Marketing Communications

Chapter 9 : Purchasing Systems

Purchasing Systems for Fashion Merchandise

Merchandise Budget Plan

Monthly sales
Monthly reductions percentage distribution to season
Monthly reductions
Beginning of month inventory to sales ratio
Beginning of the month (BOM) Inventory
End of the month (EOM) Inventory
Monthly additions to Inventory

Evaluating the Merchandise budget plan

Open-to-Buy

Calculating open-to-buy for previous periods
Calculating open-to-buy for the present period
Calculating open-to-buy for the forthcoming periods

Evaluating open-to-buy

Purchasing Systems for Staple Merchandise

Inventory Management Reports

Assigning Merchandise to Stores

Analyzing the Merchandise Performance

ABC analysis
Sell-through analysis
Multiple attribute analysis

Chapter Summary

This chapter provides a description of the merchandise budget plan, and is an extension of what has been concluded in the chapter merchandise assortment planning. Sales forecasting together with inventory management helps in developing a merchandise budget plan for the fashion merchandise category. Sales forecasts for fashion merchandise are given on a monthly basis according to the previous sales patterns. The merchandise planner should purchase more merchandise in the months in which the sales forecasts are higher than the average.

The chapter also explains the open-to-buy system. Open-to-buy records the merchandise flows i.e., the merchandise purchased for delivery in each month. Open-to-buy also helps merchandise planners keep track of the money spent so that they can compare it with the money that they have planned to spend and also know what is left to spend.

The purchasing systems used to purchase staple merchandise are quite different from the purchasing systems of fashion merchandise. The purchasing systems of staple merchandise help determine the amount of stock to be purchased for each specific stock-keeping unit.

While assigning the merchandise to the stores, merchandise planners should chiefly consider the sales potential of the stores. They should also think of the impression of the stores that customers would take home if faced with inferior assortments.

After assigning the merchandise to the stores, the retailer must analyze the performance of the merchandise through various aspects like performance of vendors, classifications and SKUs. Three procedures that we discussed to evaluate the merchandise performance are: ABC analysis, Sell through analysis and Multi-attribute method. ABC analysis is used to rank merchandise categories and establish an inventory management philosophy. Sell through analysis helps analyze the performance of various SKUs. Multi-attribute method helps evaluate the performance of vendors.

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