Marketing Essentials
n Chapter 23 Purchasing
Section 23.1 The Role of the Buyer
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SECTION 23.1
The Role of the Buyer
What You'll Learn
 The terms used to describe organizational
buyers
 How planning purchases differs between an
industrial market and a reseller's market
 The six-month merchandise plan and its
calculations
 The concept of chain store buying
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SECTION 23.1
The Role of the Buyer
Why It's Important
The purchasing function in any business
is important because the costs associated
with running a business are often a direct
result of the competency of the person
responsible for buying the goods and
services required to run the business.
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SECTION 23.1
The Role of the Buyer
Key Terms
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organizational buyers
wholesale and retail buyers
six-month merchandise plan
open-to-buy
centralized buying
decentralized buying
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SECTION 23.1
The Role of the Buyer
Planning Purchases
Businesses, like consumers, must plan:
 what to buy
 how much to buy
 when and where to shop
Organizational buyers buy goods for
businesses. Much of what they buy requires
technical knowledge and/or knowledge of the
operations of the firm, especially in
manufacturing and service operations.
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SECTION 23.1
The Role of the Buyer
Industrial Marketing
In manufacturing and service businesses,
the people responsible for purchasing may
be called purchasing managers,
industrial buyers, or procurement
managers. They are often directly involved
in production planning.
Slide 1 of 2
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SECTION 23.1
The Role of the Buyer
Industrial Marketing
A bill of materials is the list of everything
needed to make a product. It helps the
purchasing manager determine what to
buy, and how much to buy.
Materials requirement planning (MRP)
helps determine when to buy, so supplies
are ready when they are needed in the
production schedule.
Slide 2 of 2
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SECTION 23.1
The Role of the Buyer
Resellers
Wholesale and retail buyers purchase
goods for resale—they forecast customers’
needs and buy the necessary products.
Buyers must plan far in advance of the
selling season to know how much of each
item to purchase.
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SECTION 23.1
The Role of the Buyer
Six-Month Merchandise Plan
Buyers plan their purchases by preparing a
six-month merchandise plan—or the
budget that estimates planned purchases for
a six-month period. First a buyer must
determine planned sales, usually based on
the previous year's sales.
Slide 1 of 4
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SECTION 23.1
The Role of the Buyer
Six-Month Merchandise Plan
Buyers must ensure that there is enough stock to
accommodate the planned sales volume; this is
also known as beginning-of-the-month (BOM)
inventory. It is calculated:
 planned sales x stock-to-sales ratio = BOM
The BOM for one month is the same as the
end-of-the-month inventory (EOM) for the
prior month.
Slide 2 of 4
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SECTION 23.1
The Role of the Buyer
Six-Month Merchandise Plan
The other number in the six-month
merchandise plan is planned retail
reductions, the reductions in the selling
price and shortages of merchandise caused
by clerical mistakes, employee pilferage, or
customer shoplifting. This can be
calculated:
 as a percentage of sales or
 as a percentage reduction from the
prior year
Slide 3 of 4
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SECTION 23.1
The Role of the Buyer
Six-Month Merchandise Plan
In order to determine how much to purchase,
buyers use this formula:
 (planned sales + EOM stock +
reductions)
- BOM stock = purchases
Slide 4 of 4
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SECTION 23.1
The Role of the Buyer
Open-To-Buy
During the buying season, a buyer may want
to know the open-to-buy (OTB), or the amount of
money left for buying goods. OTB is calculated as
follows:
 purchases – (goods received + goods ordered)
Slide 1 of 2
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SECTION 23.1
The Role of the Buyer
Open-To-Buy
To determine the actual money the buyer has
to spend, you must calculate markup
percentage and deduct that figure from the
retail value.
 100% - markup % = % attributed to cost
 % attributed to cost X retail value =
OTB at cost
Slide 2 of 2
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SECTION 23.1
The Role of the Buyer
Planning Purchases for a Chain Store
Operation
Buying for all branches in a chain store
operation is usually done in a central location
(company headquarters), and is called
centralized buying. Chain stores use
centralized buying in order to create a unified
image for the chain. Customers can expect to
find the same goods in every branch.
Slide 1 of 2
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SECTION 23.1
The Role of the Buyer
Planning Purchases for a Chain Store
Operation
Decentralized buying is used when chain
stores want to have special goods in their
stores that are not available elsewhere in the
chain. In these cases, local store managers or
their designated buyers are authorized to make
special purchases for their individual stores.
Slide 2 of 2
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SECTION 23.1
The Role of the Buyer
Government Markets
Government units are the federal, state, or
local agencies that are responsible for
purchasing goods and services for their
specific markets. There are approximately
85,000 government units in the U.S.,
including the Federal Aviation Administration
and local school boards.
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23.1 ASSESSMENT
Reviewing Key Terms and Concepts
1. What are the differences between
organizational buyers and consumers?
2. What products might an industrial buyer
purchase?
3. What do wholesale and retail buyers
purchase?
4. In a retail buying situation, what does a buyer
prepare in advance of the selling situation?
5. Why do chain stores use centralized buying?
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23.1 ASSESSMENT
Thinking Critically
What would happen if a buyer computed a
planned sales figure for the next planning
period that was 20 percent too high?
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Marketing Essentials
End of Section 23.1
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