Marketing Essentials

The Role of the Buyer

Chapter 23 Purchasing 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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 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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 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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 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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 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.

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 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.

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 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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 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.

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 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.

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 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
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 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

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 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)

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 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

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 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.

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 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.

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 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

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

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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