Fashion Merchandise Unpredictable Demand Limited Sales History Difficult to Forecast Sales The McGraw-Hill Companies Inc./Ken Cavanagh Photographer The McGraw-Hill Companies, Inc./Lars A. Niki, photographer
Inventory loss caused by shoplifting, employee theft, merchandise being misplaced or damaged and poor bookkeeping.
Retailers measure shrinkage by taking the difference between
The inventory recorded value based on merchandise bought and received
The physical inventory actually in stores and distribution centers
Monthly Reductions Reduction % Distribution to 3. Month 6 mo. data April May June July Aug Sept 100.00% 40.00% 14.00% 16.00% 12.00% 10.00% 8.00% 4. mo. reductions $16,500 $6,600 $2,310 $2,640 $1,980 $1,650 $1,320
Beginning of Month Stock to sales ratio (Line 5) 5. BOM Stock to Sales Ratio 6 mo. data April May June July Aug Sept 4.0 3.6 4.4 4.4 4.0 3.6 4.0
BOM Stock (Line 6) 6. BOM Inventory 6 mo. data April May June July Aug Sept 98280 98280 68460 68640 98800 98280 78000
EOM Stock (Line 7) 7. EOM Inventory 6 mo. data April May June July Aug Sept 85600 68640 68460 275080 98280 78000 65600
Monthly Additions to Stock (Line 8) 8. Monthly additions to stock 6 mo. data April May June July Aug Sept 113820 4260 17910 48406 26180 8670 8420
Three types of analyses related to the monitoring and adjustment step are:
Sell through analysis
Multiattribute analysis of vendors
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.
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 Contribution Margin Sales Dollars Sales in Units Gross Margin GMROI Use more than one criteria Ryan McVay/Getty Images
Multiattribute Method for Evaluating Vendors The multiattribute method for evaluating vendors uses a weighted average score for each vendor. The score is based on the importance of various issues and the vendor’s performance on those issues. C Squared Studios/Getty Images
Multiattribute Method for Evaluating Vendors Performance Evaluation of Individual Brands Across Issues Importance Evaluation Brand A Brand B Brand C Brand D Issues of Issues ( I ) ( P a ) ( P b ) ( P c ) ( P d ) (1) (2) (3) (4) (5) (6) Vendor reputation 9 5 9 4 8 Service 8 6 6 4 6 Meets delivery dates 6 5 7 4 4 Merchandise quality 5 5 4 6 5 Markup opportunity 5 5 4 4 5 Country of origin 6 5 3 3 8 Product fashionability 7 6 6 3 8 Selling history 3 5 5 5 5 Promotional assistance 4 5 3 4 7 Overall evaluation = 290 298 212 341
Evaluating a Vendor: A Weighted Average Approach = Sum of the expression = Importance weight assigned to the i th dimension = Performance evaluation for j th brand alternative on the j th issue 1 = Not important 10 = Very important
To maintain a perpetual or book inventory of retail dollar amounts.
To maintain records that make it possible to determine the cost value of the inventory at any time without taking a physical inventory.
Retail Inventory Method: The Problem Retailers generally think of their inventory at retail price levels rather than at cost. When retailers compare their prices to competitors’, they compare their retail prices. The problem is that when retailers design their financial plans, evaluate performance and prepare financial statements, they need to know the cost value of their inventory. One way to do this is to take physical inventories – time consuming and costly! Another way is to use the Retail Inventory Method (RIM)
Calculate the Cumulative Markup and Cost Multiplier Cumulative markup = total retail – total cost total retail If the cumulative markup is higher than the planned, then the category is doing better than planned
Determine Ending Book Inventory at Cost and Retail Ending book = Total goods handled at retail inventory at retail – total reductions The ending book inventory at cost is determined in the same way that retail has been changed to cost in other situations – multiply the retail times (100% - gross margin percentage) Ending book = Ending book inventory x cost multiplier