecast + a(actual demand – old forecast)
Order point
Quantity below which inventory should not dip below, or item will be out of stock before the next shipment arrives
Order point = [(demand/day)(lead time + review time)]+ backup stock
Order point practice problem
James is the replenishment buyer for the hosiery department of a small discount chain. He checks his inventory once a week, and orders take five days to arrive once placed. The store typically sells 12 pair of men’s tan socks each day. Backup stock is 24 pair. What is the order point for men’s tan socks?
Buying systems for fashion merchandise
Incomplete information Objectives
Maintain adequate assortments Regulate the dollar investment of
stocks in relation to sales to obtain a satisfactory balance
Starting point: planned sales
Planned sales=Last year’s sales (% increase or decrease)
To determine, consider: Last year’s sales Fashion trends Economic trends Local conditions Market factors Previous growth rates
Another consideration: turnover
Stimulates sales Reduces markdowns Lowers cost of goods sold Decreases expenses
Interest Merchandise taxes Operating expenses
Calculating turnover
If average retail stock and sales for the period are known Turnover= net sales for a
period/average retail stock for the same period
Turnover practice problem
For the year, the infants’ department had net sales of $2,000,000. The average retail stock during this period was $500,000. What was the rate of stock turn?
Calculating average stock when planned sales and turnover are known
Average retail stock= planned sales for a period/turnover rate
Practice problem
The hosiery department planned sales of $3,000,000 with a stock turn of 5 as the goal. What should be the average stock carried for the period under consideration?
Calculating average stock
Average retail stock = (sum of beginning inventories + ending inventory for a given period)/ number of inventories
Stock-sales ratio
Used to balance planned monthly sales with planned monthly stocks
Vary from month-month depending on seasonal factors
Historical figures, or published figures
Calculating stock to sales ratio
Sales to stock ratio = retail stock at a given time/sales for the period
Practice problem
On February 1, the boys’ wear department had a retail stock of $120,000. The planned sales for this month were $20,000. Find the stock-sales ratio for the month of February.
Calculating BOM stock
When planned sales and stock-sales ratio are known
BOM stock = planned monthly sales * stock-sales ratio
Practice problem
The fabric department planned sales of $40,000 for the month of July. Experience in the department showed an 8.2 stock-sales ratio was successful. What should be the planned BOM stock for July?
Markdowns
Reductions in initial selling price Objectives
Stimulate sales of merchandise to which customers are not responding satisfactorily
Attract customers by offering bargains Meet competitive prices Provide open-to-buy money to purchase
new merchandise Create special promotions
Causes of markdowns
Buying errors Pricing errors Selling errors Off-price promotions or multiple
sales Broken assortments
Shrinkage
Reductions in inventory caused by shoplifting by employees or customers, by merchandise being misplaced or damaged, or by poor bookkeeping
Planned purchases
Planned EOM stock
+ planned sales for the month+ planned markdowns for the month total merchandise requirements for month- planned BOM stock planned purchase amount for month
Practice problem
From the following planned figures for the lingerie department, calculate the planned purchase amount for June: Planned stock June 1 $ 38,000 Planned sales for June $ 100,000 Planned markdowns for June$ 5,000 Planned stock for July 1 $
40,000
Open-to-buy
Amount of unspent money available for purchasing merchandise
OTB for the balance of the month
Calculating open-to-buy at the beginning of the month
Planned purchases - merchandise on order Open-to-buy
Practice Problem
If planned purchases for June are $107,000 and merchandise on order is $52,000, what is the OTB for June?
Calculating open-to-buy for the balance of the month
Planned purchases - merchandise received to
date- merchandise on order Open-to-buy