Average Stock to be Carried.—Stock control rests, in the first place, on estimated requirements for the future. Estimates for the future must always be based on past performance, as modified by present market conditions and contemplated changes in basic merchandising policies. In estimating the amount of stock to be carried, the volume of expected sales must be taken into account. The other factor is the rate at which the merchandise should turn during the period. Thus, if estimates are made for a period of six months, the estimated sales for the period divided by the number of times the stock is expected to turn during the six months will give the average amount of stock to be kept on hand. Seasonal fluctuations must be taken cognizance of in determining the changes from average stocks to be carried at particular times during the period. Thus, if the estimated sales in a given department are $50,000 for the next six months and the merchandise turns twice during that time, manifestly a stock of $25,000, as priced at retail, must be carried. If the mark-on is 40%, the cost of the average stock will be 60% of $25,000, or $15,000, representing the average capital to be tied up in stock for that department.
The Buying Quota.—The determination of a buying quota for a given period must take cognizance of the stock on hand at the beginning of the period, the stock which it is planned to have on hand at the end of the period, and the estimated sales for the period. If, from the sum of the stock planned to be on hand at the end of the period and the sales estimate for the period is subtracted the stock on hand at the beginning of the period, the buying quota for the period is determined. This buying quota is, of course, at retail price and must be reduced by use of the mark-on percentage to a cost basis. An illustration will show the method:
| Stock planned to be on hand at end of period | $25,000 | |
| Estimated sales for period | 50,000 | |
| $75,000 | ||
| Stock on hand at beginning of period | 23,000 | |
| Buying quota at retail price | $52,000 | |
| Mark-on is 40%, i.e., cost is 60% of selling price. | ||
| Therefore | $31,200 | = buying quota at cost |
The “Open-to-Buy” Estimate.—The buying quota is estimated at the beginning of the period. At various times throughout the period, if stock is to be properly controlled, it is necessary to know how much of the buying quota is available. Furthermore, because estimates made at the beginning of the period never quite coincide with the facts of actual performance, it is necessary to take cognizance of these data of performance in determining the amount of stock to be bought at a given time. The difference between the estimated sales for the period and the actual sales to date is the estimated sales to be made during the remainder of the period. If from the stock on hand at a given date is subtracted the estimated sales for the rest of the period, the difference will be the estimated stock remaining on hand at the end of the period, providing no more purchases are made. If this amount is less than the amount of stock planned to be on hand at the end of the period, the department is “open-to-buy” to the amount of the difference. If the estimated amount on hand at the end of the period is more than the planned inventory for the end of the period, no additional stock should be purchased, except of course to replenish certain stocks which have become depleted and which it is necessary to have on hand to meet the needs of customers. In calculating the stock on hand at a given time, cognizance must be taken of stock in the warehouse, in transit, and on order. A typical open-to-buy calculation is shown below:
| Stock on hand today | $ 40,000.00 | |
| Stock in warehouse | 15,000.00 | |
| Stock in transit | 10,000.00 | |
| Stock ordered | ||
| (to be received before end of period) | 25,000.00 | |
| Total available stock | $90,000.00 | |
| Sales planned for period | $175,000.00 | |
| Sales made to date | 105,000.00 | |
| Estimated sales for balance of the period | 70,000.00 | |
| Estimated stock at end of the period | $20,000.00 | |
| Planned stock at end of the period | 30,000.00 | |
| Open-to-buy amount | $10,000.00 | |
This open-to-buy figure should be amended in the light of experience with regard to the way in which actual sales are running as compared with the estimated sales. If it is apparent that the sales are running ahead of the estimate, the sales quota should be enlarged accordingly, which will in turn increase the open-to-buy balance. A similar adjustment should be made in the event that actual sales are not keeping pace with the estimated quota.
The Stock Control Card.—The problem of stock control is not solved solely by a maintenance of buying quotas and limits. The movement of individual commodities must be watched very closely. The tying up of funds in large stocks of slow moving commodities may soon use up the buying quota needed for faster moving commodities. To maintain control over the movement of individual commodities, a record called the “stock control card,” which is similar to the stock book, is of great value in some lines. To other lines it will not be found adaptable. It is not the purpose of this chapter to attempt to lay down specific methods adaptable to all situations but only to discuss basic principles and to illustrate them by methods found applicable to certain situations. The control card illustrated in [Form 43] is one used in a retail shoe store.
On the form shown as [Form 43], Style, Bought From, Description, and Material, are self-explanatory. On the line below, cost is shown in the first column, size in the next, and the month with days along the rest of the line follows. Horizontally are entered on the dates shown the quantities of stock received (Rec’d), on hand (O. H.), sold (Sold), and on order (O. O.).
According to the form, on August 1 there were on hand 19 pairs of shoes, size 9, and 11 pairs of size 9½. During that week, on consecutive days, 3, 4, 3, 6, 2 pairs of size 9 shoes were sold, of which 2 pairs (circled) were returned on the 4th and 5th; and 2, 2, 1, 3, 4 pairs of size 9½ shoes were sold, of which 1 pair was returned but again sold on the 5th.
On the first day of the following week 24 pairs of each size which had been ordered on the 2d of August were received. Upon their receipt the O. O. (on order) figures were inclosed in circles. On that day also the O. H. (on hand) figure was placed in its proper place in the size 9 group. All of size 9½ had been sold during the first week of August and there was of course no figure to be entered there.