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Favorable nonprice vendor agreements can...
- Increase gross margin
- Decrease processing expenses
- Improve cash flow
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Purchase order
- A contractual salesa greement between a retailer and vendor
- Merchandise, prices, delivery dates, and payment terms are specified
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Types of purchase orders
- Advance order: commitment to buy in future
- Back order: ordered but never shipped
- Complete order: totally shipped by vendor
- Fill-in order: replenishes sold-out inventory
- No-Order: merchandise shows up but was never ordered
- Past-due order: still not received by expected delivery date
- Reorder: for previously ordered good
- Rush order: replenish fast-selling merchandise
- Special order: for an individual customer
- Standing order : outstanding order to which additional items can be added
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Discounts
Special price reductions in the price of merchandise
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Quantity discount
- A reduction in price based on the amount of merchandise purchased
- Cumulative: applies to orders placed over time
- Noncumulative: applies to each order placed
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Seasonal discount
- A reduction in price for orders placed in advance of the normal ordering period
- "Early bird specials"
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Cash discount
- A reduction in the amount due on an invoice when payment is made on or before a specified date
- Isn't applied until all other discounts have been deducted
- % taken at billed cost
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Net payment period
Begins on the cash discount date and ends on the specified net payment date
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Regular dating
Assumed the DOI as the first day of the payment period
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EOM notation
- The payment period begins at the end of the month in which the invoice is dated
- Invoices dated on or after the 25th of a month count as if they were dated the first of the following month
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Extra dating
- Adds additional days to the discount and payment periods
- 2/10, 60X
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Cash dating
No discount or payment periods
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Cash on delivery and cash in advance are beneficial to...
Companies who don't have credit yet
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Consignment
- Not paid for until they are sold
- Minimize the retailer's risk: positive cash flow, capital not tied up in inventory
- Title ofo goods passed from vendor to consumer (never retailer)
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Memorandum
The title of goods passes from the vendor to the retailer, usually when the goods are shipped, then passes to the consumer at the point of sale
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Long-term impact of discounts
- Can dramatically impact a retailer's profitability over time
- Increase gross margin and net profit
- Retailers often borrow money to take cash discounts
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Transportation
- Arrangements are made by retailer
- Should be cost-effective in order to minimize the cost of goods sold, and maximize gross margin and net profit
- Time and cost are bigges factors
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Transportation costs are a function of...
- The weight and bulk of the merchandise shipped
- The distance between the vendor's and retailer's distribution centers
- The mode of transportation used
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Transportation terms
- Identify the bearer of the cost of shipping goods from the vendor to the retailer
- Identify the point at which the title of the goods passes from one to the other
- Responsibility of the buyer
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FOB
- Free on board
- Word that follows (origina, factory, etc) refers to the point to which a vendor pays transportation charges and the point at which the title of the goods passes from vendor to retailer
- Is freight collected (from retailer) or prepaid (by vendor)?
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Modes of transportation
- Motor carriers (truckres)
- Railroads
- Airlines
- Water carriers
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Intermodal transportation
The combination of two or more modes of transportation
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Common carrier
Establishes uniform rates and schedules for all shippers
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Contract carrier
Negotiates individual agreements with shippers or small groups of shippers
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Private carrier
Some organizations operate as private carriers, shipping goods with their own transportation equipment
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Types of transportation firms
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Consolidators
- Freight forwarders
- Combine less-than-truckload shipments from multiple vendors into truckload shipments
- Contract carriers to deliver the truckload shipments to their retail destinations
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Distribution center
- Performs critical inventory management functions
- Expidites processing to ensure the timely arrival of goods in stores
- Works closely with buyers to resolve issues related to damaged receipts, short shipments, and vendor substitutions
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Vendor partnerships
- Collaborations between retailers and their vendors
- Often involve strategies for pumping goods through the distribution channel more rapidly and efficiently
- Floor-ready merchandise
- Markdown allowances
- Promotional support
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Floor-ready merchandise (FRM)
Negotiated agreement whereby the vendor agrees to package, case, fold, hang, and/or ticket merchandise so that it is ready for hte selling floor upon arrival
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Radio frequency identification (RFID)
- Tagging system
- Tags have silicon chipps embedded with bar code information (vendor, style, color)
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Electronic data interchange (EDI)
A partnership between a retailer and a vendor that involves a backward flow of customer purchase information through the distribution pipeline beginning at the retailer's point of sale
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Vendor matrix
- A list of preferred vendors selected at conglomerate level
- Some organizations limit their buyers to conducting business only with matrix vendors, thereby limiting the number of vendors with whom they do business by as much as 50%
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Vendor relations
- Individual profit objectives of retailers and vendors conflict
- Higher profit for vendor = lower profit for retailer
- Vendors and retailers sometimes partake in bribery
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