The methods of Merchandise Procurement

The process of merchandise planning takes the buyer through to the stage of determining the products that he needs to have in the store and the quantities that he needs of the same. A key decision to be taken by a buyer is to determine where he has to buy the merchandise from. Determining the source who would supply the products as required by the retailer, in the quantities needed by the retailer, as per the requirements of the retailer, is an integral part of the buyer’s function. Over the years, the importance of sourcing as a key element of merchandise management has increased. This has been largely due to the shrinking of world borders and the world becoming a global village. Global travel and the spread of mediums of mass communication have also made the consumer more conscious of global trends and products. For a retailer, this means that he has to be far more agile and competitive in his ability to meet consumer demands.

Having determined the sales that need to be generated the first decisions that need to be taken is one the type of merchandise that will be retailed. Typically, these may not be decisions that may be taken by the buyer or merchandiser as it is the retail model that the retailer chooses to operate which determines the merchandise mix. This may comprise of:

1) National / Regional Brands
2) Own label Merchandise popularly known as the Private label.
3) A combination of both.

In this article, we focus on the process of sourcing in a retail environment. We start this article by understanding the concept of sourcing and by examining the various options available to a retailer for sourcing the merchandise and the advantages and disadvantages of various sourcing options.

Merchandise Sourcing:

The term sourcing means finding or seeking out products from different places, manufacturers or suppliers. The importance of sourcing in a retail environment can best be understood from the fact that sourcing of merchandise is a key element of cost. In recent years, sourcing and supply management has emerged as one of the greatest focus areas in the retail business, for suppliers as well as for retailers. Sourcing is not without its risks, but at the same time, it holds the key to improving service, product offer, and overall profitability. It enables the retailer to have winning products. Negotiations and cost management play a key role and hence, it becomes necessary to ensure that sourcing is well and truly integrated with the retailer’s overall business strategy, and that sourcing activities closely follow the direction set by the overall business strategy.

Having determined the type of merchandise to be stocked in the retail store, the merchandise then needs to either be manufactured or sourced. The process of merchandise sourcing starts with the identification of the sources of supply. The first decision that has to be faced is whether the merchandise should be sourced from domestic or regional markets or from international markets. This is largely related to the type of the retail organization, the product being offered and the target consumer. For example, products like high fashion garments, exclusive watches, perfumes, cosmetics etc may be obtained from the international marketing.

The process of merchandise buying is a five step process, which involves the following:

1) Identifying the sources of supply
2) Contacting and evaluating the sources of supply
3) Negotiating with the sources of supply
4) Establishing vendor relations
5) Analyzing vendor performance