8. Merchandising Plans

Question 1

The eight steps are as follows:

Answer 1

Step 1: gathering information.
Step 2: selecting and interacting with merchandise sources.
Step 3: the evaluation.
Step 4: negotiation of the purchase.
Step 5: concluding purchases.
Step 6: receiving and stocking merchandise.
Step 7: reordering merchandise.
Step 8: re-evaluating on a regular basis.

Question 2

Step 1: gathering information.

Answer 2

More information on the needs of the target market and of prospective suppliers is required before buying or rebuying merchandise.

Question 3

Step 2: selecting and interacting with merchandise sources.

Answer 3

The second step is to find sources of merchandise and builds relationships. Note the following options:

• Company owned. The company owns its own manufacturing and/wholesaling facility.
• An outside, regularly used supplier. Spar, for instance, has outside and regularly used suppliers. It has trusted sources from which merchandise is bought and Spar is aware of the quality of goods.
• An outside, new supplier. Spar recently advertised on television that anyone can bring home-made products to be sold in the store. This can be classified as an outside or new supplier because the organisation has never bought from this source before. In this specific example, it can be said that the retailer is unfamiliar with the quality and the reliability of the product and the individual(s).

Question 4

Step 3: evaluation.

Answer 4

Whatever source the retailer chooses, it is essential to have a process of evaluation in place to ensure that the merchandise is top quality. Note the following three methods of evaluating the merchandise:

• Inspection. This method refers to the inspection of a single unit after it has been delivered to the retailer. This method would be used for specifc merchandise such as a Jenna Cli ord ring.
• Sampling. Sampling refers to taking one unit of larger quantities because an inspection of the whole batch would be too time-consuming. If a sample is unsatisfactory, the whole shipment could be rejected. This method can be used by Spar or Pick n Pay in their perishable foods department.
• Description. This method of buying is generally used for nonperishable, non-breakable items such as paper. It is ordered from a catalogue and is merely counted upon delivery.

Question 5

Step 4: negotiation of the purchase.

Answer 5

Negotiating the purchase means putting an agreement in place that protects both retailer and supplier. Retailers may make use of regular orders and this involves a uniform contract because the terms are standard and stay the same. The agreement involves the method of payment, date of delivery and also
special clauses. Without this information, both supplier and retailer are at risk.

Question 6

• Step 5: concluding purchases.

Answer 6

Here you will note that larger retailers may make use of computer databases to control the purchasing process. Smaller retailers may write up all purchase amounts and process orders manually. Make sure that you can differentiate between a consignment purchase and a memorandum purchase. These
elements are discussed in your prescribed book.

Question 7

• Step 6: receiving and stocking merchandise.

Answer 7

Metro chain store in South Africa is a retailer
in materials (fabric) and electronics. The store has an on-site storage facility where all its goods are stored. These goods, however, are delivered by a supplier. After delivery, the merchandise must be checked, stored and all transactions between the supplier and Metro must be completed. Effective distribution management is crucial, and technology can be used to track and handle this process. Goods are then priced (according to the retailer's projected pro ts) and put on display for sale. Merchandise management (assessing sales, pro ts, turnover, inventory shortages, timing and the cost of each product and item carried) is vital in the successful handling of this process.

Question 8

• Step 7: reordering merchandise.

Answer 8

The following four principal factors should be considered when reordering merchandise on a regular basis:

• Order and delivery time. Time is money. Order and delivery time must be minimised to ensure cost-effectiveness and that stock is available for purchase.
• Inventory turnover. Fast-selling products need to be restocked more frequently than slow-moving products. Here the retailer can either buy surplus merchandise or reorder more frequently.
• Financial outlays. Although buying merchandise in bulk may result in a discount, it is still a large expenditure. Smaller quantities can be purchased (which may be more expensive per unit), with a smaller financial outlay.
• Inventory versus ordering costs. Storing merchandise is a more expensive method of ensuring customer satisfaction because the goods could be damaged while in storage. Insurance must be taken out to avoid possible financial loss. Although reordering is a low-cost way to replenish goods, there is a greater possibility of stock-outs and customer dissatisfaction. Note here that quick response inventory planning and management is a solution that can lower both inventory and ordering costs if the retailer has a close relationship with the supplier.

Question 9

• Step 8: re-evaluating on a regular basis.

Answer 9

As you may have noticed, the development and implementation of a merchandise plan should never stagnate. It is an ongoing process that requires constant re-evaluation because there are many variables to consider. Information about the processes and goods must be gathered to ensure proper planning for the future.