Merchandise Procurement

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
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
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
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
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
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
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
Managerial Issues in Global Sourcing
Decisions
Quality control



Strategic alliances
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
4. Placing the purchase order
5. Establishing vendor relations
6. Analysing Vendor Performance

Step 1:Identifying the local sources of
supply
Raw resource producers
Manufacturers
Intermediaries
Resident purchasing offices
Resident buying offices
This is used when sourcing from international
markets.
According to AMA: An office that represents
many retailers in the same line of business in
the central wholesale market providing
information about market developments and
guidance in purchasing and actual placing of
some orders for their clients.
Functions performed by resident
buying offices
coordinating and assisting retail store
buyers.
Research fashion trends and prepare bulletin
to assist retail buyers.
Accompany retail buyers to market when
required
Make buying selections for member stores,
all branches of a chain store, mail order
catalogue, or speciality store consortium
when required.
Handle reorders and adjustment.
Classification of resident buying
office
The Independently owned office: It is also
known as the paid office. Retailers who wish
to avail of the facilities of the office affiliate
themselves with this office typically on
contractual basis.
The Co-operatively owned office: They
are co operatively owned by their member
stores.
The Individually owned office: Many large
retail organisations may consider it necessary
to own an independent office in a major
market. The purpose of such an office may be
two fold. It helps in sourcing from domestic
markets and also enable the persons who are
art part of the office to learn about their
domestic environment.
The merchandise Brokers or Commission
office: The retailer does not pay the resident
buying office any fee. The broker collects his
commission from the co operating
manufacturers.
Step 2a:Contacting the sources of
supply
Supplier-initiated contacts
Retailer initiated contacts
Criteria to be kept in mind for
potential vendors
The Target market for whom the merchandise
is being procured.
The image of the retail organisation and the
fit between the product and the image.
The merchandise and prices offered.
Terms and services offered by the vendor.
The vendors reputation and reliability
Step 2b: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
Criteria used for evaluating the
vendors
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.
Step 3:Negotiating with sources of
supply
These are the various discounts that could be available to the
buyer:

a) Trade Discounts
b) Chain discounts
c) Quantity Discounts
d) Seasonal Discounts
e) Cash Discounts
Step 4:Placing the purchase order
Information in the purchase order:
a) Name of the purchaser
b) Name of the manufacturer
c) The delivery address
d) The invoice address
e) The price of the products
f) The quantity ordered
g) The delivery date
h) Terms of payment
i) Terms of delivery
j) Authorisation of purchase order

Step 5: Establishing Vendor
relations
In order to maintain strategic partnership with
vendors, the buyer needs to build on:
Mutual Trust
Open communication
Common goals
Credible Commitments
Step6: Analysing Vendor
Performance
Key Criteria considered while analysing
vendor performance:
1. Gross Margin contribution
2. Adherence to company policy
3. Customer Acceptance Level
4. Merchandise Quality

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
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
Ethical and Legal Issues in
Merchandise Purchasing
Retailer's perspective
Slotting allowances and
Commercial bribery
Vendor's perspective
Exclusive territories
Exclusive dealing agreements
Tying contracts
Refusal to deal, and
Dual distribution