11-1

Merchandise planning

11-2

Types of Buying Systems

The McGraw-Hill Companies Inc./Ken Cavanagh Photographer

Fashion Merchandise
Unpredictable Demand
Limited Sales History
Difficult to Forecast Sales
The McGraw-Hill Companies, Inc./Lars A. Niki,
photographer

Staple Merchandise
Predictable Demand
History of Past Sales
Relatively Accurate
Forecasts

11-3

Staple Merchandise Planning

Staple merchandise planning systems provide information
needed to assist buyers by performing three functions:
Monitoring and measuring current sales for items at the
SKU level
Forecasting future SKU demand with allowances made for
seasonal variations and changes in trend
Developing ordering decision rules for optimum restocking

11-4

Factors Determining Backup Stock

Level of backup depends on product availability retailer
wishes to provide
The greater the fluctuation in demand, the more backup
stock is needed
The amount of backup stock needed is also affected by
the lead time from the vendor
Fluctuations in lead time affect the amount of backup
stock
Vendors product availability affects retailers backup
stock requirements

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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

11-6

Order Point continued

Assume Buffer stock = 50 units, then
Order point = 100 (3+1) + 50 = 450
We will order something when order point
gets below 450 units.

11-7

Calculating the Order Point

Order Point = (Demand/Day) x (Lead Time
+Review Time) + Backup Stock
167 units = (7 units x (14 + 7 days) + 20 units
So Buyer Places Order When Inventory in Stock
Drops Below 167 units

Merchandise Planning for

Fashionable Merchandise
Steps in Developing a Merchandise Budget
Plan
Set margin and inventory turn goals
Seasonal sales forecast for category
Breakdown sales forecast by month
Plan reductions markdowns, inventory loss
Determine stock needed to support forecasted
sales
Determine open to buy for each money

11-8

Merchandise Budget Plan

Plan for the financial
aspects of a merchandise
category
Specifies how much money
can be spent each month to
achieve the sales, margin,
inventory turnover, and
GMROI objectives.
Not a complete buying
plan--doesnt indicate what
specific SKUs to buy or in
what quantities.

11-9

Royalty-Free/CORBIS

11-10

Shrinkage
Inventory loss caused by shoplifting, employee
theft, merchandise being misplaced or damaged
and poor bookkeeping.
Retailers measure shrinkage by taking the
difference between
1. The inventory recorded value based on
merchandise bought and received
2. The physical inventory actually in stores and
distribution centers

Analyzing Merchandise Management

Performance
Three types of analyses related to the
monitoring and adjustment step are:
Sell through analysis
ABC analysis
Multiattribute analysis of vendors

11-11

11-12

Sell Through Analysis Evaluating Merchandise Plan

A sell-through analysis compares actual and planned sales to
determine whether more merchandise is needed to satisfy demand or
whether price reductions are required.

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ABC Analysis
An ABC analysis identifies the performance of individual
SKUs in the assortment plan.
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.

ABC Analysis Rank Merchandise

By Performance Measures

11-14

Contribution Margin
Sales Dollars
Sales in Units
Gross Margin
GMROI
Use more than one criteria
Ryan McVay/Getty Images