Merchandising Processes final

What is the purpose of a merchandise budget

to plan for $ investment in merchandise for a selling period

foundation of a merchandise budget

based on the first price by DPT/category and year/quarter/month/week

percentage change method to calculate planned sales

% sales increase = (this year sales - last year sales)/ last year sales

% sales decrease = (last year sales - this year sales)/last year sales

Space productivity method

based on sales per square foot

sales per ft² = net sales/ # of square feet

avg. inventory for a month formula

(BOM +EOM)/2

Avg. inventory for a year

(BOM 1 +BOM 2 + BOM etc)/ 13

avg inventory

(BOM for each month period + EOM for last month in period) / (# of months in period + 1)

stock-to-sales ratio

determines how much inventory is required to attain planned sales

BOM/planned sales for some period (<1 = shortage, >3 = overstock)

planned reductions %

planned reductions $ / planned sales

3 forms of reductions

markdowns, employee discounts, inventory shortage (shoplifting, damaged goods, etc)

overage

physical inventory larger than book inventory

shortage

book inventory larger than physical inventory (more common)

planned purchases

the amount of merchandise that allows sales and reductions and correct EOM

Planned purchase formula

planned sales + planned reductions + planned EOM - planned BOM

Open to buy

money to be spent from an existing budget after some purchases have been made

OTB formula

planned purchases - merchandise on order

merchandise on order

anything in transit or outstanding orders that have not yet arrived 

actual sales < planned sales

larger amount of planned EOM, decrease in planned purchases/OTB

actual sales > planned sales

 smaller amount of planned EOM, planned purchases smaller, OTB can bring products in

assortment factor

dimensions that define characteristics of a product

SKU

unique piece of merchandise

assortment breadth

# of product lines carried, # of categories available (a grocery store that sells variety of products)

assortment depth

# of items within each product line, # of SKUs within each category (more SKUs, more depth)

assortment volume

total number of units in an assortment (based on budget and specific category)

assoortment volume formula

merchandise budget ($)/ average retail price of the category 

assortment distribution

percentage allocation within each assortment factor, an estimate based on rate of sale (how fast each style/size/color sells in an assortment based on sales history)

volume per assortment formula

Assortment volume X assortment distribution % of assortment factor

volume per SKU formula

 # of units per style x color % x size %

assortment diversity /VSA

to look at relationship between units you can buy x unique pieces you have (assortment volume and assortment depth)

Formula = total # of units/# of SKUs in the same assortment 

the smaller the VSA…

the more diverse the assortment (more depth), more SKUs

focused assortment

assortments with many units per SKU, usually 10 or more on average (easier for manufacturers)

the larger the VSA…

more focused assortment, less sku, less depth

If VSA is five or less

considered more diverse

sourcing

the process of procuring products to meet a company’s objectives

internal manufacturing

• Advantages: communication is streamlined

• Disadvantages: more expensive, need high level of investment

• Most suitable for stable product lines (jeans, t-shirts, socks), things consumers will continue to buy

external manufacturing

• Advantages: don’t need to hire people, don’t need initial investments

• Disadvantages: less control, rely on contractor, competition between sourcing brands

Full package sourcing

Contractor provides everything required to make the garments

Advantages: limited technological knowledge required, limited investment

Disadvantages: less control, possible delays, unwanted materials

Cut, Make, Trim (CMT/cut and sew)

• Sourcing company provides design, product specs, and materials 

• Contractor provides labor only

• Advantages: more control, same style cannot be sold to other companies, less likely to have knockoffs 

• Disadvantages: more responsibility, hiring more workers

sourcing company

manufacturers/retailers

contracting company

provides what you are looking for

export trading company

An intermediary between the sourcing company and the contractor

agent

Hired by the export trading company, Native to the sourcing country

capacity

will they have enough of these to produce what you need? (maximum)

minimums

how many units a factory requires to produce

factors to consider

cost, infrastructures, labor skills, quality evaluation, throughput time, competition, political, government regulations

what is throughput time and how can companies reduce it?

the time it takes for an order to be processed from authorization to shipping merchandise for sale

tariffs

taxes on imported goods

import quota

a limit on the quantity of goods that can be produced abroad and sold domestically

absolute quota

no further entries are allowed when quota is met

Tariff-rate quota

higher duty rate after the quota period

Square meter equivalents (SME)

the amount of fabric required to make a garment or a group of garments

Why is it common for firms to work with multiple contracting countries for sourcing?

Cost, expertise in various types of products, fashion vs. basic items, quantity and timing, tariffs and quotas

Preliminary inspection certificate (PIC)

a document issued by the sourcing company to authorize the shipment back to the sourcing company 

bill of lading

receipt issued by the carrier indicating the goods have been received for shipment 

FOB

shipping document specifying which party pays for the shipping and loading costs

socially responsible sourcing

inclusion in purchasing decisions of the social issues advocated by organizational stakeholders

number of SKU formula

# of sizes x # of colors x # of styles