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Planning continued from page 105


Planning the needed stock lev-


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el to support the sales plan is the next phase. This is accomplished by the use of stock/sales ratios. A stock/sales ratio is simply the relationship between stock and sales. It is related to the turnover and the proper timing of deliver- ies. Stock/sales ratios are different for each classifi cation and for ev- ery month. This is perhaps the single most compelling reason for automating the planning process. For example, a classifi cation that is planned to turn three times would have a stock/sales ratio of 4. This can also be viewed as


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a number of months of supply to have in stock. (12 months/3 turns = 4 months of supply). If a clas- sifi cation holds more than it can sell for a given period of time, the stock/sales ratio increases, and over time, turnover will decrease. In severe examples, this can lead to higher markdowns than usual, reduced margins and an overall reduction in gross margin return on inventory (GMROI) as well. Suffi ce to say, getting the in-


ventory planned correctly is vital. When using the retail method of accounting, as we are assum- ing in this discussion, stocks are planned at the current retail val- ue. This means that markdowns are recognized when they are taken, as opposed to when the merchandise is actually sold. This reduces the “market” value of the inventory by the amount of the markdown, which increases turnover and generates addi- tional OTB dollars to land new merchandise. Some systems do a much better job at handling this than others; you can trust me on that. Sales and inventory forecast-


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ing are the two most important elements in the creation of an OTB plan. If errors are made in either of these areas, the OTB plan is going to be wrong. Re- sults of poor OTB planning or no planning can be quite costly, and generally lead to inventories that are out of balance. Under planned classifi cations lead to lost sales, while over planned categories typically end up less profi table due to markdowns and


slower turnover. Attention also continued on page 108


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