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VIRTUAL BUSINESS RETAILING. Lesson 2 Purchasing. 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

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virtual business retailing


Lesson 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

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
  • 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
what a buyer does
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

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

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


    • 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


    • 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
selecting vendors
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
inventory needs
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
stock handling
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

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

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

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

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
inventory control
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
inventory systems
Inventory Systems
  • Important to keep track of the merchandise a store has in its inventory
    • Physical inventory system
    • Perpetual inventory system

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

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
stock turnover
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

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
  • 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