Buying Systems

Buying Systems help buyers and

merchandise planners to decide on
how much to buy.
There are two distinct types of buying
systems:
1. A staple Merchandise Buying System
for basics.
2. 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:
Staple Merchandise
1. To monitor and measure the average
current demand at the SKU level.
2. Forecast the future SKU demand
with making adjustments for
seasonal fluctuations and changes in
trend.
3. 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
1. The merchandise plan helps to coordinate
the supply and demand for merchandise
as well as to ensure that the financial goals
are achieved.
2. 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.
omponents of Merchandise Budget
Plan for Fashion Merchandise
Merchandise Budget Plan:
The buyer needs to evaluate:
W Monthly sales expected as a percentage of the
total sales.
W The factors which could reduce the inventory
level ( due to mark down, shrinkages, discounts
to employees etc.)
W The stock-to sales ratio at the BOM ( Beginning
Of Month )
W GMROI
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)
1. Make an estimate on the amount of
working capital required to be
employed in inventory from month
to month.
2. 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:
W AB Analysis.
W The Sell Through Analysis.
W The Multi-Attribute Method.
AB 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.