Week 3
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Week 3. FM10211 – Retail Operations. Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability Chapter 5: Sourcing Midterm Review. Planning. Provides essential information Leads to meeting Mazur’s 5 “rights” Right merchandise Right time Right place Right quantities

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Week 3

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Week 3

Week 3

FM10211 – Retail Operations

Finish Chapter 4: Merchandise Planning, Buying, Control, and Profitability

Chapter 5: Sourcing

Midterm Review


Planning

Planning

  • Provides essential information

  • Leads to meeting Mazur’s 5 “rights”

    • Right merchandise

    • Right time

    • Right place

    • Right quantities

    • Right price

FM10211 - Retail Operations


Forecasting

Forecasting

  • Predicting what customers want

  • Quantities

  • Uses as much input as possible

    • External environmental factors

    • Internal environmental factors

FM10211 - Retail Operations


External environmental factors

External environmental factors

  • Economy

  • Society and culture

  • Technology

  • Political and legal issues

  • Analysis available from a variety of sources

  • Trend books, etc.

FM10211 - Retail Operations


Internal environmental factors

Internal environmental factors

  • Store records

    • Sales

    • Profits

  • Store culture

  • Vendors

FM10211 - Retail Operations


Merchandise budget

Merchandise Budget

  • Dollar planning

    • How much money will be spent

  • Unit planning

    • How many of each type of item will be purchased and kept in inventory

    • Includes the mix

    • Considers assortment and qualitative aspects

  • Both usually include dollar amounts and % of net sales

FM10211 - Retail Operations


Inventory flow

Inventory Flow

  • Start: beginning of month (BOM)

  • Stock comes in

  • Stock is sold

  • Shrinkage

  • Returns

  • End: end of month (EOM)

FM10211 - Retail Operations


Step 1 plan retail sales

Step 1: Plan Retail Sales

  • Estimate sales

  • Usually use sales history, if available

    • Increase or decrease, depending on other factors

  • If not available, more research necessary

  • Plan sell-through

    • Percentage of available merchandise that is sold

FM10211 - Retail Operations


Step 2 plan inventory stock

Step 2: Plan Inventory/Stock

  • Based on Sales Plan

  • Must have proper stock to meet sales goals

  • Calculate Beginning of the Month (BOM) and End of the Month (EOM) inventory levels

FM10211 - Retail Operations


Three stock planning methods

Three Stock Planning Methods

  • Basic stock

    • Minimum level of stock at all times

  • Stock-to-sales ratio (SSR)

    • Multiply planned monthly sales by ratio to get BOM

    • Ratio comes from Trade Orgs or sales history

  • Week’s supply

    • Stock level set to sales for determined number of weeks

    • Directly related to turnover rate

FM10211 - Retail Operations


Inventory turnover

Inventory Turnover

  • Also called stock turn

  • The number of times stock is sold and replaced within a period of time

  • High turns means shorter time in inventory

  • Short time in inventory means less inventory costs

  • (This is a slightly simplified version)

FM10211 - Retail Operations


Inventory turnover1

Inventory Turnover

  • Ex. 1: Buy 12 apples, sell one per month

    • Problems

      • Had to invest in 12 apples at once

      • Money tied up for 12 months

      • Apples can go bad, other inventory issues

  • Ex. 2: Buy 1 apple, sell it, buy another, etc.

    • Much better!

      • Invest in one apple at a time

      • Money tied up for 1 month

      • Inventory stays fresh

FM10211 - Retail Operations


Inventory turnover2

COGS of all sales in period

Full-stock inventory COGS

Turnover =

Inventory Turnover

  • If apples cost $1 each, then:

  • Ex 1: $12/$12 = 1 turns

  • Ex 2: $12/$1 = 12 turns

FM10211 - Retail Operations


Assortment planning ii

Assortment Planning II

  • Plans the mixture of merchandise

  • Basic stock planning

    • For basics

    • Ongoing levels

  • Model stock planning

    • Based on various factors

      • Fabric

      • Price

      • Style

      • Etc.

FM10211 - Retail Operations


Assortment terms

Assortment Terms

  • Breadth of merchandise

    • Number of different product lines, styles, brands carried

    • Broad = lots of styles

    • Narrow = few styles

  • Depth of merchandise

    • Number of units within a line, style, or brand

    • Deep = many colors and sizes

    • Shallow = few colors and sizes

FM10211 - Retail Operations


Step 3 plan reductions

Step 3: Plan Reductions

  • Rare to sell all inventory at original price

  • Helps clean out inventory to be replaced

  • Various types

    • Markdowns

      • Promotional or Permanent

      • Adjust price down

    • Markup cancellation

      • Adjust amount of markup

    • Discounts

      • For employees and/or special customers

FM10211 - Retail Operations


Step 4 plan markup

Step 4: Plan Markup

  • In dollars, retail price minus cost

  • Percentage of cost added to cost to get price

  • Keystone markup

    • Markup = cost

  • Short markup

    • Less than keystone

  • Volume and competition are primary factors in determining markup

    • E.g. Wal-Mart

FM10211 - Retail Operations


Pricing

Pricing

  • Much more than just considering expenses

  • Consider

    • Type of merchandise

    • Competition

  • Target customer

  • COGS and expenses

  • Strategy

    • Price range

    • Price points

    • Promotionally priced vs. regularly priced

    • Odd priced vs. even priced

    • Loss Leader?

  • Pricing is regulated by Federal Trade Commission (FTC)!

FM10211 - Retail Operations


Step 5 plan purchases

Step 5: Plan Purchases

  • Now, purchases can be planned

  • Based on

    • BOM

    • EOM

    • Planned Sales

    • Reductions

  • Open to Buy (OTB)

    • Planned purchases minus on-order

FM10211 - Retail Operations


Calculations

Everything out of Month

Everything into Month

Calculations

  • Sales

  • +Reductions

  • +EOM

  • -BOM

  • = Planned Purchases

  • IE:

    Sales + Reductions + EOM = BOM + Purchases

FM10211 - Retail Operations


Six month merchandise plan

Six-Month Merchandise Plan

*Cost is after taking out markup

(this example uses keystone markup)

FM10211 - Retail Operations


Chapter 5 sourcing

Chapter 5: Sourcing

Determining how and where goods bought


Supply chain

Supply Chain

  • Resources

    • Manufacturers

      • A/k/a vendors, suppliers, resources

  • Middlemen

    • Wholesalers

      • A/k/a distributors

      • Buy in large quantities, break down, distribute

    • Finishers

    • Drop-shippers

    • Brokers

FM10211 - Retail Operations


Contract manufacturing

Contract Manufacturing

  • Independent producers

  • Perform aspects of manufacturing

    • Sewing

    • Cutting

    • Finishing

  • Can be exclusive

    • Only work for a particular company

    • Pros and cons

FM10211 - Retail Operations


Lead time

Lead Time

  • Time between order placed and arriving

  • The faster the better

  • Long lead times may be hard to avoid

  • Technology can help

    • Quick Response

    • Just-in-time

FM10211 - Retail Operations


Domestic vs international

Domestic vs. International

  • Domestic Sources

    • Faster

    • More expensive

    • Easier to work with?

  • International Sources

    • Often less expensive

    • Longer lead time

    • Red tape

    • Ethical issues

FM10211 - Retail Operations


Manufacturing cost comparison

Manufacturing Cost Comparison

FM10211 - Retail Operations


Centralized vs decentralized

Centralized vs. Decentralized

  • Centralized

    • One group/individual buys for entire company

  • Decentralized

    • Buying happens locally

    • Less common for larger retailers

FM10211 - Retail Operations


Buying offices

Buying Offices

  • Resident Buying Office (RBO)

    • Located in particular fashion market

    • Local representative for retailer

    • Store-owned or independent

      • Independent works for multiple retailers

      • Independent can save money

FM10211 - Retail Operations


Markets

Markets

  • Where retailers and manufacturers meet

  • Merchandise Marts

    • Located in major cities

  • Trade Shows

  • International markets

    • Largest cities

FM10211 - Retail Operations


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