Marketing Essentials

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Marketing Essentials
n Chapter 23 Purchasing
Section 23.1 The Role of the Buyer
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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

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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.
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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

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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.

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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
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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
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SECTION 23.1
The Role of the Buyer
Resellers
Wholesale and retail buyers purchase goods for
resalethey 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.
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SECTION 23.1
The Role of the Buyer
Six-Month Merchandise Plan
Buyers plan their purchases by preparing a
six-month merchandise planor 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.
Slide 1 of 4
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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
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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
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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
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SECTION 23.1
The Role of the Buyer
Open-To-Buy

• 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)

Slide 1 of 2
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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
• attributed to cost X retail value OTB at cost

Slide 2 of 2
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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
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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
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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 are approximately 85,000 government units
in the U.S., including the Federal Aviation
Administration and local school boards.
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ASSESSMENT
23.1
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?
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ASSESSMENT
23.1
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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Marketing Essentials
End of Section 23.1