Marketing Essentials

Chapter 23 Purchasing 1

Marketing EssentialsMarketing Essentials

Chapter 23 Purchasing

Section 23.1 The Role of the Buyer


SECTION 23.1SECTION 23.1

What You'll LearnWhat You'll Learn

The Role of the BuyerThe Role of the Buyer

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


SECTION 23.1SECTION 23.1 The Role of the BuyerThe Role of the Buyer

Why It's ImportantWhy 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.



Key TermsKey Terms

organizational buyers wholesale and retail buyers six-month merchandise plan open-to-buy centralized buying decentralized buying



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.

Planning Purchases



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.

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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.

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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.



Buyers plan their purchases by preparing a six-month merchandise plan—or the budget that estimates planned purchases for a six-month period. First a buyer must determine planned sales, usually based on the previous year's sales.

Six-Month Merchandise Plan

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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.


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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


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In order to determine how much to purchase, buyers use this formula:

(planned sales + EOM stock + reductions) - BOM stock = purchases


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During the buying season, a buyer may wantto 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)

Open-To-Buy

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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

% attributed to cost X retail value = OTB at cost

Open-To-Buy

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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.

Planning Purchases for a Chain Store Operation

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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.

Planning Purchases for a Chain Store Operation

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Government units are the federal, state, or local agencies that are responsible for purchasing goods and services for their specific markets. There are approximately 85,000 government units in the U.S., including the Federal Aviation Administration and local school boards.

Government Markets


23.1 ASSESSMENTASSESSMENT

Reviewing Key Terms and Concepts1. 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?


23.1 ASSESSMENTASSESSMENT

Thinking Critically

What would happen if a buyer computed a planned sales figure for the next planning period that was 20 percent too high?


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End of Section 23.1

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