Low Merchandise Continuity and Opportunistic Buying Characterize

Merchandise buying and holding is a vital part of implementing merchandise plans.

This is a step by step process and involves following stages:

(i) Collecting information,

(ii) Selecting vendors,

(iii) Evaluating merchandise,

(iv) Negotiation with vendors,

(v) Buying merchandise,

(vi) Receiving and stocking merchandise,

(vii) Re-ordering, and

(viii) Re-evaluating, as mentioned in figure 11.1

These steps are explained in detail below:

1. Collecting Information:

This is a very first step of merchandise buying and handling process. Once the firm's overall merchandise plans are defined, exact information about current market needs and potential vendors is required.

This is essential as a retailer before buying merchandise would like to know:

(i) What consumers are looking for,

(ii) Where the vendors are located and what is their goodwill in the market, and

(iii) What their competitors are offering. After understanding these aspects, retailer will be in a position to decide what he wants to buy and from whom.

For collecting information, a retailer/buyer has several possible sources defined as internal and external sources.

It depends on the retailer (buyer) which source he would like to choose. Normally, global retailers rely on both internal and external sources to have the better picture of consumers' requirements. Undoubtedly, the most valuable source is the 'study of consumers'. Global retailers like Wall Mart, Spencer and Noodle Ki Doodle have proper consumer study divisions those continuously monitor the consumers' lifestyles, living habits and their changing demographics in order to study the consumer demand directly.

Vendors (manufacturers and wholesalers), on the other hand, do their own projections about the future sales and market demand, while finalizing the 'buying deal' with retailers. Vendors present these projections through pie-charts, bar-diagrams and various two and/ or three dimensional charts.

They also inform the retailers how much promotional support will be provided to them which may have major impact on retailers' buying decision. But retailers must understand one thing that they are the one who have to interact with the customers and are responsible for satisfying the needs of the target market. Therefore, they should not depend on vendors' projections only, but may use them for reference.

As retailers are entirely responsible for complete sales projections and merchandise plans in their own category, they should direct their sales' employees to get a view of customers' potential demand by visiting suppliers, talking with sales' experts and observing consumer behavior. Besides this data provided by trade associations, government bodies projects like ASSOCHAM, FICCI bulletins may be consulted. Internet has also become a vital source for collecting information and is also time saving.

Retailers may use collected information for making merchandise decisions about (i) staple merchandise and (ii) fashion merchandise. The above-mentioned sources are enough to have picture about staple merchandise but for frequently changing fashion merchandise, a mix of internal and external sources may be used.

2. Selecting Vendors:

After collecting the information about consumers' demands, the next step is to select sources of merchandise and to interact with them to select the potential vendors.

For selecting vendors, the retailers usually have three alternatives:

(i) Company-owned vendors:

As the very name implies, these vendors are owned by the company themselves. Large retailers have their own manufacturing or wholesale operations. They work only for particular retailers and provide as per their requirements.

(ii) External, widely used supplier:

This type of supplier is not owned by the retailer but used frequently by him. The retailer is buying merchandise for long and is aware about the quality and services offered by him.

(iii) External, not used supplier:

This type of retailer has not been used by the retailer as he is either a new entrant or retailer has not purchased anything from him so far. Therefore, what quality he is offering cannot be known in advance. Retailers may use any one type of supplier as per their requirements, budget and area of operations or they can use a combination of them. Big retailers often deal with all types of suppliers. Therefore, after selecting the supplier category, a retailer should interact with them about the buying terms and conditions.

Following points must be considered while selecting the vendors:

(i) Goodwill of the vendor in the market.

(ii) Guarantee and/or warranty offerings.

(iii) Which vendor offers merchandise at the lowest total cost?

(iv) Quality offered by the vendor

(v) Will the vendor provide transport storing and other facilities?

(vi) Is vendor's merchandise line conservative or innovative?

(vii) Is vendor offering credit purchase?

(viii) What promotional support is provided by the vendor?

(ix) Will mark up be sufficient?

(x) Is vendor interested or will be available for long term relations?

(xi) Will vendor fulfill what he has agreed upon?

(xii) Will vendor provide conditional/exclusive selling rights?

(xiii) How quick will orders be delivered?

3. Evaluating Merchandise:

After deciding upon the source of merchandise, next step is to evaluate the vendor's merchandise quality.

Here, a retailer is encountered with following situations:

(i) Whether the whole lot be examined, or

(ii) Purchasing be made only on vendor's description.

Retailer after interacting with suppliers should evaluate merchandise under purchase consideration. Should each unit of merchandise be examined? Or items should be bought
only on the basis of description and demonstrations presented by the suppliers.

For evaluating merchandise items, retailer has three choices in hand:

1. Inspection

2. Sampling and

3. Description

Which method should be followed depends on the items' features, cost and the frequency of purchase. Inspection is a process of examining each item of merchandise thoroughly before the merchandise procurement and also after delivery. Jewelry (diamond, gold, platinum and other precious stones) is one of the examples where retailer inspects all the items of purchase.

Sampling technique is used when retailer is buying items on regular basis in large quantity that is perishable, breakable or costly ones. Therefore, retailer uses Acceptance Sampling method. It is "the middle of the road" approach that exercises control over the incoming inventory without going through 100% inspection. It simply means accepting or rejecting the supplier's merchandise assortment.

Here decision is taken without going through 100% inspection of the entire lot. It is a compromise between no inspection and 100% inspection. It has two key classifications of acceptance plans: firstly by attributes ("go, no-go") and secondly by variables.

Description buying is a process of merchandise purchase where a retailer orders the merchandise items after going through supplier's pictorial catalogue mentioning the product features, price, size and other relevant details. For instance, a retailer can order food and clothing items from a catalogue or concerned company website. On receipt of items, they are only counted for matching order size.

4. Negotiation:

Once the retailer has evaluated the merchandise quality and other features, he negotiates with the vendor for its price and consequent terms and conditions. Both parties listen to each other carefully and ask questions wherever doubt arises. Terms and conditions are then decided and contract is made involving total amount to be paid by the retailer, delivery date, delivery conditions and other legal aspects. A retailer while negotiating also talk about the conditions for the re-order.

Under Negotiation stage, retailer bargains with the supplier for available discounts and conditions of purchase. A retailer would like to know what will be the additional discount if he goes for bulk buying. What is cash discount? What is trading discount etc? Is there some off-season discount? Once the merchandise is negotiated for its quality, quantity and price, retailer places the order and concludes the buying exercise by paying the amount due. The retailer takes the title of items immediately after the purchase.

5. Buying Merchandise:

After negotiating the terms and conditions and agreed upon price, a retailer after placing the size of the order (quantity and quality of each merchandise category), pays the initial money as per the agreement. Big retailers usually place the order and pay the bills online through electronic data interchange (EDI) and quick response (QR) Inventory planning, small retailers due to limited sources, conclude purchase manually.

They fill up the order form and deposit it personally or through postage. With the technological advancement and easy access to internet facility, retailers place their orders online. The small retailers who are associated with big vendors also pay their bills and process orders through EDI and QR systems as per policy matters.

6. Acquiring Merchandise:

It means after paying for the invoices, retailer should receive the merchandise and stock it properly. While acquiring the merchandise, retailer physically receive the items, counts the supplies, pays the invoices, marks the items, displays the items and stock in godowns/warehouses to avoid any pilferage and damage. In case of centralized buying, goods are received by regional office/central warehouse and then transferred to chain stores as per their requirements and order received from them.

After paying the suppliers' bills, retailer makes provision how and where the items should be received and stocked. Items should directly supplied to store or warehouse, is mentioned at the time of negotiation and merchandise payments.

Once the items are received, retailer next step is to make ensure that the items are stocked properly. Sometimes it may take long time to reach from warehouse to store, therefore, when orders are received, they must be checked for its quantity and quality. Invoices must be carefully checked for its description and amount printed to avoid any confusion with supplier later on.

When the merchandise has been procured and stocked, it will be issued to store/s whenever demand pertains. Therefore, retailer should have an eye on merchandise issued and the items left in the stock. Whenever the level of inventory comes close to reorder level, goods are ordered for fresh supplies.

Once a merchandise plan is implemented, it should be re-evaluated at regular interval of time by close monitoring of implementation plan with the objective of satisfying consumers.

In case of central buying, distribution management is the key to store performance. Buyers/concerned staff should take care while shifting merchandise to chain stores or warehouses.

Following precautions must be taken under this stage:

(i) Inspect the invoices physically for its accuracy. Once the invoices are signed and paid, vendor will not be responsible for any loss in transit or in case of missing items. Therefore, when orders are received, they must be thoroughly checked for size of order placed and any breakage/pilferage during transit.

(ii) While unloading merchandise, take precautions that their packing should not spoil. Further, keep the items at distance and at proper place as unloading generally causes breakage and mixing of items with one another.

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Source: https://www.yourarticlelibrary.com/retailing/merchandise-buying-and-handling-process-6-stages/48212

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