Retail & Sales management Session 17

Setting inventory and product availability levels Model stock plan Product availability --- Percentage of demand for a particular SKU that is satisfied Buffer stock

Development of plan for managing inventory Staple merchandise management systems Fashion merchandise management systems

Inventory management -- concept Cycle stock/base stock--- Inventory which fluctuates during the replenishment process Factors affecting level of base stock: Level of product availability Fluctuation in demand Lead time from vendor and fluctuations Vendor’s product availability Fill rate --- Percentage of complete orders received from a vendor

Functions of staple merchandise management systems Monitoring and measuring current sales for various products at SKU level Forecasting future SKU demand with allowances made for seasonal variations and change of trends Developing ordering decision rules for optimal restocking Inventory management report

Staple merchandise systems Benefits from Inventory management report Detailed information regarding each SKU’s current sales, sales forecasts inventory availability, amount on order back up stock required Planned and actual inventory turn over Ordering point and ordering quantity

Staple merchandise systems Order point :Amount of inventory below which the quantity available shouldn’t go Review time: Maximum time between reviews of SKU by buyer Lead time : Time between order placement and the receipt of merchandise in stores Order point = Sales/day x (Lead time+ review time) +( back up stock)

Fashion merchandise management systems Merchandise budget plan : Planned inventory investment in a fashion merchandise category over time Monthly percentage distribution to season: Projects what percentage of total sales is expected to be sold each month Monthly sales = Forecasted total sales for 6 month period x monthly sales percentage Monthly reductions percentage distribution : mark downs, discount to employees and shrinkage

Fashion merchandise management systems Monthly reductions Beginning of month (BOM) stock- to- sales ratio Stock-to-sales ratio : Amount of inventory which must be in hand at the beginning of the month to support the sales forecast and maintain inventory turn over objective for that category

Steps to determine stock-to-sales ratio: a) Calculate sales-to-stock ratio = GMROI / Gross margin% GMROI= 123, gross margin % =45, 123/45 = 2.73 b) Convert the sales- to-stock ratio to inventory turn over GMROI = Gross margin% x Sales - to - stock ratio Sales-to-stock ratio = GMROI/gross margin percentage Inventory turn over = Sales-to-stock ratio x (1- gross margin%/100) c) Calculate average stock-to-sales ratio = 6 months/Inventory turn over for half-yearly, 12months/ inventory turn over for annual average stock-to-sales ratio d) Calculate monthly stock-to-sales ratio: Based on seasonal patterns

Calculation of BOM inventory and monthly additions to stock BOM inventory = Monthly sales x Beginning of month (BOM) stock-to-sales ratio Beginning of month inventory is the same quantity or different from end-of-month inventory (EOM) of previous month, based on sales forecasts Monthly additions to stock = Sales+ reductions+ EOM inventory – BOM inventory

Evaluation of merchandise budget plan Evaluation of actual performance of the category as against the plan

Open- to-buy system Open- to-buy is used after the merchandise is purchased and it could be used either in merchandise budget plan or staple merchandise management system Helpful to track flow of merchandise during a prescribed time Open- to-buy = Actual EOM planned inventory – projected EOM inventory Projected EOM inventory = Actual BOM inventory + monthly additions actual+ on order - sales plan - monthly reductions plan If open- to-buy is negative, then buyer has to go in cost cuts in his future budgets

Allocation of merchandise to stores Next step after managing inventory Decisions to be taken regarding amount, type and time of merchandise allocation  Amount of merchandise allocation: Based on sales volume generation of the store  Type of merchandise allocation: Based on geodemographic data, characteristics of trading area  Timing of merchandise allocation: Based on seasonal demands and differences in consumer demand

Analyzing merchandise management performance Analysis and subsequent adjustments are done by ordering more or less merchandise, lowering of prices, change of assortments to stores and alterations in model stock plans etc Three kinds of analyses involved: a) sell-through analysis b) ABC analysis of assortments c) Multiattribute analysis of vendors

Analyzing merchandise management performance contd…. Sell-through analysis provides ongoing evaluation of the merchandise management plan as compared to the actual sales ABC analysis and multiattribute analysis is used for evaluating and altering the assortment plan using specific SKU’s in the plan and vendors who provide merchandise

Sell through analysis Sell-through analysis compares actual and planned sales to determine whether more merchandise is required or markdowns are required