Marketing Essentials n Chapter 23 Purchasing Section 23

Marketing Essentials n Chapter 23 Purchasing Section 23. 1 The Role of the Buyer Chapter 23 n Purchasing 1

SECTION 23. 1 The Role of the Buyer What You'll Learn = The terms used to describe organizational buyers = How planning purchases differs between an industrial market and a reseller's market = The six-month merchandise plan and its calculations = The concept of chain store buying Chapter 23 n Purchasing 2

SECTION 23. 1 The Role of the Buyer Why It's Important The purchasing function in any business is important because the costs associated with running a business are often a direct result of the competency of the person responsible for buying the goods and services required to run the business. Chapter 23 n Purchasing 3

SECTION 23. 1 The Role of the Buyer Key Terms = = = organizational buyers wholesale and retail buyers six-month merchandise plan open-to-buy centralized buying decentralized buying Chapter 23 n Purchasing 4

SECTION 23. 1 The Role of the Buyer Planning Purchases Businesses, like consumers, must plan: = what to buy = how much to buy = when and where to shop Organizational buyers buy goods for businesses. Much of what they buy requires technical knowledge and/or knowledge of the operations of the firm, especially in manufacturing and service operations. Chapter 23 n Purchasing 5

SECTION 23. 1 The Role of the Buyer Industrial Marketing In manufacturing and service businesses, the people responsible for purchasing may be called purchasing managers, industrial buyers, or procurement managers. They are often directly involved in production planning. Slide 1 of 2 Chapter 23 n Purchasing 6

SECTION 23. 1 The Role of the Buyer Industrial Marketing A bill of materials is the list of everything needed to make a product. It helps the purchasing manager determine what to buy, and how much to buy. Materials requirement planning (MRP) helps determine when to buy, so supplies are ready when they are needed in the production schedule. Slide 2 of 2 Chapter 23 n Purchasing 7

SECTION 23. 1 The Role of the Buyer Resellers Wholesale and retail buyers purchase goods for resale—they forecast customers’ needs and buy the necessary products. Buyers must plan far in advance of the selling season to know how much of each item to purchase. Chapter 23 n Purchasing 8

SECTION 23. 1 The Role of the Buyer Six-Month Merchandise Plan Buyers plan their purchases by preparing a six-month merchandise plan—or the budget that estimates planned purchases for a sixmonth period. First a buyer must determine planned sales, usually based on the previous year's sales. Slide 1 of 4 Chapter 23 n Purchasing 9

SECTION 23. 1 The Role of the Buyer Six-Month Merchandise Plan Buyers must ensure that there is enough stock to accommodate the planned sales volume; this is also known as beginning-of-the-month (BOM) inventory. It is calculated: = planned sales x stock-to-sales ratio = BOM The BOM for one month is the same as the end-of-the-month inventory (EOM) for the prior month. Slide 2 of 4 Chapter 23 n Purchasing 10

SECTION 23. 1 The Role of the Buyer Six-Month Merchandise Plan The other number in the six-month merchandise plan is planned retail reductions, the reductions in the selling price and shortages of merchandise caused by clerical mistakes, employee pilferage, or customer shoplifting. This can be calculated: = as a percentage of sales or = as a percentage reduction from the prior year Slide 3 of 4 Chapter 23 n Purchasing 11

SECTION 23. 1 The Role of the Buyer Six-Month Merchandise Plan In order to determine how much to purchase, buyers use this formula: = (planned sales + EOM stock + reductions) - BOM stock = purchases Slide 4 of 4 Chapter 23 n Purchasing 12

SECTION 23. 1 The Role of the Buyer Open-To-Buy During the buying season, a buyer may want to know the open-to-buy (OTB), or the amount of money left for buying goods. OTB is calculated as follows: = purchases – (goods received + goods ordered) Slide 1 of 2 Chapter 23 n Purchasing 13

SECTION 23. 1 The Role of the Buyer Open-To-Buy To determine the actual money the buyer has to spend, you must calculate markup percentage and deduct that figure from the retail value. = 100% - markup % = % attributed to cost X retail value = OTB at cost Slide 2 of 2 Chapter 23 n Purchasing 14

SECTION 23. 1 The Role of the Buyer Planning Purchases for a Chain Store Operation Buying for all branches in a chain store operation is usually done in a central location (company headquarters), and is called centralized buying. Chain stores use centralized buying in order to create a unified image for the chain. Customers can expect to find the same goods in every branch. Slide 1 of 2 Chapter 23 n Purchasing 15

SECTION 23. 1 The Role of the Buyer Planning Purchases for a Chain Store Operation Decentralized buying is used when chain stores want to have special goods in their stores that are not available elsewhere in the chain. In these cases, local store managers or their designated buyers are authorized to make special purchases for their individual stores. Slide 2 of 2 Chapter 23 n Purchasing 16

SECTION 23. 1 The Role of the Buyer Government Markets Government units are the federal, state, or local agencies that are responsible for purchasing goods and services for their specific markets. There approximately 85, 000 government units in the U. S. , including the Federal Aviation Administration and local school boards. Chapter 23 n Purchasing 17

23. 1 ASSESSMENT Reviewing Key Terms and Concepts 1. What are the differences between organizational buyers and consumers? 2. What products might an industrial buyer purchase? 3. What do wholesale and retail buyers purchase? 4. In a retail buying situation, what does a buyer prepare in advance of the selling situation? 5. Why do chain stores use centralized buying? Chapter 23 n Purchasing 18

23. 1 ASSESSMENT Thinking Critically What would happen if a buyer computed a planned sales figure for the next planning period that was 20 percent too high? Chapter 23 n Purchasing 19

Marketing Essentials End of Section 23. 1 Chapter 23 n Purchasing 20