# The six month merchandise Plan

The six month merchandise plan is a tool that translates profit objectives into a framework of merchandise planning and then control.

The following points need to be kept in mind while creating this plan.

1) The merchandise budget should be prepared in advance of the selling season (keep in mind time taken for ordering and the time taken for ordering and the time taken for supplier to supply goods)
2) The language of the budget should be easy to understand
3) Since the economy is ever changing, the merchandiser budget must be planned for a relatively short period of time six months is the normal norm.
4) The budget should be flexible enough so that changes are not impossible.

The main objective of creating this plan is to prepare a month by month purchasing schedule for retail organization. The first step in preparing these plans is to look at the sales information for the same period last year. Not only should one analyze actual data, but also the data on returns, markdowns and any inventory carry over. As most large retail organizations are computerized, gathering of such information may not be very difficult; however,a small retailer can also gather this information by manually analyzing the sales data.

Key Components of the Six Month Merchandise Plan:

Planned sales: Planned sales are the projected sales for the period that is being planned for. For example after carefully analyzing past sales record and current market conditions, it may have been estimated that a 10% increase in sales will occur this season. Last year’s sales for the same period were Rs 35,000. Based on this information plan sales for each month on the basis of the information given below:

Month % Increase Planned Sales

Feb 12 39,200
April 25 43,750

June 21 42,450

Explanation Planned sales for the month of February have been calculated as follows:
35,000 x 12% + 35,000 = 39,200
Planned Purchases: Planned purchases represents the merchandise that is to be purchased during any given period. Planned purchases are calculated by using the following formula:

EOM – End of month
BOM – Beginning of month
Planned purchases = Planned Sales + Planned Reductions + Planned EOM – Planned BOM. Let us understand this concept with the help of the following example:

Sonali is a buyer in a Department Store and wants to plan purchases for the next month. Based on past sales records and an analysis of market conditions, sales are estimated to be Rs 200,000. Reductions planned for the month are Rs 20,000. An ending inventory valued at Rs 45,000 is planned. If the beginning inventory had a value of Rs 40,000 what are the planned purchases for the month?

Solution:

Planned Purchases = Planned sales + Planned Reductions + Planned EOM – Planned BOM

= 200,000 + 20,000 + 45,000 – 40,000

= 225,000

Planned Purchases at cost is calculated in the following manner:

Planned Purchases at Cost = Planned purchases at retail x (100% – Initial mark up%)

Example: In the above mentioned example, if the initial markup percentage is 47.3% then the planned purchases at cost can be calculated as given below:

(100 – 47.3) x 225,000

= 52.7 / 100 x 225,000

= 118, 575

Planned Reductions: Markdowns, employees discount and inventory shrinkage comes under the heading of planned reductions. These figures affect the gross margin and hence need to be taken in to consideration while calculating profitability. Since they also affect inventory levels, they must be projected to ensure enough merchandise is on hand to attain forecasted sales levels.

Planned markdowns: Stated simply, markdowns are deductions in prices may occur because of many reasons ranging from bad quality of merchandise competitive products changes in trends etc.

Employee discounts: As the name sates, these are the discounts given to the employees for buying the company’s products. This figure may not vary significantly over the years; however it needs to be accounted for.

Shrinkage: Shrinkage is the loss of merchandise due to theft or pilferage. While some amount of shrinkage affects all retail organizations it again needs to be taken into account as it has an impact on the margins and hence, profitability.

Recently conferences have become unpopular since they are believed to take up time of many
Have you ever regarded casino gambling as a way of making an investment, similarly to
Training programs are designed with a business need in mind. However in reality, after the
Anil is a new customer for a car. He does not know what to look
You now know what results the three categories of buyers generally look for in your