Chapter 15
Implementing Merchandise Plans
Dr. Pointer’s Notes
Chapter Objectives
 To describe the steps in the implementation
of merchandise plans: gathering information,
selecting and interacting with merchandise
sources, evaluation, negotiation, concluding
purchases, receiving and stocking
merchandise, reordering, and re-evaluation
 To examine the prominent roles of logistics
and inventory management in the
implementation of merchandise plans
15-2
Figure 15.1 The Process for
Implementing Merchandise Plans
Gathering
Information
Re-Evaluation
15-3
Interacting
with merchandise
source
Reordering
Evaluation
Receiving
and stocking
merchandise
Negotiation
Concluding
Purchases
Gathering Information
 Need to gather additional information regarding
the market place
 Focus is on what target market wants
 Loyalty programs provide lots of data on
consumer purchases
 Suppliers (manufacturers and wholesalers) are
good sources of information
 Want Book – listing of requested products by
customers
15-4
Gathering information 2
Other sources of information
● government
supplier information – Different apparel
marts
●Dallas market center
●Trade show
●Web
Need to gather sufficient information to
make good decisions
15-5
Selecting and Interacting with
Merchandise Sources
 Company owned- large retailers own or
manufacture merchandise
 Outside, regularly used supplier – independent
supplier who is used often
 Outside, new supplier- independent supplier who
is new and must be qualified because they are
unfamiliar with merchandise quality and reliability
 Chargebacks are growing problems( retailers
make deductions on bills for late shipments,
damaged or expired goods and etc.)
15-6
Evaluating Merchandise
Need to have procedures to evaluate
merchandise as it comes in
●Inspection
●sampling
●Description buying is used with
standardize, nonbreakable, and
nonperishable merchandise
15-7
Negotiating the Purchase
 Retailer must know how to negotiate purchases and its
terms
 New or special orders results in negotiated contracts
 Regular or reorder involves a uniform contract
Off Price Retailer use:
 Opportunistic buying - negotiating very low prices when
vendor’s sales are low or they have overstocks
Delivery dates, quantity ordered must be clear
Purchase price and form of payment and discounts
Slotting Allowances- payments for providing shelf space for
merchandise (retailers are requiring more of these from
manufacturers)
15-8
Concluding Purchases
 The retailer takes title immediately on purchase
 The retailer assumes ownership after titles are loaded
onto the mode of transportation
 The retailer takes title when a shipment is received
 The retailer does not take title until the end of a billing
cycle, when the supplier is paid
 The retailer accepts merchandise on consignment and
does not own the items. The supplier is paid after
merchandise is sold
 Consignment purchases- vendors owns merchandise
until retailers sells it
 Memorandum Purchases-retailer takes title but does
not pay until merchandise is sold
15-9
Receiving and Stocking
Merchandise
This involves receiving and storing the
merchandise, paying invoices, price and
inventory markings, setting up displays,
figuring n floor assortments, completing
transactions, arranging delivery,
processing returns and damage goods,
monitoring pilferage and controlling
merchandise
15-10
Reordering Merchandise
 Four critical factors:
* Order and delivery time
* Inventory turnover
* Financial outlays
* Inventory versus ordering costs* Large inventory may be good because you
can meet customers’ needs, get bigger
discounts and other cost savings but it
could also mean higher risks and costs
* Small inventory reduces risks but require
more frequent reordering and higher
ordering costs
15-11
Re-Evaluating on
A Regular Basis
Merchandise plan must be reevaluate
often
Overall procedures and handling of
merchandise should be monitored
Conclusions become a part of information
gathering stage for future efforts
15-12
Logistics
Logistics is the total process of planning,
implementing, and coordinating the
physical movement of merchandise from
manufacturer (wholesaler) to retailer to
customer in the most timely, effective, and
cost-efficient manner possible
15-13
Logistics Performance Goals
 Relate costs incurred to specific logistics
activities
 Place and receive orders as easily, accurately,
and satisfactorily as possible
 Minimize the time between ordering and
receiving merchandise
 Coordinate shipments from various suppliers
 Have enough merchandise on hand to satisfy
customer demand, without having so much
inventory that heavy markdowns will be
necessary
15-14
Performance Goals_2
 Place merchandise on the sales floor
efficiently
 Process customer orders efficiently and in a
manner satisfactory to customers
 Work collaboratively and communicate
regularly with other supply chain members
 Handle returns effectively and minimize
damaged products
 Monitor logistics’ performance
 Have backup plans in case of breakdowns in
the system
15-15
Supply Chain Management
 The supply chain is the logistics aspect of a
value delivery chain and comprises all of the
parties involved in getting product from manuf to
consumer
* Parties involved
• Manufacturers
• Wholesalers
• Third-party specialists
• Retailer
15-16
Supply Chain Management
 Retailers and suppliers seek closer relationships
as a way to improve profits
Collaborative planning,forecasting and
replenishment (CPFR) is a holistic approach to
supply chain management among the network of
trading partners
Third party logistics (outsourcing) is increasingly
used
Web is used to facilitate communications between
supplier and retailer
15-17
Order Processing and Fulfillment
 Quick Response Inventory Planning (QR) is a
system to reduces amount of inventory it
holds by reordering more frequently and in
lower quantities.
 Floor-ready merchandise- merchandise
comes preticketed and ready to be placed
immediately on the floor (retailer saves time
and costs)
 Electronic data interchanges (EDI) facilitates
QR via a computer to computer relationship
between vendor and retailer
15-18
Order Processing and Fulfillment_2
Efficient Consumer Response (ECR)
Planning permits supermarkets to
incorporate aspects of QR inventory
planning EDI and logistics planning.
This addresses multiple aspects
including ordering, new product intro,
item assortment and promotions.
Advance Ship Notices – alerts retailers
and allows them to plan better
15-19
Transportation and Warehousing
 How often will merchandise be shipped to the
retailer?
 How will small order quantities be handled?
 What shipper will be used?
 What transportation form will be used? Are multiple
forms required?
 What are the special considerations for perishables
and expensive merchandise?
 How often will special shipping arrangements be
necessary?
 How are shipping terms negotiated with suppliers?
 What delivery options will be available for the
retailer’s customers?
15-20
Customer Transactions and
Customer Service
Need to be able to facilitate customer
purchases in a way which makes
customers happy.
Can be as easy as customer picking up
merchandise from a display and taking to
cashier
Can be as complex as completing a web
purchase that must be shipped from
multiple suppliers (Mail order retailers do
this often – to be shipped from supplier)
15-21
Inventory Management
Inventory management is utilized to
acquire and maintain proper merchandise
assortment while ordering, shipping,
handling, storing, displaying and selling
costs are kept low
Retailers expect help from suppliers
Vendor managed inventory programs are
systems where the suppliers help with
inventory from their company
15-22
Problems Balancing Inventory Levels
 The retailer wants to be appealing and never
lose a sale by being out of stock; it does not
want to be “stuck” with excess merchandise
 What fad merchandise and how much should
be carried?
 Customer demand is never completely
predictable
 Shelf space allocation should be linked to
current revenues
15-23
Merchandise Security
Inventory Shrinkage can be caused by employee theft, customer
shoplifting, vendor fraud and administrative errors
$35 Billion in Sales are lost to inventory shrinkage
Three Key Points
a. Loss prevention measures included in store design and building
b. Combination of security measures are needed such as employee
background checks, electronic security equipment and
merchandise tags
c. Retailers must stress the importance of loss prevention to
employees, customers and vendors
15-24
Figure 15.12 Ways Retailers Can Deter
Employee and Shopper Theft
 Employee Theft
* Use honesty tests as employee screen-in devices
* Lock up trash to prevent merchandise from being
thrown out and then retrieved
* Verify through cameras and undercover personnel
whether all sales are rung up
* Centrally control all exterior doors to monitor opening/
closing
* Divide responsibilities – have one employee record
sales and another make deposits
* Give rewards for spotting thefts
* Have training programs
* Vigorously investigate all known losses and fire
offenders immediately
15-25
Figure 15.12 Ways Retailers Can Deter
Employee and Shopper Theft
 Shopper Theft While Store is Open
* Use uniformed guards
* Set up cameras and mirrors to increase visibility – especially
in low-traffic areas
* Use electronic article surveillance for high-value and theftprone goods
* Develop comprehensive employee training programs
* Offer employee bonuses based on an overall reduction in
shortages
* Inspect all packages brought into store
* Use self-locking showcases for high-value items such as
jewelry
* Attach expensive clothing together
* Alternate the direction of hangers on clothing near doors
* Limit the number of entrances and exits to the store, and the
dollar value and quantity of merchandise displayed near exits
* Prosecute all individuals charged with theft
15-26
Figure 15.12 Ways Retailers Can Deter
Employee and Shopper Theft
 Employee/ Shopper Theft While Store is Closed
* Conduct a thorough building check at night to
make sure no one is left in store
* Lock all exits, even fire exits
* Utilize ultrasonic/infrared detectors, burglar
alarm traps, or guards with dogs
* Place valuables in a safe
* Install shatterproof glass and/or iron gates on
windows and doors to prevent break-ins
* Make sure exterior lighting is adequate
* Periodically test burglar alarms
15-27
Reverse Logistics
 All merchandise flows from the retailer back through the
supply channel
 Reverse Logistics Decisions
* Under what conditions are customer returns accepted
by the retailer and by the manufacturer?
* What is the customer refund policy? Is there a fee for
returning an opened package?
* What party is responsible for shipping a returned
product to the manufacturer?
* What customer documentation is needed to prove the
date of purchase and the price paid?
* How are customer repairs handled?
* To what extent are employees empowered to process
customer returns?
15-28
Inventory Analysis
Very important to check inventory status
and evaluate the performance because it
is key to profitable operations
Computer software is available to make
this job easier
Important inventory analysis
gross margin dollars, inventory turnover,
weeks of supply and others
15-29
Questions
15-30