Merchandise Purchasing
SMS Varanasi
Objectives of the session
 Branding Strategies
 Global Sourcing Decisions
 The Merchandise Purchasing and Handling
Process
 Ethical and Legal Issues in Purchasing
Merchandise
Merchandise Purchasing
2
Merchandise Purchasing
 All the activities that are required for establishing a
successful relationship with various vendors

Once the merchandise has been purchased, it should
be brought safely into the store and placed on the
shelves for sale.
 Merchandise handling
 Getting the merchandise physically into the store and
taking care of it till it is sold
 As the same vendor may supply the merchandise to
a retailer over a period of time, a relationship is
bound to develop between the vendor and the retailer
 More number of transactions between retailers and
various vendors across the globe, more number of
legal and ethical issues
Merchandise Purchasing
3
Branding Strategies
 An optimum mix of manufacturers' brands
and private brands to be offered at the store

Manufacturers' brands



These brands are produced and controlled by the
manufacturer
Licensed brands
Private brands

In-store brands, are products that are produced
and marketed by retailers
Merchandise Purchasing
4
Private Label Brands
 Factors - enable major manufacturers' brands
to dominate the market and keep other new
entrants at bay



The major manufacturers have developed high
entry barriers through their strong distribution
channels
Older brand names have better brand recall than
the newer ones. It is difficult for new entrants to
build such strong brands because of the
fragmented media and cost involved
The removal of high import duties made Indian
consumers aware of the quality of imported goods.
As a result, they expect higher value from Indian
retailers
Merchandise Purchasing
5
Private Label Brands
 The popularity of private labels is significantly
low for the following reasons




Retailers are not able to advertise as
aggressively as manufacturers.
Retailers are not able to achieve economies of
scale in designing and manufacturing (unlike
manufacturers)
Retailers lack technical sophistication
Consumers regard private label brands as
inferior to manufacturers‘ brands
Merchandise Purchasing
6
Reasons for Launching Private Labels
 The consumer does not see any tangible
value in some of the manufacturers' brands
offered by the store
 The retailer does not earn good margins
through the sale of national brands
 Of all the purchase orders placed, the
vendors fulfill only 60 to 65 percent of the
orders
Merchandise Purchasing
7
Global Sourcing Decisions
 Bags, shoes, caps, cordless telephones and similar goods that are sold
in the US are sourced mostly from China or South East Asian Countries
like Philippines, Taiwan, Bangladesh.
 A retailer should be careful while taking global sourcing decisions as
the customers judge the quality of an imported product on the basis of
the country of origin.


Japan is known for producing electronic goods, certain countries are
well known for manufacturing certain products
Brazil is known for coffee, and France is known for wines
 Factors






Country-of-origin effect
Foreign exchange fluctuations
Tariffs
Free trading zones
Inventory carrying costs
Transportation costs
Merchandise Purchasing
8
Tariffs/Duty
 A list of taxes charged by the government on imports
 General Agreement on Tariffs and Trade (GATT)
and the World Trade Organization (WTO)
 The General Agreement on Tariffs and Trade (GATT)
was first signed in 1947. GATT was an international
forum that encouraged free trade between member
countries by regulating and lowering tariffs on traded
goods. It also served as a mechanism for resolving
trade disputes. In January 1995, GATT evolved into
the World Trade Organization. The WTO monitors
and arbitrates GATT agreements and supports all
negotiations
Merchandise Purchasing
9
Managerial Issues in Global Sourcing
Decisions
 Quality control
 Strategic alliances
Merchandise Purchasing
10
Merchandise Purchasing Process
1. Identify the local sources of supply
2. Contact and evaluate the different sources
of supply
3. Negotiate and purchase from the best
sources of supply
Merchandise Purchasing
11
Identifying the local sources of supply
 Raw resource producers
 Manufacturers
 Intermediaries
 Resident purchasing offices
Merchandise Purchasing
12
Types of Wholesale Intermediaries
Category
Merchant
Intermediaries
Type
General Merchandise (full function)
Single line (full function)
Specialty line (full function)
Cash and Carry (limited function)
Drop shipper (limited function)
Truck Distributor (limited function)
Rack Jobber (limited function)
Merchandise Purchasing
13
Types of Wholesale Intermediaries
Agent
Intermediaries
Contractual
Intermediaries
Broker (limited function)
Sales agent (limited function)
Manufacturer's agent (limited function)
Cooperative Group
Voluntary Chain
Merchandise Purchasing
14
Contacting the sources of supply
 Supplier-initiated contacts
 Retailer initiated contacts
Merchandise Purchasing
15
Evaluating the sources of supply
 Evaluation of Source of Supply
 Evaluation criteria
 Merchandise
 Distribution
 Price
 Promotion
 Service








Warranty and repairs
Exchange facilities
Finance and credit services
Training of sales personnel
Accounting services
Planning and controlling inventory
Designing store facilities
Providing display units, fixtures and signs
Merchandise Purchasing
16
Criteria used
vendors
for
evaluating
Criteria
Description
Reliability
Vendor's ability to satisfy all written promises.
Price Vs Quality
Vendor's ability to provide best merchandise at the least possible price.
Time for processing orders
Speed in delivering the merchandise.
Exclusive selling rights
Vendor's ability to provide exclusive selling rights to the retailer.
Services provided
Vendor's ability to provide services like shipping and storing, if required.
Information
Vendor's ability to provide any significant data pertaining to goods and services.
Guarantee
Vendor's support for its goods.
Credit
Vendor's ability to provide credit purchases to the retailer.
Ethics
Vendor's ability to stick to all its verbal promises.
Long term relationship
Availability of the vendor over an extended period of time.
Reorder filling capacity
Vendor's ability to fill reorders on time.
Markups
Vendor's ability to provide sufficient markup or price margins.
Innovativeness
Innovativeness of the vendor's product line.
Advertising support
Advertising support provided by the vendor.
Investment costs
The size of the vendor's total investment cost.
Risk Involved
The amount of
risk involved
in dealing with the vendor.
Merchandise
Purchasing
the
17
Methods of Evaluation
 Weighted rating method
 Decision matrix approach





Selecting the criteria
Weighing the criteria
Selecting the vendor
Rating the vendor
Weighted rating
Merchandise Purchasing
18
Negotiating with sources of supply
 Price negotiations
 Final Price = List Price - negotiated discounts and allowances
 A trade discount
 A simple method for changing prices to meet changing market
conditions.
 Mentioning the price on the invoice and then quoting a series of
discounts
 A quantity discount
 Cash discounts
 Some important terms
 NET
 Free on Board
 Free Alongside Ship
 Cost, Insurance and Freight
 Cash on Delivery
Merchandise Purchasing
19
Purchasing from Sources of Supply
 Purchasing Strategies


Concentrated strategy
Dispersed strategy
 Purchasing Methods





Regular
Consignment
Memorandum
Approval and
Specification purchasing
Merchandise Purchasing
20
Merchandise Handling
 The physical handling of the merchandise by the
retailer









Receiving and stocking merchandise
Pricing and marking inventory
Setting up displays
Determining on-floor quantities and assortments
Completing customer transactions
Providing delivery and pickup of goods (for customers)
Processing goods that are damaged
Processing returns and exchanges
Monitoring pilferage and merchandise control
Merchandise Purchasing
21
Re-ordering Merchandise
 Merchandise controlling
Process for evaluating revenues, profits, turnover,
shortage of inventory, seasonal fluctuations and
costs for each product in the merchandise category
being offered by the retailer
 An effective reordering plan - critical factors
 Order and delivery time
 Inventory turnover
 Financial implications, and
 Inventory versus ordering costs
 Regular re-evaluation

Merchandise Purchasing
22
Ethical and Legal
Merchandise Purchasing
Issues
in
 Retailer's perspective


Slotting allowances and
Commercial bribery
 Vendor's perspective





Exclusive territories
Exclusive dealing agreements
Tying contracts
Refusal to deal, and
Dual distribution
Merchandise Purchasing
23
Summary of the Chapter
 Branding Strategies
 Global Sourcing Decisions
 The Merchandise Purchasing and Handling
Process
 Ethical and
Merchandise
Legal
Issues
Merchandise Purchasing
in
Purchasing
24