1. VIRTUAL BUSINESS RETAILING Lesson 2 Purchasing

2. MAIN IDEA  Purchasing inventory for a store is an important & complicated job  To be successful, a store must have inventory available for its customers to buy  That inventory must be what customers want to buy & must be available when customers want to buy it

3.  In this unit, you will learn the basics of purchasing store inventory, selecting vendors, & managing store inventory  You will also practice some of the mathematics often used in purchasing

4. OBJECTIVES  After completing this lesson, you will be able to:  Explain how purchasing impacts sales & profit  List qualities of a good buyer  Describe the lifecycle of inventory through a store—from ordering to sale  Explain the affect of inventory control on sales  Calculate stock turnover in terms of items & dollars  List common problems associated with purchasing & inventory control

5. What a Buyer Does  The person who is responsible for purchasing the merchandise for a store  Large stores – may hire a person  Small stores – usually owner or manager  Must be well acquainted with store’s customers  Must be knowledgeable about the merchandise available for purchase

6.  Includes the tasks of planning, timing, & negotiating  Planning  Must plan which merchandise to buy  Purchasing is done weeks/months before arrival at store  Know customers  Be able to predict what they will want to buy  Stay within budget  Amount of $ available to buyer is called open-to-buy  Use a merchandise plan to allocate $ available for new merchandise purchases for a specific time period  Consider merchandise orders that have been placed for the time period & the merchandise that has already been received for the time period

7.  Calculating Open-to-Buy  Planned Purchases – (Orders Received + Merchandise Ordered)  Example  You have planned purchases of $1,000  You have received orders that total $400 & you have ordered merchandise that totals $200  $1,000 – ($400 + $200)  $1,000 - $600  $400

8.  Timing  A critical consideration in purchasing  Merchandise must be available when customers want to purchase it  Buyer must decide when merchandise will arrive at store  If too early, it will sit on shelves  If too late, customers will purchase elsewhere

9.  Negotiating  Negotiate the terms & discounts of the orders with the vendors or suppliers  Important – favorable terms & discounts will have an impact on the store’s profit margin

10. Selecting Vendors  A business from which a buyer purchases merchandise  The buyer generally selects vendors  Reputation & reliability is important  Expected to deliver merchandise when it is scheduled to arrive  Buyer also needs to verify that the merchandise delivered is the same quality & quantity that was ordered

11. Inventory Needs  The total amount of goods a business has  May be in a backroom or on the sales floor  Sometimes referred to as stock  Achieving a balance of inventory that is available for sale & the timely delivery of new merchandise is vital for as store’s success  Balance  Empty shelves don’t encourage sales or repeat business  Too much inventory ties up open-to-buy & prohibits the purchase of new merchandise  Use sales records to establish customer buying patterns & to make important decisions about the amount of inventory available at any given time

12. Stock Handling  Once stock is delivered to the store, the process of stock handling begins  Stock handling includes  Receiving the stock  Checking in the stock  Price marking the stock  Transferring the stock to the selling floor

13.  Receiving & Checking in Stock  Done at same time  Receiving stock means matching the items & quantities ordered against the vendor’s invoice (the vendor’s bill for stock purchased – it lists the items & quantities being delivered)  Checking in stock is done  To ensure that the items & quantities ordered & invoiced are the ones received  To make sure that the stock is in good condition & undamaged  To check expiration dates of perishable stock to make sure that they stay fresh for customer’s to purchase

14.  Price Marking Stock  The store’s order form should indicate the selling price of the stock  The stock can then be marked with a price ticket  Computer scanners can read the stock information from the bar code on each item of stock  The manufacturer can add the selling price to the bar code information  This is an accurate & time-saving way for the store to price mark its stock

15.  Transferring stock to the selling floor  New stock is now ready to be moved to the selling floor  Should be transferred as quickly & as carefully as possible  Should be displayed in an area of the store that gets a good amount of customer traffic

16.  Stock Storage  Sometimes entire amount of stock purchased can’t be placed on the selling floor  Extra stock should be stored according to its type & requirements  Ex: milk products need to be refrigerated – extra quantities should be placed in a refrigerated case until there is space for them in the refrigerated section of the store  Other stock, such as nonperishable packages of food, can be stored in shelves in a backroom until needed  Each item of stock should be evaluated according to its storage requirements & should be stored accordingly  It is important to keep shelves stocked on the selling floor

17. Inventory Control  The management of the merchandise a store has for sale  This includes assuring that the store has sufficient stock to maintain sales goals  This also means avoiding too much stock at any given time  Also involves managing the stock on the selling floor & in the back room  Just-in-time inventory control system  Usually computerized  A store is linked to suppliers through a computer system that purchases new inventory automatically as sales are made  Reduce the total amount of inventory a store must carry

18. Inventory Systems  Important to keep track of the merchandise a store has in its inventory  Physical inventory system  Perpetual inventory system

19.  Physical Inventory System  Makes use of periodic counts of stock to ascertain stock levels  Requires that each item of stock be counted & recorded  To save the time & expense of counting all stock items, many store owners will rotate the items that are counted at any given time

20.  Perpetual Inventory System  Keeps track of stock items on a continual basis  Can use either manual or computerized methods  The manual method requires keeping track of items received & sold by hand  The computerized method uses a scanner to record items received & sold – the information from the scanner is then sent to the store’s computer, where the inventory is updated

21. Stock Turnover  An important tool that tells how well the store’s inventory is being managed  Measures how often stock is sold during a given time period  Can be measured in items of stock or in dollars invested

22.  Computing Stock Turnover  To compute in items of stock  Number of Items Sold / Average Number of Stock Items in Inventory  To compute in dollars invested  Dollar Sales of Inventory Items / Average Dollar Value of Inventory Investment

23. Summary  This unit covered the topic of purchasing & the jobs of the buyer  We have learned about the importance of selecting the right vendors  Also learned about the importance of inventory to a store & how to handle items of inventory as they arrive at the store  Learned about inventory control, inventory systems, & how to compute stock turnover in both items of stock & in dollars invested