Receiving Getting Choosing Timing Buying Selecting Selecting the right quality Buying the right quantity Timing your purchases Choosing the right vendors Getting the right price Receiving and following up on purchases

Considerations in Vendor Selection Reliability DistanceService Do sales reps call regularly? Do they know your product line? What’s the return policy? Can/will they help out with displays or problems?

Planning – Purchases are made weeks or months in advance so need to “predict” what will be good sellers – Must stay within a budget Open-to-buy is the amount “open” to “buy” merchandise – Say you planned $5,000 for merchandise – You already received some merchandise totaling $800 – You’ve placed orders totaling $2,300 – You have open-to-buy of $1,900 {5,000 – (2, )} Timing – Buy too soon, when customers don’t want it, merchandise sits – Buy too late, you don’t have it when customers want it, lose sales

Trade Discount—a discounted price, say a vendor gives you, a retailer, a 40% discount. Generally given as a reward for getting the product out there. Quantity Discount—for large orders Cash Discount—if you pay bill in a short time, say only 10 days.

Describe the importance of planning purchases. Making smart spending decisions can result in better values for customers and larger profits for the business.

Too little inventory can lead to – Losing customers – Frequent reordering

Too much inventory can lead to – Financing costs if you have to borrow money to buy the inventory – Opportunity cost by giving up the use of money tied up in inventory – Storage cost for space – Insurance cost to protect inventory – Shrinkage cost if items are broken, damaged, spoiled, or stolen – Obsolescence cost if items become outdated

Receiving Stock – Check the invoice (bill) to make sure the type of items and the quantity of items on the invoice match what you actually have on the truck Checking Stock – Make sure that the items are not damaged or ready to expire if perishable (like milk) Mark it with selling price Move stock to sales floor OR Move stock to storing area

Stock Turnover Rate: Sales of Inventory $ ÷ Average $ of Inventory

Ex: If your yearly inventory of baseball bats was $40,000 and your net sales (profit) of baseball bats for the year was $35,000, what was your turnover rate? 40,000 ÷ 12 mos = $3,333 average 35,000 ÷ 3,333 = 10.5 This means that your baseball bat inventory is sold and replaced 10.5 times during a year. If that’s the case, you need to buy more baseball bats approximately every 40 days or so at the current levels.

If your annual inventory for candles was $5,000 and your net sales for candles for the year was also $4,000, what was your inventory turnover rate? $5,000 ÷ 12 = $ per month $4,000 ÷ $ = 9.59 times per year your inventory sells completely and must be replenished How often would you need to order candles at the current inventory levels? 365 ÷ 9.59 = every 38 days

How often stock is sold out over a period of time – For the last month you’ve kept about 50 Levis 500 jeans in stock, during the month you’ve sold 200 pairs. How many times did your stock turnover in the past month? – 200 ÷ 50 = 4 times – So you would have to order these jeans – 30 ÷ 4 = every 7 days

Visual Inventory System – Simply look to make sure you have how much you want Best for small businesses with pretty steady sales where stock can be gotten quickly Done by the owner personally Perpetual Inventory System – Continual Track—Record each item that is bought or sold Using a scanner as items are received into store and as they leave Partial Inventory System – Perpetual inventory done for only those items that account for a large share of sales Just-in-time Inventory System – Vendor delivers new inventory just before the old is gone

Physical Inventory—No matter what system you decide to use, you should always do a physical inventory at least once a year – Count how many of each item you actually have – This allows for a check of your control system as things always happen that you are not aware of You took something off the shelf for yourself Something got broken that you didn’t record or notice Someone stole something – If there is a big difference between you physical inventory count and your control system, you will need to figure out the reason

Periodic Reordering – Stock that is used often and easy to get should be on an automatic reorder to maintain inventory levels Non-periodic Reordering Considerations – How much lead time will you need The amount of time between placing an order and receiving that order – What’s the usage rate How quickly will the inventory be gone – How much “safety stock” do you need Some cushion stock to tide you over between orders so you don’t run completely out