ISE EBook Online Access for Retailing Management by Levy Michael;Weitz Barton;Grewal Dhruv;

Author:Levy, Michael;Weitz, Barton;Grewal, Dhruv;
Language: eng
Format: epub
Publisher: McGraw-Hill US Higher Ed ISE

Control System for Managing Inventory of Fashion Merchandise

The control systems for managing fashion merchandise categories are the merchandise budget plan and the open-to-buy.

Merchandise Budget Plan The merchandise budget plan specifies the amount of merchandise in dollars (not units) that needs to be delivered during each month, based on the sales forecast, the planned discounts to employees and customers, and the level of inventory needed to support the sales and achieve the desired GMROI objectives.

Exhibit 12–9 shows a six-month merchandise budget plan for men’s casual slacks at a national specialty store chain. Appendix 12A describes in detail how the plan is Page 341developed. Most retailers use commercially available software packages to develop merchandise budget plans.

Exhibit 12–9 Six-Month Merchandise Budget Plan for Men’s Casual Slacks

Inventory turnover, GMROI, and the sales forecast are used for both planning and control. Buyers negotiate GMROI, inventory turnover, and sales forecast goals with their superiors, the GMMs and DMMs. Then merchandise budgets are developed to meet these goals. Well before the season, buyers purchase the amount of merchandise specified in the last line of the merchandise budget plan to be delivered in those specific months—the monthly additions to stock.

Open-to-buy is similar to keeping track of the checks you write. Buyers need to keep track of the merchandise they purchase and when it is to be delivered so they don’t buy more (overbuy) or less (underbuy) than they have money in their budget to spend each month.

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After the selling season, the buyer must determine how the category performed compared with the plan. If the actual GMROI, inventory turnover, and forecast are greater than those in the plan, performance is better than expected. However, performance evaluations should not be based solely on any one of these measures. Several additional questions should be answered to evaluate the buyer’s performance: Why did the performance exceed or fall short of the plan? Was the deviation from the plan due to something under the buyer’s control? For instance, was too much merchandise purchased? Did the buyer react quickly to changes in demand by either purchasing more or having a sale? Was the deviation instead due to some external factor, such as a change in the competitive level (e.g., new competitors’ stores opened in the area), economic activity (e.g., recession), or global events (e.g., pandemic)? Every attempt should be made to discover answers to these questions. Later in this chapter we will examine several additional tools used to evaluate merchandise performance.

Open-to-Buy System After the merchandise is purchased on the basis of the merchandise budget plan, the open-to-buy system keeps track of the actual merchandise flows—what the present inventory level is, when purchased merchandise is scheduled for delivery, and how much has been sold to customers. In the same way that you must keep track of the purchases you make using a debit card, to ensure your account balance does not get too low, buyers need to keep track of the merchandise they purchase and when it is to be delivered so they don’t buy more (overbuy) or less (underbuy) than they have money in their budget to spend each month.

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