Lecture Retailing management (6/e): Chapter 13 - Levy Weitz
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Chapter 13
Merchandise Planning
McGrawHill/Irwin
Retailing Management, 6/e
Copyright © 2007 by The McGrawHill Companies, Inc. All rights reserved.
13-
Merchandise Management
Planning
Merchandise
Assortments
Retail
Communication
Mix
Merchandise
Planning
Systems
Buying
Merchandise
Pricing
2
Types of Buying Systems
The McGraw-Hill Companies Inc./Ken Cavanagh Photographer
3
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
13-
13-
Staple Merchandise Planning
4
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
13-
Staple Merchandise Planning
5
Most merchandise
at home
improvement
centers are
staples.
Ryan McVay/Getty Images
136
Inventory Levels for Staple Merchandise
137
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
• Vendor’s product availability affects retailers’ backup
stock requirements
Relationship between Inventory 8
Investment and Product Availability
600
500
400
300
200
100
0
80
85
90
95
Product Availability (Percent)
100
13-
13-
Cycle and Backup Stock
Units Available
150 -
Order 96
Cycle
Stock
100 Buffer
Stock
50 -
0-
1
2
3
Weeks
4
9
Basic Stock List
•
1310
Indicates the Desired Inventory Level for
Each SKU
– Amount of Stock Desired
Lost Sale Due
to Stockout
Cost of Carrying
Inventory
Inventory Management Report for11
Rubbermaid Merchandise
13-
Order Point
1312
• 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
13-
Order Point continued
13
• Assume Buffer stock = 50 units, then
• Order point = 100 (3+1) + 50 = 450
• We will order something when order point
gets below 450 units.
Calculating the Order Point
1314
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
1315
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--doesn’t indicate what
specific SKUs to buy or in
what quantities.
1316
Royalty-Free/CORBIS
Six Month Merchandise Plan for
Women’s Casual Slacks
1317
18
Monthly sales percent Distribution to Season
(Line 1)
Sales % Dist. to
1. Month
6 mo. data
April
100.00%
May
21.00%
June
12.00%
July
12.00%
Aug
19.00%
Sept
21.00%
13-
15.00%
1319
Monthly sales (Line 2)
Sales % Dist. to
1. Month
6 mo. data
April
100.00%
15.00%
2. Mo. Sales $130,000
$27,300
May
21.00%
June
12.00%
July
12.00%
Aug
19.00%
$15,600
$15,600 $24,700 $27,300
Sept
21.00%
$19,500
Monthly Reductions Percent Distribution
20
(Line 3)
Reduction % Distribution to
3. Month
6 mo. data
100.00%
April
40.00%
May
14.00%
June
16.00%
July
12.00%
Aug
10.00%
Sept
8.00%
13-
13-
Shrinkage
21
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
1322
Monthly Reductions
Reduction % Distribution to
3. Month
6 mo. data
April
100.00%
40.00%
4. mo.
reductions $16,500
$6,600
May
14.00%
$2,310
June
16.00%
$2,640
July
12.00%
$1,980
Aug
10.00%
$1,650
Sept
8.00%
$1,320
Beginning of Month Stock to sales ratio
23
(Line 5)
5. BOM Stock to Sales Ratio
6 mo. data
April
4.0
3.6
May
4.4
June
4.4
July
4.0
Aug
3.6
Sept
4.0
13-
1324
BOM Stock (Line 6)
6. BOM Inventory
6 mo. data
98280
April
98280
May
68460
June
68640
July
98800
Aug
98280
Sept
78000
1325
EOM Stock (Line 7)
7. EOM Inventory
6 mo. data
85600
April
68640
May
68460
June
275080
July
98280
Aug
78000
Sept
65600
