14. Six Month Plan

1Planning Merchandising Budgets:Planning Merchandising Budgets:Six Month PlanSix Month Plan

Tepper, Unit V (cont.)

Kunz, Ch. 6

Merchandising PlansMerchandising Plans

PLANS ofPLANS of How much of merchandise?How much of merchandise?

For how much to sell?For how much to sell?

What kind of merchandise What kind of merchandise and how many pieces?and how many pieces?

How much to buy and How much to buy and when? when?

When to have?When to have?

Merchandise Budget (6Merchandise Budget (6--Month Month Plan)Plan)

Answer to Answer to How much of merchandise do How much of merchandise do we needwe need? (? (Dollar PlanDollar Plan))

Tool to translate profit objectives into Tool to translate profit objectives into merchandise plans.merchandise plans.S if i t t d ll it b tS if i t t d ll it b t Specify important dollar items buyer must Specify important dollar items buyer must adhere to when planning merchandise:adhere to when planning merchandise: Sales Sales Reductions Reductions Inventory levels Inventory levels Planned purchasesPlanned purchases OTBOTB

Alex Joines

2Operational Benefits of Operational Benefits of Budget Plan (6Budget Plan (6--Month Plan)Month Plan)

Allows Allows owner/merchandiser to:owner/merchandiser to:

Anticipate cash flow Anticipate cash flow needsneeds

Control operationsControl operations Take corrective actionsTake corrective actions

Merchandising Benefits of Merchandising Benefits of Budget Plan (6Budget Plan (6--Month Plan)Month Plan)

Provides budget to take to marketProvides budget to take to market

Allows calculation of openAllows calculation of open--toto--buy at anybuy at any Allows calculation of openAllows calculation of open toto buy at any buy at any timetime

Provides data for negotiations with Provides data for negotiations with GMMGMM Provides evidence of needs for additional Provides evidence of needs for additional

sales allowance, markdown allowance, sales allowance, markdown allowance, floor space, selling personnel, etc.floor space, selling personnel, etc.

Components of Budget Plan (6Components of Budget Plan (6--Month Plan)Month Plan)

SalesSales Season total ($)Season total ($) Monthly sales ($, % to total season sales)Monthly sales ($, % to total season sales)

Reductions Reductions Season total ($)Season total ($) Monthly ($, % to total season reduction $, % of Monthly ($, % to total season reduction $, % of

monthly sales)monthly sales) Planned StockPlanned Stock

Planned BOM$ by monthPlanned BOM$ by month Planned EOM$ by monthPlanned EOM$ by month

Planned PurchasesPlanned Purchases By month, @ cost & retailBy month, @ cost & retail

MMUMMU By month ($ & %)By month ($ & %)

Alex Joinesestimate capitol needed to invest in inventory

Alex Joines

Alex Joinesmake purchases of right dolar size at right time

Alex Joines

3Merchandising CalendarMerchandising Calendar

Merchandising CalendarMerchandising CalendarMerchandising CalendarMerchandising Calendar

I. I. Planning Monthly SalesPlanning Monthly Sales

Step 1: PlanStep 1: Plan Seasonal SalesSeasonal Sales Adjust LY sales for TY using projected trend Adjust LY sales for TY using projected trend (%variation indicating gain or loss) in sales (%variation indicating gain or loss) in sales

Springp gYear Feb Mar Apr May Jun Jul Total

LY$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000 $ 400,000

15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%

TY

Alex Joines1 season = 6 months=26 weeks1 year= 364 days

Alex Joines

Alex Joines

Alex Joines

4I. I. Planning Monthly SalesPlanning Monthly Sales

LY Seasonal SalesLY Seasonal Sales$$400,000400,000

If TY planIf TY plan +5%+5%

LY Seasonal SalesLY Seasonal Sales$400,000$400,000

If TY planIf TY plan --5%5%

Step 1 (cond)Step 1 (cond)

$$400400,000,000X 1.05X 1.05 (=105%)(=105%)$$420420,,000000

Step 2: Break down seasonal sales into Step 2: Break down seasonal sales into Monthly Sales$Monthly Sales$ estimatesestimates Multiply planned seasonal sales total by monthly %Multiply planned seasonal sales total by monthly % Monthly % is determined based on history or Monthly % is determined based on history or

projectionprojection


SpringYear Feb Mar Apr May Jun Jul Total

LY$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000 $ 400,000

15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%

TY$ 420,000

projectionprojection

15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%

Step 2 (cond)Step 2 (cond)

FebruaryFebruary MarchMarch TotalTotalSalesSales

LY Sales LY Sales (Actual)(Actual)

$$60,00060,00015%15%

$8$80,0,00000020%20%

$$400,000400,000100%100%


(Actual)(Actual) 15%15% 20%20% 100%100%

TY Sales TY Sales (Plan)(Plan)

$$420,000420,000100%100%

$420,000 $420,000 x 15% = x 15% = $63,000$63,000

$420,000 $420,000 x 20% =x 20% =$84,000$84,000

Alex Joines400,000x .95 (=95%)____________380,000

Alex Joinesfeb sals plan=$season sales plan x feb. distribution %=420,000 x 15%=63,000

Alex Joines

5 Step 3: Make monthly adjustments if Step 3: Make monthly adjustments if necessarynecessary According to predictions on special According to predictions on special

environmental changes in TYenvironmental changes in TY


SpringYear Feb Mar Apr May Jun Jul Total

LY$ 60,000 $ 80,000 $ 60,000 $ 60,000 $ 80,000 $ 60,000 $ 400,000

15.0% 20.0% 15.0% 15.0% 20.0% 15.0% 100.0%

TY$ 420,000

15.0% 20.0% 14.3% 15.7% 20.0% 15.0%

$63,000 $84,000 $60,000 $66,000 $84,000 $63,000

100.0%

II. II. Planning ReductionsPlanning Reductions

Plan Seasonal & Monthly Plan Seasonal & Monthly ReductionsReductions(Red. = markdowns + shortage + sales discounts)(Red. = markdowns + shortage + sales discounts)

Step 1Step 1: Plan seasonal reductions : Plan seasonal reductions pp% (of total seasonal sales) and $ % (of total seasonal sales) and $

Step 2Step 2: Calculate monthly : Calculate monthly reductions $reductions $

Step 3Step 3: Make adjustments if : Make adjustments if necessarynecessary

Step 1: Plan season reductionsStep 1: Plan season reductions Total season reduc $ Total season reduc $

= Seasonal sales $ = Seasonal sales $ x Reduc% planned for the seasonx Reduc% planned for the season


x Reduc% planned for the seasonx Reduc% planned for the season

Example)Example) Planned season sales = $420,000Planned season sales = $420,000 Planned season reduc = 5%Planned season reduc = 5% Planned season reduc $ = ???Planned season reduc $ = ???

6 Step 2: Calculate monthly reduc $Step 2: Calculate monthly reduc $ Based on LY results (LYs monthly red.% of Based on LY results (LYs monthly red.% of

season red.) unless otherwise planned.season red.) unless otherwise planned.

F bF b MM AA MM JJ J lJ l T t lT t l


FebFeb MarMar AprApr MayMay JunJun JulJul TotalTotalRed $Red $(LY)(LY)

00 2,0002,000 3,0003,000 3,0003,000 5,0005,000 7,0007,000 20,00020,000

Red %Red %(LY)(LY)

0%0% 10%10% 15%15% 15%15% 25%25% 35%35% 100%100%

Red $Red $(TY)(TY)

21,000

Month reduc $ = total season reduc $ x month reduc %

III. Planning Stock LevelsIII. Planning Stock Levels

Plan monthly SSR or seasonal TOPlan monthly SSR or seasonal TObased on those of LY and other based on those of LY and other market circumstances.market circumstances.

Based on planned SSRs or TOBased on planned SSRs or TO Based on planned SSRs or TO, Based on planned SSRs or TO, project BOMs and EOMsproject BOMs and EOMs using using appropriate stock planning methodsappropriate stock planning methods

SSR SSR SSR methodSSR method TO TO Basic stock methodBasic stock method

Example: SSR MethodExample: SSR MethodSpring

Feb Mar Apr May Jun JulTY Planned

Sales 63,000 84,000 63,000 63,000 84,000 63,000

Planned SSR 1.5 2.0 2.5 2.0 1.5 1.2

III. III. Planning Stock LevelsPlanning Stock Levels

SSR TY Planned

BOMTY Planned

EOM

Planned EOM = BOM of following monthPlanned BOM = Planned Sales x Planned SSR

EOM of the last month = BOM Sales Reduction,if planning to make no purchase in the last month. if planning to make no purchase in the last month.

Otherwise, Otherwise, Last Month EOM = Average Inventory or an Last Month EOM = Average Inventory or an arbitrary EOM stock level thats considered appropriatearbitrary EOM stock level thats considered appropriate

7IV. IV. Planning PurchasesPlanning Purchases

At retail:At retail: At cost:At cost:

Plan monthly purchases (at retail and cost) Plan monthly purchases (at retail and cost) based on planned sales, reductions, EOM, & based on planned sales, reductions, EOM, & BOM.BOM.

At retail:At retail:

Net salesNet sales+ EOM+ EOM+ Reductions+ Reductions-- BOMBOM .= Plan Purchase @ = Plan Purchase @

retailretail

At cost:At cost:

Plan Purch @ retail Plan Purch @ retail x (100% x (100% initial MU%)initial MU%)= Plan Purch @ cost= Plan Purch @ cost

ExampleExample

Feb Mar Apr May Jun Jul

Planned Planned SalesSales

63,000 84,000 63,000 63,000 84,000 63,000

IV. IV. PlanningPlanning PurchasesPurchases

Planned Planned BOMBOM

94,500 168,000 157,500 126,000 126,000 75,600

Planned Planned reductionreduction

0 2,100 3,150 3,150 5,250 7,350

Planned Planned EOMEOM

168,000 157,500 126,000 126,000 75,600 5,250

Planned Planned purchase purchase @ retail@ retail

Example Example condcond

Feb Mar Apr May Jun Jul

Planned Planned

IV. IV. PlanningPlanning PurchasesPurchases

When IMU% = 54%When IMU% = 54%

purchase purchase @ retail@ retailPlanned Planned purchase purchase @ cost@ cost

136,500136,500 75,60075,600 34,65034,650 66,15066,150 38,85038,850 00

8V. V. Maintained Markup Maintained Markup -- MonthlyMonthly

Step 1: Project monthly MMU%Step 1: Project monthly MMU% Recall MMU% formulaRecall MMU% formula

MMU%MMU%=IMU% =IMU% -- {Red% x (100% {Red% x (100% -- IMU%)}IMU%)}

** ** Again, recall Again, recall Red% = Red% of SalesRed% = Red% of Sales= = $Red$Red

$Sales$Sales

Step 2: Calculate Monthly MMU$Step 2: Calculate Monthly MMU$Month MMU$ = MMU% x Sales for the monthMonth MMU$ = MMU% x Sales for the month

MMU MMU -- ExampleExample

AprilApril Sales $Sales $84,00084,000 AprilApril retail reductions retail reductions

$$2,1002,100IMU% =IMU% = 54%54%

V. V. Maintained Markup Maintained Markup

IMU% = IMU% = 54%54%

MMU% for April = ?MMU% for April = ?MMU$ for April =?MMU$ for April =?

MMU MMU Example (cond)Example (cond)

Red % (of sales) for April = Red % (of sales) for April = Red$Red$ ==Sales$Sales$

V. V. Maintained Markup Maintained Markup

MMU% for April = IMU% MMU% for April = IMU% -- {Red% x (100% {Red% x (100% -- IMU%)}IMU%)}==

MMU$ = MMU% x Sales for monthMMU$ = MMU% x Sales for month==

9Reminder Reminder

Six month plan provides Six month plan provides Cash flow infoCash flow info Merchandise flow infoMerchandise flow info

Allows company to determineAllows company to determine Borrowing needs for cashBorrowing needs for cash Merchandise needs for buying tripsMerchandise needs for buying trips

CADS 3850-Kwon

1

Random-Points In-Class Exercise: SIX-MONTH PLAN (16.5 points maximum)

Name: ________________________________ Q1. Planning Sales (2.5 points) x A sweater buyer is about to set up a 6-month plan for this fall season (Aug Jan). The

total fall sweater sales in LY were $135,000, and the monthly sales distribution was as in the following table.

x TY, the buyer predicts a 10% increase in total sweater sales, and that the monthly sales % distribution would be exactly the same as LY.

x Complete the Sales rows of the 6-month plan. Q2. Planning Reductions (3 points) x The sweater buyer is now planning retail reductions for this fall season. Considering

market environments, she projects that the total reductions of this fall (including all markdowns, employ discounts, and shortages) will be 8% of Sales.

x TYs monthly reductions distribution (% of seasonal total reductions) is planned to remain the same as LY.

x Complete the Reductions rows of the 6-month plan.

CADS 3850-Kwon

2

Q3. Planning BOM & EOM Stock Levels (4 points) x The sweater buyer is now planning inventory levels for each month using the SSR

Method. x Monthly SSRs of TY are planned to be the same as those of LY, as presented in the table. x For this exercise, to calculate the January (the last month) EOM, assume that the buyer does not

want to make any purchase during the last month. x Complete the BOM and EOM rows of the 6-month plan.

Q4. Planning Purchases (4 points) x Now, the sweater buyer needs to set up a monthly purchase plan based on the projected

sales, BOM, reductions, and EOM for each month in this fall season. x Initial markup goal for this fall season is determined at 55%. x Complete the Planned Purchases (@Retail and Cost) rows of the 6-month plan.

Q5. Maintained Markup Projection (3 points) x Based on the 6-month plan created, the sweater buyer is now trying to project monthly

and seasonal maintained markup % and $ for merchandise planned for this fall season. x Complete the MMU rows of the 6-month plan (6 months and total)

Name:__________________________________________

Aug Sep Oct Nov Dec Jan TOTAL

Sales LY Actual ($) $6,750.00 $20,250.00 $40,500.00 $40,500.00 $20,250.00 $6,750.00 $135,000.00

LY Actual (%) 5.00% 15.00% 2) 30.00% 15.00% 5.00% 100.00%

TY Plan ($) 3) 4) 5) $44,550.00 4) 3) 1)

TY Plan (%) 5.00% 15.00% 2) 30.00% 15.00% 5.00% 100.00%

Reductions LY Actual ($) $0.00 $1,350.00 $2,025.00 $2,025.00 $3,375.00 $4,725.00 $13,500.00 LY Actual (% of seasonal reductions)

0.00% 10.00% 15.00% 15.00% 25.00% 35.00% 100.00%

TY Plan ($) $0.00 7) $1,782.00 $1,782.00 8) 9) 6)TY Plan (% of seasonal reductions)

0.00% 10.00% 15.00% 15.00% 25.00% 35.00% 100.00%

TY Plan - (% of Sales)

0.00% 5.33% 10) 10) 11) 56.00%SSR LY & TY 3.00 2.50 1.80 1.60 2.00 2.70

BOM TY Plan ($) 12) $55,687.50 $80,190.00 $71,280.00 13) $20,047.50

EOM TY Plan ($) 14) 15) 16) 17) 18) 19)Purchases @Retail TY Plan ($) 20) $47,965.50 $37,422.00 22) 24) 26)Purchases @Cost TY Plan ($) 21) $21,584.48 $16,839.90 23) 25) 27)

MMU TY Plan (%) 55.00% 52.60% 28) 28) 30) 29.80% 32)

TY Plan ($) $4,083.75 $11,716.65 29) 29) 31) $2,212.65 33)

Random-Point Exercise: Six-Month Plan

Fall (Aug - Jan)

Documents

14. Six Month Plan