Right quantity at the right time

Question 1

Width of assortment refers to:

Answer 1

The number of different product lines on offer

Question 2

Depth of assortment refers to:

Answer 2

The number of product items with in each product line.

Question 3

Advantages of having a wide and deep merchandising mix:

Answer 3

May lead to a loyal customer base

May lead to a one-stop shopping experience where customers can go to a store and buy everything they need.

Question 4

Disadvantages of having a wide and deep merchandising mix:

Answer 4

High level of investment in stock needed
Higher insurance costs
Additional space required
Some items or lines may have a slower turnover.

Question 5

Advantages of having a narrow and deep merchandising mix

Answer 5

A specialised service and a wide variety in a product line are on offer.

Question 6

Disadvantages of having a narrow and deep merchandising mix:

Answer 6

One stop shopping is not possible.
Changes in customers preferences can have a devastating effect.
Market must be substantial enough to make such a business viable.

Question 7

Methods to determine the level of stock to keep:

Answer 7

Basic Stock List

Optimum order quantity

Question 8

Basic Stock List

Answer 8

This is a list that indicates which stock is an absolute necessity for the retailer and should never be sold out.

Compiling a basic stock list is not enough.
A retailer must determine how many units of each product to order. (Optimum order quantity)

Question 9

Example of basic stock list of a convenience store

Answer 9

Milk
Bread
Cigarets
Newspapers

Question 10

Optimum Order Quantity

Answer 10

Optimum Order Quantity is the amount a retailer orders to keep costs at a minimum.

Costs associated with stock are carrying costs, ordering costs and out of stock costs.

Question 11

Carrying costs

Answer 11

The costs acquired to keep stock.
Carrying costs increase when more products are ordered per order.

Large order quantities, needs more storage (warehouse) and this will increase costs because capital is tied up in stock, warehousing, insurance, taxes and depreciation.

If the capital were more liquid and less stock were to be ordered, less depreciation would be written of, fewer products would become obsolete and less insurance costs.

Question 12

Ordering Costs

Answer 12

The costs associated with ordering costs.
This may include shipping and communication stock, such as computer time, order forms, labour and handling new orders.

When more orders are placed, ordering costs increase.
Ordering costs would therefore, decrease if retailers cut down on the number of times they place orders.

Other costs are associated with higher quantities ordered such as storage, insurance, interest etc.

Question 13

The optimum order quantity:

Answer 13

The optimum order quantity will be where the total costs associated with ordering the merchandise are at a minimum.

Question 14

Total Costs:

Answer 14

Total costs are merely the sum of the ordering costs and the carrying costs.

Question 15

Out-of-stock costs

Answer 15

Out-of-stock costs are associated with the loss of sales because the retailer does not have a specific product available.

It’s the loss of sales associated with the unavailability and is very difficult to measure.

Question 16

When merchandise should be ordered:

Answer 16

Retailers can determine when to order merchandise by determining the re-order point or buying according to the JIT philosophy.

Question 17

Determining the re-order point:

Factors to consider when ordering stock:

Answer 17

Sale Forecasts for the merchandise in the store
The time to prepare an order
The time it takes a supplier to deliver it.

Question 18

Determining the re-order point:

Normal Repeat orders

Answer 18

Normal repeat orders are easy to do and the lead times and delivery times are usually standard.

Question 19

Determining the re-order point:

Special orders

Answer 19

Special orders are more difficult as more time is need and scheduling is more complex.

Question 20

Determining the re-order point:

Peak season delivery times

Answer 20

A higher demand can slow down the process.

Question 21

Determining the re-order point:

When merchandise should be ordered:

Answer 21

The turnover of stock will determine when merchandise should be ordered.

Question 22

Determining the re-order point:

Perishable goods

Answer 22

Will be ordered more frequently and shortages must also be prepared for.

Question 23

Determining the re-order point:

Payment Cycle

Answer 23

Retailers must weigh possible discounts when payments are made earlier against the cost of stocking more merchandise.

Retailers may want to order at the beginning of the payment cycle in order to stretch payment as long as possible.

Question 24

Determining the re-order point:

Order point

Answer 24

Is when stock levels reach a certain minimum quantity.

at this point retailers re-order merchandise to ensure that it arrives at the right time, to avoid being without stock.

Question 25

Determining the re-order point:

Cycle or Base stock:

Answer 25

Is the amount of inventory that retailers order with every order point.
These amounts cannot always be determined exactly, and should be equal to the optimum order quantity.

Because of the difficulty in predicting theses amounts retailers carry back up or safety stock.

Question 26

Determining the re-order point:

Back up stock (Safety Stock)

Answer 26

This ensures that the retailer do not run out of stock and lose sales because of unexpected surges in demand or delays in delivery.
Safety stock will increase if higher risks of stock-outs occurs.
Fluctuations in lead times can also effect bask up stock.

Question 27

Determining the re-order point:

Lead time

Answer 27

Is the amount of time between placing an order and the point at which the merchandise arrives in the store and is ready for sale.

Fluctuations in lead times can also effect bask up stock.

Question 28

Determining the re-order point:

Usage rate

Answer 28

Refers to the average sales per day, in units, of merchandise.

Question 29

Determining the re-order point:

Calculation (without safety stock)

Answer 29

Re-Order Point (without safety stock)=

usage rate x lead time

Question 30

Determining the re-order point:

Calculation (with safety stock)

Answer 30

Re-Order Point (with 20% safety stock)=

(usage rate x lead time) + safety stock

Question 31

JIT Philosophy:

Merchandise as a depreciating asset

Answer 31

The value of almost all merchandise starts decreasing as soon you purchase it.
Packaging may become obsolete
Preferences and taste changes (overnight)
Seasons may change abruptly
Wear and tear on products
Any of these factors may lead forced markdowns or sales that will result in lower profits.

Question 32

JIT Philosophy:

Answer 32

Merchandise will be ordered as late as possible but it would still arrive in time to avoid any out of stock situations.
For this method, it is crucial for a retailer to have a good relationship with reliable suppliers.

Question 33

JIT Philosophy:

Factors impacting the delivery of suppliers

Answer 33

financial position
quality of management
capacity
long term contracts
external factors such as labour unrest

It is advisable to do a trade reference check on new suppliers.