By Yanyong Thammatucharee
Published on May 19, 2010
Successful trading companies have to be competent not only in selling but also in buying. As sales revenue, though, is such an obvious indicator of profit margin, managers seem to pay higher attention to sales activity than purchasing excellence.
But in order to keep sales high, companies need to understand what their customers are looking for so that they can select the products that will sell. The company must be dynamic in this, monitoring customer response and changes in the sales performance of its product. Mistakes cost. If a fashion buyer makes a bad decision, for example, the resulting surplus on the shelves will need quick corrective action. The company may have to increase promotional measures such as advertising or discounts to alleviate the inventory burden, which will impact profit margins.
To help avoid these problems, the “Buy Right” method has been developed:
l Right model: Purchase decisions should be based on sales data analysis and understanding of future trends. This can involve the product categories, colour, size, and so on. The right assortment of products will also help maximise sales. It’s important to understand which kinds of product are considered staples - those that sell continuously over time - and which are trendy by nature, therefore run the risk of becoming unpopular.
l Right price: If competition between sellers is high, companies need to ensure that their prices are not being undercut by competitors. This requires close monitoring and adjustment.
l Right quantity: Before the size of an order can be determined, buyers need to review the inventory status through key indicators such as inventory turnover, average inventory period, and so on. It is important to understand the movement of inventory, taking into account budget and forecast figures. To improve inventory turnover, the company can decrease the size of orders while increasing the variety of products and frequency of delivery - the downside is higher shipping costs.
l Right time: Basically, new products should be made available before the season starts. This requires good planning for everything from ordering, shipping and receiving to delivery to the shops and shelves. The company often needs to make sure it can present new products faster than competitors - or even more often. Customers expect to see fresh new products every time they visit the sales outlet.
The “Buy Right” ethos focuses on both sales and inventory performance to bring success. However, once we realise that we did “buy wrong”, move fast to liquidate the purchase.
Yanyong Thammatucharee is senior vice president for accounting and finance at Central Marketing Group.
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