number Open to buy Shoe Box store is footwear retail store that has specialized on women footwear. It islocated in Navy pier, Chicago. The target market for our products is the young ladies who are between twenty five to thirty three years old. We plan to adopt use-to-buy planning method to control our inventory level during the summer/spring season. Open-to-buy refers to a system adopted by a retailer to forecast the sales expected for several months ahead. The benefit of this system helps the retailer to have the required inventory in stock rather than to have excess or less stock during a given period, since this will impact on the revenues collected.
Shoe Box has the following classifications of women footwear in its stock; flat sandals, comfort platform, gladiators, ankle boots, minimalist, loafer, high boots, strappy sandals flat slide on, slip on mules, thong sandals and boy sneakers. From history the sales during summer/spring for the footwear is estimated to be as follow; month Projected percentage sale February 10% March 10% April 15% May 20% June 30% July 15% The sales of shoe box retail for the summer was $ 1,236,000 for the summer was estimated to be $ 1,236,000 with an inventory of $ 618,000 Month Sales February 0.1* 1,236,000= $ 123,600 March 0.1*1,236,000= $ 123,600 April 0.15*1,236,000= $ 185,000 May 0.2*1,236,000= $ 247,200 June 0.3*1,236,000=370,000 July 0.15*1,236,000= $ 185,000 Calculating the beginning inventory level Turnover rate; average sales/average inventory, 1,236,000/618,000= 2 times Since the sales will run for 6 months we get turnover factor by dividing; 6/2= 3 times Month Beginning inventory February 123,600 *3= $ 370,000 March 123,600 *3= $ 370,000 April 185,000*3= $ 555,000 May 247,200*3=$ 741,600 June 370,000*3= $ 1,110,000 July 185,000*3= $ 555,000 Calculating open to buy February March April May June July Beginning inventory 370,000 370,000 555,000 741,600 1,110,000 740,000 Actual sales 123,600 123,600 185,000 247,200 370,000 185,000 Inventory balance 246,400 246,400 370,000 494,400 740,000 555,000 Open to buy the following month 123,600 308,600 371,600 615,600 0 Inventory flow From the above demonstration it is clear that shoe box retail can use the open to order technique to calculate the inventory level it can manage between two successive ordering periods.
According to (Mercado, 19) what has to be noted is that open-to-buy is just a tool used in inventory management and can’t take the place of the managerial decisions. The tool will assist the management by giving advice on what can be done on the inventory whether to order for the next month or not footwear.
For instance the month of July shoe box retail didn’t order footwear from XYZ Company since the inventory balance of June was sufficient to meet the demand that month. The inventory flow of the footwear is a key concern to any retail store, for shoe box it will have to ensure the process is as efficient as possible. Lead time has to be taken into consideration, this the time difference between placing an order and receiving the order. This phenomenon will have a direct impact to the inventory level of Shoe Box retail store.
In case the lead time is short shoe box will be able to replenish its inventory level thus meeting the demands of its client. Inventory flow management also included the system a company uses to control the flow of inventory to the consumers. The common used systems are FIFO (first in first out) and last in last out (LILO). For Shoe Box retail store, it can use the both systems by first selling the footwear it bought first this will cushion risk, in case some of the footwear become obsolete.
In the field of fashion where footwear also falls the risk of obsolesce is quite common, so by selling the footwear bought earlier shoe box will have avoided the risk of obsolescence. References Mercado, Ed C. Hands-on Inventory Management. New York: Auerbach Publications, 2008.