PURCHASING The Role of the Buyer

Planning Purchases Organizational Buyers Buy goods for business purchases, usually in much greater quantities that the average consumer. *Purchases are made for Reselling and Manufacturing purposes.

Group Activity Come up with the lowest costs of the following items to start a retail clothing store. Hangers – 1000 (300 for Pants/shorts, 700 for shirts) Clothing Racks – 15 Polo Shirts (Men and Women) – 3 styles, 3 colors, sizes – S, M, L, XL, XXL (45 shirts for each Men and Women) Shorts – Men and Women – 1 style, 3 colors, 8 sizes in each (24 shorts in each color, 72 each for Men and Women) Socks – Black (50 pairs Crew and 50 pairs Ankle) White (50 pairs Crew and 50 pairs Ankle)

Resellers Wholesale and Retail Buyers Purchase goods for resale by forecasting customers’ needs and purchase the necessary products. Buyers must forecast these needs in order to plan ahead to meet the demand at different times during the year.

Resellers Six-Month Merchandising Plan Plan purchases buy preparing a budget that estimates planned purchases for a six month period. Information used to create the six month plan Planned Sales Use previous year’s monthly sales figures and adjust them to current goals. Example: Last Year Sales = $100,000 Expected Growth = %10 Planned Sales = $100,000 x 1.10 = $110,000

Resellers Beginning of the Month (BOM Inventory) The amount of inventory available at the beginning of each month. The End of the month (EOM) is the BOM of the next month. Use previous years to help the planning. Example: Sales = $40,000 BOM = $120,000 Stock to Sales = 3:1 or Inventory is 3 times the amount of sales

Resellers Planned Retail Reductions Reductions in selling prices and shortages in merchandise or inventory. Calculated in 2 ways: A % of planned sales Ex.) 10% of $25,000 sales = $2,500 Reducing planned reductions from previous years. Ex. Last Years Reductions = $700 Desired Reductions = -5% $700 X.05 = $35 $700 – $35 = $665

Resellers Planned Purchases (P) - Formula P = (PS + EOM Stock + R) – BOM Stock Example Planned Sales (PS) = $10,000 Planned BOM Stock (BOM) = $20,000 Planned EOM Stock (EOM) = $25,000 Planned Reductions (R) = $500 (10, , ) – 20,000 = $15,500 This number is the retail value of the purchase. Not the actual cost for the buyer.

Six Month Merchandise Plan Practice FebruaryMarchAprilMayJuneJulyTotal Sales Last Year 82,000 96,000 90, ,000 94,000 80,000 Plan 90, ,600 99, , ,400 88,000 Actual Retail Stock BOM Last Year 328, , , , , ,000 Plan 360, , , , , ,400 Actual Retail Reducations Last Year 12,300 14,400 13,500 15,000 14,100 12,000 Plan 11,685 13,680 12,825 14,250 13,395 11,400 Actual Retail Purchases Last Year N/A Plan 110,685 76, ,125 Actual

Resellers Open to Buy (OTB) The amount of money left for buying goods after all other expenses have been considered. P (Planned Purchases) – (goods received +goods ordered) = OTB Then calculate the markup percentage to determine the OTB at cost. If the markup is 45% the OTB at cost is 55% of OTB 100% - 45% markup = 55% OTB at Cost

Six Month Merchandise Plan Practice Once you have determined the planned purchase amount it is time to determine how much you will actually have able to spend. Each month an order is made that will allow you to have $15,000 on hand and $2,000 on order. You are then in charge of the remaining purchasing. Determine for May, June, and July the Open-to-Buy (OTB) and the OTB at Cost. The markup for your products is 42 percent. OTBOTB at Cost May April June

Resellers Planning Purchases – For a Chain Store The buying for all branches in a chain store operation is usually done at a centralized location called: Centralized Buying  Creates a unified image and a system of product availability.  Buyers can see where product sells quickly or slowly  Discounts can be negotiated because of the quantity of goods being purchased When a store needs extra inventory or wants to carry a specialized product and the store makes the order it is referred as: Decentralized Buying