PURCHASING
The Role of the Buyer
Planning Purchases
Organizational Buyers
Buy goods for business purchases, usually in much
greater quantities that the average consumer.
*Purchases are made for Reselling and Manufacturing
purposes.
Group Activity
Come up with the lowest costs of the following items to
start a retail clothing store.
Hangers – 1000 (300 for Pants/shorts, 700 for shirts)
Clothing Racks – 15
Polo Shirts (Men and Women) – 3 styles, 3 colors, sizes –
S, M, L, XL, XXL (45 shirts for each Men and Women)
Shorts – Men and Women – 1 style, 3 colors, 8 sizes in
each (24 shorts in each color, 72 each for Men and
Women)
Socks – Black (50 pairs Crew and 50 pairs Ankle)
White (50 pairs Crew and 50 pairs Ankle)
Resellers
Wholesale and Retail Buyers
Purchase goods for resale by forecasting customers’
needs and purchase the necessary products.
Buyers must forecast these needs in order to plan
ahead to meet the demand at different times during
the year.
Resellers
Six-Month Merchandising Plan
Plan purchases buy preparing a budget that estimates
planned purchases for a six month period.
Information used to create the six month plan
Planned Sales
Use previous year’s monthly sales figures and adjust
them to current goals.
Example:
Last Year Sales = $100,000
Expected Growth = %10
Planned Sales = $100,000 x 1.10 = $110,000
Resellers
Beginning of the Month (BOM Inventory)
The amount of inventory available at the beginning of
each month.
The End of the month (EOM) is the BOM of the next
month.
Use previous years to help the planning.
Example:
Sales = $40,000
BOM = $120,000
Stock to Sales = 3:1 or Inventory is 3 times the amount
of sales
Resellers
Planned Retail Reductions
Reductions in selling prices and shortages in
merchandise or inventory.
Calculated in 2 ways:
A % of planned sales
Ex.) 10% of $25,000 sales = $2,500
Reducing planned reductions from previous years.
Ex. Last Years Reductions = $700
Desired Reductions = -5%
$700 X .05 = $35
$700 – $35 = $665
Resellers
Planned Purchases (P) - Formula
P = (PS + EOM Stock + R) – BOM Stock
Example
Planned Sales (PS) = $10,000
Planned BOM Stock (BOM) = $20,000
Planned EOM Stock (EOM) = $25,000
Planned Reductions (R) = $500
(10,000 + 25,000 + 500) – 20,000 = $15,500
This number is the retail value of the purchase. Not the
actual cost for the buyer.
Six Month Merchandise Plan Practice
February
Sales
March
April
May
June
July
Total
Last Year
82,000
96,000
90,000
100,000
94,000
80,000
Plan
90,200
105,600
99,000
110,000
103,400
88,000
Last Year
328,000
336,000
297,000
360,000
291,400
224,000
Plan
360,800
369,600
326,700
396,000
320,540
246,400
Last Year
12,300
14,400
13,500
15,000
14,100
12,000
Plan
11,685
13,680
12,825
14,250
13,395
11,400
Actual
Retail Stock BOM
Actual
Retail Reducations
Actual
Last Year
Retail Purchases
Plan
Actual
N/A
N/A
110,685
N/A
76,380
N/A
181,125
N/A
N/A
Resellers
Open to Buy (OTB)
The amount of money left for buying goods after all
other expenses have been considered.
P (Planned Purchases) – (goods received +goods
ordered) = OTB
Then calculate the markup percentage to determine
the OTB at cost.
If the markup is 45% the OTB at cost is 55% of OTB
100% - 45% markup = 55% OTB at Cost
Six Month Merchandise Plan Practice
Once you have determined the planned purchase amount it is
time to determine how much you will actually have able to
spend. Each month an order is made that will allow you to
have $15,000 on hand and $2,000 on order. You are then in
charge of the remaining purchasing. Determine for May,
June, and July the Open-to-Buy (OTB) and the OTB at Cost.
The markup for your products is 42 percent.
OTB
May
April
June
OTB at Cost
Resellers
Planning Purchases – For a Chain Store
The buying for all branches in a chain store operation is
usually done at a centralized location called: Centralized
Buying
Creates a unified image and a system of product
availability.


Buyers can see where product sells quickly or slowly
Discounts can be negotiated because of the quantity of
goods being purchased

When a store needs extra inventory or wants to carry a
specialized product and the store makes the order it is
referred as: Decentralized Buying