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1Planning Merchandising Budgets:Planning Merchandising
Budgets:Six Month PlanSix Month Plan
Tepper, Unit V (cont.)
Kunz, Ch. 6
Merchandising PlansMerchandising Plans
PLANS ofPLANS of How much of merchandise?How much of
merchandise?
For how much to sell?For how much to sell?
What kind of merchandise What kind of merchandise and how many
pieces?and how many pieces?
How much to buy and How much to buy and when? when?
When to have?When to have?
Merchandise Budget (6Merchandise Budget (6--Month Month
Plan)Plan)
Answer to Answer to How much of merchandise do How much of
merchandise do we needwe need? (? (Dollar PlanDollar Plan))
Tool to translate profit objectives into Tool to translate
profit objectives into merchandise plans.merchandise plans.S if i t
t d ll it b tS if i t t d ll it b t Specify important dollar items
buyer must Specify important dollar items buyer must adhere to when
planning merchandise:adhere to when planning merchandise: Sales
Sales Reductions Reductions Inventory levels Inventory levels
Planned purchasesPlanned purchases OTBOTB
Alex Joines
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2Operational Benefits of Operational Benefits of Budget Plan
(6Budget Plan (6--Month Plan)Month Plan)
Allows Allows owner/merchandiser to:owner/merchandiser to:
Anticipate cash flow Anticipate cash flow needsneeds
Control operationsControl operations Take corrective actionsTake
corrective actions
Merchandising Benefits of Merchandising Benefits of Budget Plan
(6Budget Plan (6--Month Plan)Month Plan)
Provides budget to take to marketProvides budget to take to
market
Allows calculation of openAllows calculation of open--toto--buy
at anybuy at any Allows calculation of openAllows calculation of
open toto buy at any buy at any timetime
Provides data for negotiations with Provides data for
negotiations with GMMGMM Provides evidence of needs for additional
Provides evidence of needs for additional
sales allowance, markdown allowance, sales allowance, markdown
allowance, floor space, selling personnel, etc.floor space, selling
personnel, etc.
Components of Budget Plan (6Components of Budget Plan (6--Month
Plan)Month Plan)
SalesSales Season total ($)Season total ($) Monthly sales ($, %
to total season sales)Monthly sales ($, % to total season
sales)
Reductions Reductions Season total ($)Season total ($) Monthly
($, % to total season reduction $, % of Monthly ($, % to total
season reduction $, % of
monthly sales)monthly sales) Planned StockPlanned Stock
Planned BOM$ by monthPlanned BOM$ by month Planned EOM$ by
monthPlanned EOM$ by month
Planned PurchasesPlanned Purchases By month, @ cost &
retailBy month, @ cost & retail
MMUMMU By month ($ & %)By month ($ & %)
Alex Joinesestimate capitol needed to invest in inventory
Alex Joines
Alex Joinesmake purchases of right dolar size at right time
Alex Joines
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3Merchandising CalendarMerchandising Calendar
Merchandising CalendarMerchandising CalendarMerchandising
CalendarMerchandising Calendar
I. I. Planning Monthly SalesPlanning Monthly Sales
Step 1: PlanStep 1: Plan Seasonal SalesSeasonal Sales Adjust LY
sales for TY using projected trend Adjust LY sales for TY using
projected trend (%variation indicating gain or loss) in sales
(%variation indicating gain or loss) in sales
Springp gYear Feb Mar Apr May Jun Jul Total
LY$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000 $
400,000
15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%
TY
Alex Joines1 season = 6 months=26 weeks1 year= 364 days
Alex Joines
Alex Joines
Alex Joines
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4I. I. Planning Monthly SalesPlanning Monthly Sales
LY Seasonal SalesLY Seasonal Sales$$400,000400,000
If TY planIf TY plan +5%+5%
LY Seasonal SalesLY Seasonal Sales$400,000$400,000
If TY planIf TY plan --5%5%
Step 1 (cond)Step 1 (cond)
$$400400,000,000X 1.05X 1.05 (=105%)(=105%)$$420420,,000000
Step 2: Break down seasonal sales into Step 2: Break down
seasonal sales into Monthly Sales$Monthly Sales$ estimatesestimates
Multiply planned seasonal sales total by monthly %Multiply planned
seasonal sales total by monthly % Monthly % is determined based on
history or Monthly % is determined based on history or
projectionprojection
I. I. Planning Monthly SalesPlanning Monthly Sales
SpringYear Feb Mar Apr May Jun Jul Total
LY$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000 $
400,000
15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%
TY$ 420,000
projectionprojection
15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%
Step 2 (cond)Step 2 (cond)
FebruaryFebruary MarchMarch TotalTotalSalesSales
LY Sales LY Sales (Actual)(Actual)
$$60,00060,00015%15%
$8$80,0,00000020%20%
$$400,000400,000100%100%
I. I. Planning Monthly SalesPlanning Monthly Sales
(Actual)(Actual) 15%15% 20%20% 100%100%
TY Sales TY Sales (Plan)(Plan)
$$420,000420,000100%100%
$420,000 $420,000 x 15% = x 15% = $63,000$63,000
$420,000 $420,000 x 20% =x 20% =$84,000$84,000
Alex Joines400,000x .95 (=95%)____________380,000
Alex Joinesfeb sals plan=$season sales plan x feb. distribution
%=420,000 x 15%=63,000
Alex Joines
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5 Step 3: Make monthly adjustments if Step 3: Make monthly
adjustments if necessarynecessary According to predictions on
special According to predictions on special
environmental changes in TYenvironmental changes in TY
I. I. Planning Monthly SalesPlanning Monthly Sales
SpringYear Feb Mar Apr May Jun Jul Total
LY$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000 $
400,000
15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%
TY$ 420,000
15.0% 20.0% 14.3% 15.7% 20.0% 15.0%
$63,000 $84,000 $60,000 $66,000 $84,000 $63,000
100.0%
II. II. Planning ReductionsPlanning Reductions
Plan Seasonal & Monthly Plan Seasonal & Monthly
ReductionsReductions(Red. = markdowns + shortage + sales
discounts)(Red. = markdowns + shortage + sales discounts)
Step 1Step 1: Plan seasonal reductions : Plan seasonal
reductions pp% (of total seasonal sales) and $ % (of total seasonal
sales) and $
Step 2Step 2: Calculate monthly : Calculate monthly reductions
$reductions $
Step 3Step 3: Make adjustments if : Make adjustments if
necessarynecessary
Step 1: Plan season reductionsStep 1: Plan season reductions
Total season reduc $ Total season reduc $
= Seasonal sales $ = Seasonal sales $ x Reduc% planned for the
seasonx Reduc% planned for the season
II. II. Planning ReductionsPlanning Reductions
x Reduc% planned for the seasonx Reduc% planned for the
season
Example)Example) Planned season sales = $420,000Planned season
sales = $420,000 Planned season reduc = 5%Planned season reduc = 5%
Planned season reduc $ = ???Planned season reduc $ = ???
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6 Step 2: Calculate monthly reduc $Step 2: Calculate monthly
reduc $ Based on LY results (LYs monthly red.% of Based on LY
results (LYs monthly red.% of
season red.) unless otherwise planned.season red.) unless
otherwise planned.
F bF b MM AA MM JJ J lJ l T t lT t l
II. II. Planning ReductionsPlanning Reductions
FebFeb MarMar AprApr MayMay JunJun JulJul TotalTotalRed $Red
$(LY)(LY)
00 2,0002,000 3,0003,000 3,0003,000 5,0005,000 7,0007,000
20,00020,000
Red %Red %(LY)(LY)
0%0% 10%10% 15%15% 15%15% 25%25% 35%35% 100%100%
Red $Red $(TY)(TY)
21,000
Month reduc $ = total season reduc $ x month reduc %
III. Planning Stock LevelsIII. Planning Stock Levels
Plan monthly SSR or seasonal TOPlan monthly SSR or seasonal
TObased on those of LY and other based on those of LY and other
market circumstances.market circumstances.
Based on planned SSRs or TOBased on planned SSRs or TO Based on
planned SSRs or TO, Based on planned SSRs or TO, project BOMs and
EOMsproject BOMs and EOMs using using appropriate stock planning
methodsappropriate stock planning methods
SSR SSR SSR methodSSR method TO TO Basic stock methodBasic stock
method
Example: SSR MethodExample: SSR MethodSpring
Feb Mar Apr May Jun JulTY Planned
Sales 63,000 84,000 63,000 63,000 84,000 63,000
Planned SSR 1.5 2.0 2.5 2.0 1.5 1.2
III. III. Planning Stock LevelsPlanning Stock Levels
SSR TY Planned
BOMTY Planned
EOM
Planned EOM = BOM of following monthPlanned BOM = Planned Sales
x Planned SSR
EOM of the last month = BOM Sales Reduction,if planning to make
no purchase in the last month. if planning to make no purchase in
the last month.
Otherwise, Otherwise, Last Month EOM = Average Inventory or an
Last Month EOM = Average Inventory or an arbitrary EOM stock level
thats considered appropriatearbitrary EOM stock level thats
considered appropriate
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7IV. IV. Planning PurchasesPlanning Purchases
At retail:At retail: At cost:At cost:
Plan monthly purchases (at retail and cost) Plan monthly
purchases (at retail and cost) based on planned sales, reductions,
EOM, & based on planned sales, reductions, EOM, &
BOM.BOM.
At retail:At retail:
Net salesNet sales+ EOM+ EOM+ Reductions+ Reductions-- BOMBOM .=
Plan Purchase @ = Plan Purchase @
retailretail
At cost:At cost:
Plan Purch @ retail Plan Purch @ retail x (100% x (100% initial
MU%)initial MU%)= Plan Purch @ cost= Plan Purch @ cost
ExampleExample
Feb Mar Apr May Jun Jul
Planned Planned SalesSales
63,000 84,000 63,000 63,000 84,000 63,000
IV. IV. PlanningPlanning PurchasesPurchases
Planned Planned BOMBOM
94,500 168,000 157,500 126,000 126,000 75,600
Planned Planned reductionreduction
0 2,100 3,150 3,150 5,250 7,350
Planned Planned EOMEOM
168,000 157,500 126,000 126,000 75,600 5,250
Planned Planned purchase purchase @ retail@ retail
Example Example condcond
Feb Mar Apr May Jun Jul
Planned Planned
IV. IV. PlanningPlanning PurchasesPurchases
When IMU% = 54%When IMU% = 54%
purchase purchase @ retail@ retailPlanned Planned purchase
purchase @ cost@ cost
136,500136,500 75,60075,600 34,65034,650 66,15066,150
38,85038,850 00
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8V. V. Maintained Markup Maintained Markup -- MonthlyMonthly
Step 1: Project monthly MMU%Step 1: Project monthly MMU% Recall
MMU% formulaRecall MMU% formula
MMU%MMU%=IMU% =IMU% -- {Red% x (100% {Red% x (100% --
IMU%)}IMU%)}
** ** Again, recall Again, recall Red% = Red% of SalesRed% =
Red% of Sales= = $Red$Red
$Sales$Sales
Step 2: Calculate Monthly MMU$Step 2: Calculate Monthly
MMU$Month MMU$ = MMU% x Sales for the monthMonth MMU$ = MMU% x
Sales for the month
MMU MMU -- ExampleExample
AprilApril Sales $Sales $84,00084,000 AprilApril retail
reductions retail reductions
$$2,1002,100IMU% =IMU% = 54%54%
V. V. Maintained Markup Maintained Markup
IMU% = IMU% = 54%54%
MMU% for April = ?MMU% for April = ?MMU$ for April =?MMU$ for
April =?
MMU MMU Example (cond)Example (cond)
Red % (of sales) for April = Red % (of sales) for April =
Red$Red$ ==Sales$Sales$
V. V. Maintained Markup Maintained Markup
MMU% for April = IMU% MMU% for April = IMU% -- {Red% x (100%
{Red% x (100% -- IMU%)}IMU%)}==
MMU$ = MMU% x Sales for monthMMU$ = MMU% x Sales for month==
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9Reminder Reminder
Six month plan provides Six month plan provides Cash flow
infoCash flow info Merchandise flow infoMerchandise flow info
Allows company to determineAllows company to determine Borrowing
needs for cashBorrowing needs for cash Merchandise needs for buying
tripsMerchandise needs for buying trips
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CADS 3850-Kwon
1
Random-Points In-Class Exercise: SIX-MONTH PLAN (16.5 points
maximum)
Name: ________________________________ Q1. Planning Sales (2.5
points) x A sweater buyer is about to set up a 6-month plan for
this fall season (Aug Jan). The
total fall sweater sales in LY were $135,000, and the monthly
sales distribution was as in the following table.
x TY, the buyer predicts a 10% increase in total sweater sales,
and that the monthly sales % distribution would be exactly the same
as LY.
x Complete the Sales rows of the 6-month plan. Q2. Planning
Reductions (3 points) x The sweater buyer is now planning retail
reductions for this fall season. Considering
market environments, she projects that the total reductions of
this fall (including all markdowns, employ discounts, and
shortages) will be 8% of Sales.
x TYs monthly reductions distribution (% of seasonal total
reductions) is planned to remain the same as LY.
x Complete the Reductions rows of the 6-month plan.
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CADS 3850-Kwon
2
Q3. Planning BOM & EOM Stock Levels (4 points) x The sweater
buyer is now planning inventory levels for each month using the
SSR
Method. x Monthly SSRs of TY are planned to be the same as those
of LY, as presented in the table. x For this exercise, to calculate
the January (the last month) EOM, assume that the buyer does
not
want to make any purchase during the last month. x Complete the
BOM and EOM rows of the 6-month plan.
Q4. Planning Purchases (4 points) x Now, the sweater buyer needs
to set up a monthly purchase plan based on the projected
sales, BOM, reductions, and EOM for each month in this fall
season. x Initial markup goal for this fall season is determined at
55%. x Complete the Planned Purchases (@Retail and Cost) rows of
the 6-month plan.
Q5. Maintained Markup Projection (3 points) x Based on the
6-month plan created, the sweater buyer is now trying to project
monthly
and seasonal maintained markup % and $ for merchandise planned
for this fall season. x Complete the MMU rows of the 6-month plan
(6 months and total)
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Name:__________________________________________
Aug Sep Oct Nov Dec Jan TOTAL
Sales LY Actual ($) $6,750.00 $20,250.00 $40,500.00 $40,500.00
$20,250.00 $6,750.00 $135,000.00
LY Actual (%) 5.00% 15.00% 2) 30.00% 15.00% 5.00% 100.00%
TY Plan ($) 3) 4) 5) $44,550.00 4) 3) 1)
TY Plan (%) 5.00% 15.00% 2) 30.00% 15.00% 5.00% 100.00%
Reductions LY Actual ($) $0.00 $1,350.00 $2,025.00 $2,025.00
$3,375.00 $4,725.00 $13,500.00 LY Actual (% of seasonal
reductions)
0.00% 10.00% 15.00% 15.00% 25.00% 35.00% 100.00%
TY Plan ($) $0.00 7) $1,782.00 $1,782.00 8) 9) 6)TY Plan (% of
seasonal reductions)
0.00% 10.00% 15.00% 15.00% 25.00% 35.00% 100.00%
TY Plan - (% of Sales)
0.00% 5.33% 10) 10) 11) 56.00%SSR LY & TY 3.00 2.50 1.80
1.60 2.00 2.70
BOM TY Plan ($) 12) $55,687.50 $80,190.00 $71,280.00 13)
$20,047.50
EOM TY Plan ($) 14) 15) 16) 17) 18) 19)Purchases @Retail TY Plan
($) 20) $47,965.50 $37,422.00 22) 24) 26)Purchases @Cost TY Plan
($) 21) $21,584.48 $16,839.90 23) 25) 27)
MMU TY Plan (%) 55.00% 52.60% 28) 28) 30) 29.80% 32)
TY Plan ($) $4,083.75 $11,716.65 29) 29) 31) $2,212.65 33)
Random-Point Exercise: Six-Month Plan
Fall (Aug - Jan)