Buying Systems help buyers and merchandise planners to decide on how much to buy.
There are two distinct types of buying systems:
A staple Merchandise Buying System for basics.
A Merchandise Budget for fashion Merchandise
Staple Merchandise Staple Merchandise Buying Systems are used for merchandise which follow a predictable order-receipt-order-cycle. This buying system uses past history for each staple SKU to forecast demand and sales at the category level . Staple Merchandise Buying Systems enable buyers to carry out three main functions:
To monitor and measure the average current demand at the SKU level.
Forecast the future SKU demand with making adjustments for seasonal fluctuations and changes in trend.
Work out ordering decision rules for optimum restocking.
Merchandise Budget Plan for Fashion Merchandise The merchandise budget plan helps to workout the inventory investment in a category over a period of time. The plan merely specifies how much money is to be spent each month to achieve sales and turnover and also the GMROI objectives.
Merchandise Budget Plan for Fashion Merchandise
The merchandise plan helps to coordinate the supply and demand for merchandise as well as to ensure that the financial goals are achieved.
The plan coordinates the activities of buyers of merchandise for different categories to ensure that there is a balance and avoid situations where there is too much merchandise in some categories and not enough in others.
Components of Merchandise Budget Plan for Fashion Merchandise
Merchandise Budget Plan:
The buyer needs to evaluate:
Monthly sales expected as a percentage of the total sales.
The factors which could reduce the inventory level ( due to mark down, shrinkages, discounts to employees etc.)
The stock-to sales ratio at the BOM ( Beginning Of Month )
OPEN-TO-BUY SYSTEM (OTB) OPEN-TO-BUY helps retailers to project and control future buying so that the flow of merchandise in the store synchronizes with the anticipated sales at a desirable stock turn rate, which will ensure a positive cash flow.
OPEN-TO-BUY SYSTEM (OTB) OPEN-TO-BUY is a planning tool to assist in setting budgets for sales and merchandise inventory levels and monitor the existing status of the OTB amount.
Benefits of OPEN-TO-BUY SYSTEM (OTB)
Make an estimate on the amount of working capital required to be employed in inventory from month to month.
Work out the correct inventory level to support planned sales and also achieve the GMROI.
Benefits of OPEN-TO-BUY SYSTEM (OTB) 3. Work out the merchandise inventory so that the outlet receives the right amount of merchandise at the right time. 4. Ensures a continuous flow of fresh merchandise into the store every month.
Benefits of OPEN-TO-BUY SYSTEM (OTB) 5. Perform the controlling function by comparing actual performance with the OTB plan and take corrective actions wherever required. 6. Provide the organization an opportunity to earn profit through successful merchandising and buying efforts.
Evaluating Merchandise Performance
Various Procedures can be used by the Retailers to analyze Merchandise Performance:
The Sell Through Analysis.
The Multi-Attribute Method.
ABC Analysis It can be done at any level of merchandise classification (from SKU to Department) to determine which items should never be out of stock, those items which should be occasionally allowed to be out of stock and those items which should be deleted from stock selection.
The Sell Through Analysis It is a comparison between actual and planned sales to decide whether early markdowns are required or if more merchandise is required to satisfy demand. This method is more useful for examining the performance of individual SKU’s.
The Multi-Attribute Method It evaluates vendors using a weighted average score, worked out on the basis of the importance of various issues and the vendor’s performance on those issues.