PURCHASING and

INVENTORY CONTROL

By
Dr Naresh N Chugh
Good Purchasing policy and Inventory control are
closely inter-related. Properly purchased product
are well sold and the investment can get
maximum returns. It is ell said that

“ YOU BUY YOUR SELF POOR AND SELL

YOURSELF RICH” as well as also

“ GOODS WELL BOUGHT ARE HALF SOLD”

General FAQ on Purchasing
What to buy
Where to keep
When to buy
How to Buy
Whom to Buy from
The best guide for purchase is the
wholesaler. He helps you to select from a
vast array of products that sell in your area
 What to Buy
Initial Stock
„ Lines of product
„ Brands
„ Pack sizes
Seasonal Products
Prescriptions generated by Physicians
Prevailing Diseases
Convenience goods / Specialties (demand and
impulse purchases)
New Products introduced
 Where to keep
Proper storage conditions
„ Refrigerated areas
„ Cold areas
„ Ambient conditions (Clean, Cool dry places)
Display goods
Self selection goods
Shelves and drawers
Dispensing Prescription goods / Poisons
or scheduled goods
 When to buy
Seasonal items
„ Well in time before commencement of
seasons
„ Limited quantities initially and larger quantity
at start of seasons
„ Low quantities during the last phase of
seasons depending upon the stock
Routine items
„ Proper inventory control methods should be
employed
 How to Buy
Purchasing Procedure involves
„ Formulating buying policies
„ Determining the demands of customers
„ Selecting the best source of supply
„ Determining and negotiating the terms of purchase
„ Receiving and marking of goods
„ Storage of goods
„ Transferring the title and ownership of goods
„ Payment mechanism to receive maximum discounts
Formulating effective buying policies
„ Compatibility of the general objective of the store
„ Locality and type of Pharmacy
Recognizing the needs and demand of customers
Internal Sources
„ Past sales trends- Traffic flow analysis

„ Return goods policies of companies

„ Want book, suggestions of employees

External Sources
„ Socio-economic conditions & Demographic factors

„ Prevailing diseases, Current sale trends- Physician

Preferences
„ Salesmen offerings, Trade Journals and magazines

„ Product promotions by companies,

„ Results of surveys, Media influence

„ Offerings by competitors
Selecting the Best source of Supply
Using the direct channel i.e. Manufacturer
Using the indirect channel i.e. the
wholesaler
Involving the middlemen i.e. the trader or
the brokers & Commission agents
Influence of funds availability and source
of funds
Cost of funds
Determining and Negotiating the Terms of Purchase
Transaction details
„ Discount & Schemes
„ Payment terms
„ Credit extension and penalty
„ Taxation
„ Margin / Cost of Product
Transportation
Breakage / damage
Return goods policy
Ownership or title of goods
Discounts
„ Trade Discount
„ Quantity Discount
„ Cash Discount
„ Serial discounting
„ Point schemes
 Marking and Storage
Codification need
Codification methods
„ Using of combination of letters for numbers
SOCIETYMAN, PRINTOBLUE,PHARMOCIST
„ Using of combination of lines
BAR CODING
Vertical and horizontal lines combinations

Title to goods
Payment mode and realization
Transportation mechanism – Consignee bank or self
B to B
 Contents of Purchase order
Item Destination
Quantity Payment terms
Rate / Price Return goods
Pack Sizes Taxation
Packing Transportation & Cost
Validity period Name of Preferred
Guarantor transporter
Credit Period Insurance
Licences
 Inventory Control
What is inventory
Need for inventory control
„ Optimised used of capital and finance
„ Better turnover and utilisation of space
Size of inventory
„ Expected sales volume
„ Distance from supplier and supply frequency
„ General economic situation in the country
„ Purchase discounts and schemes
„ Turnover of goods
„ Shelf life of goods
 Inventory control - Methods
Intuition & Want Book
Systematic Want book
Stock Bin Card System
Open to Buy Budgeting
ABC Analysis
VED Analysis
Economic order quantity
 Intuition method and Want Book

Advantages
Less inventory size
Better utilisation of finance
Limitations
Non-scientific
Based on experience and working knowledge
Haphazard and erratic
Poor turnover and low sales
Turn back of customers
 Systematic want book
Segregated method of identifying supplies of a
company wholesaler wise
Name of Wholesaler Visiting Day
Company (1) Company (2) Company (3)

Product (1) Product (1) Product (1)

Product (2) Product (2) Product (2)

Product (3) Product (3) Product (3)

Product (4) Product (4) Product (4)

 Open to Buy Budget Method
Simplest and easiest
Cash in more than cash out
Adjustment in each month’s purchase as
compared to last year
Minor adjustments better than major
adjustment
Disadvantage:
„ Doesn’t recognise the type of inventory
„ May lead to wrong inventory as size
„ No accommodation for bulk / scheme
purchase
 Sale Sale unadj Adjusted Bal.
adjustments Actual
during during Budget budget c/f

Month 05-06 06-07 (20%MU)

JAN 10000 10500 8000 NIL 8000 7800 200
=200+(10500
FEB 12000 12000 9600 - 10000)*0.8 10200 11000 -800
=600

=-800+(12000
MAR 10000 8000 8000 -12000)*0.8 7200 6800 400
= -800
=400+ (8000-
APR 10000 12000 8000 10000)*0.8 6800 7000 -200
=-1200
 Other Techniques of Inventory
Control
1. ABC Analysis
2. VED Analysis
3. Economic Order Quantity (EOQ)
4. Perpetual Inventory control
5. Lead time method
6. Safety stock method
7. Setting various levels
8. Establish an effective purchase method
Perpetual Inventory Control
Bin Card Method:
„ Keep bin / storage cards having details of each item,
its principle vendor, minimum stock level, and details
of input and output. Most commonly used
Store Ledger:
„ Book form of Bin card, gives consumption detail at a
glance, grouped data easily avail.
Continuous Stock taking:
„ Daily check of some predetermined stock so as to
cover all stock many times during a year
„ Use of computers to generate statements.
 Perpetual Inventory Control
Advantages
No error possible it can detect anomaly
Methodological
Shortages can be found at any stage
Helps in valuing stock for P/L and B/Sheet
Pilferage not possible
Possibility of finding max. & min. levels
Capital requirements can be regulated
Helps in determining stock levels
Correct figures possible for insurance claims
Sales Promotion
 Objectives
To introduce new products
To attract new customers
To improve image
To stabilize or increase sales
To retain existing customers
To clear old stock
To achieve sales target
To create desired demand & improve product
visibility
 SALES PROMOTION
Consists of diverse collection of incentive
tools mostly short term designed to
stimulate quicker or greater purchase of
particular products or services by
consumer or trade

“Advertising gives reasons to buy Sales

promotion gives incentive to buy.”
 Purpose of Sales Promotion
Garner more sales, hence more profit
Retain Customers
Ward off competition
Attract new customers
Develop Image

Sales Promotion includes advertising , publicity,

display, OTC Sales, Direct mail etc.
Schemes, rewards, bonus, coupons etc all are part
of sales promotion mechanisms.
Techniques of Sales promotion
Free Sampling
Lower price
Extra Quantity
Bonus / Premium offer
Exchangeable Coupons
Trading stamps
Gifts
Contests
Trade or quantity allowances
Sampling / Tasting
 Tools of Sales promotion
Personal Selling “Salesmanship”
Consists of winning buyer’s confidence from the sellers
house and goods, thereby winning regular and
permanent customers” – Garfield Blake
Importance of Salesmanship
„ Help increase sales and larger profits
„ Convince & persuade buyer to purchase
„ Create demand
„ Raise living standard by creating demand of luxury
„ Satisfy customers needs
„ Market information and employment opportunity
 Tools of Sales promotion
Any person Selling goods is a salesman
first. The different types of salesmen are :
„ Manufacturers representative – e.g. Eureka
Forbes
„ Dealer’s salesman : Targets retailers,
institutions and individual customers e.g.
Direct Sales Agents
„ Retailer salesman : Counter Salesman
 Attributes of a Salesman
Physical Moral
„ Charm „ Moderate temperament
„ Sound Health and „ Honest
endurance „ Loyal
„ Personality „ Co-operative
Mental Social
„ Alert, Sharp memory „ Linguistic
„ Imaginative „ Free nature
„ Persuasive and
convincing
 Sales Promotion Methods
Institutional Promotion
„ Professional
„ Focus on organization
„ Rapport with Customer
„ Creates image
„ Launch of new service or
line of product or
department
„ Launch of a new area of
operation
Merchandise Prom.
„ Commercial
„ Focus on Product
„ Creates customer
desire
„ Increase sales
„ Feature of Product is
highlighted
„ (Price, Convenience,
reliability, usage, etc
highlighted)
 Public Relations & Publicity
Public relation is synonymous with
publicity, but both have a distinct
difference. Publicity is earned “FREE”
whereas public relations is an exercise
conducted at a cost to create awareness
in the society or in the eyes of the
customer. Both finally create an image in
the society.
 Personal Selling
From an ordinary sales to professional
consultation, all form part of personal selling.
It is an one to one interaction between an owner
and consumer.
Friendliness, accessibility are the hallmark of
personal selling
Patient medication record and patient history,
knowledge of family etc. are also a distinctive
advantage for personal selling
Fundamentals of Personal Selling
Know your Patrons and Patients
Know your product/s
Understand customer needs
Prompt courteous and helpful service
Positive & encouraging
Avoid over indulgence
Competitive pricing
 Advertising & Sales Promotion
Objective:
„ Increase awareness about health
„ To cover increased cost of living
„ To improve standard of living through better
or more profits
„ To cover competition
“The whole purpose of advertising is to
communicate with the purpose to Sell”
Ten factors that make selling
Product : Appearance, usefulness
Product : Performance, quality in comparison to other
products
Prestige : Brand value developed over years
Promptness of delivery : ready stock
Price
Personal selling
Packaging and Presentation
Point of sale publicity
Public relations
Advertising : Paid, Mass communications
 Need for advertising
Sales
Create demand
Brand awareness
Distribution presence
Awareness of existence of company
/Product
Life of Product
 Five M’s of Advertising
Mission :
„ Sales Goals, Advtg. Objectives
Money :
„ stage in Product life cycle, Market Share, Consumer
base, Competition and clutter, Advtg. Frequency,
Product Substitutability
Message :
„ Idea generation, evaluation and selection, execution,
social responsibility & overview
Media :
„ Reach , frequency and impact, media types, media
vehicles, timing, geog. Location
Measurement :
„ Commercial impact, social impact and sales impact
 Choosing an Advt. Message
Message generation
„ Rational use of Product
„ Sensory
„ Social
„ Ego satisfaction
Message evaluation
„ Desirability
„ Exclusiveness
„ Believability
„ Interest of customer
 Choosing an Advt. Message
Message execution
„ What & How of message
„ Rational or emotional positioning
„ Headline, copy strategy, statement
„ Execution style
Slice of life
Fantasy
Mood or image
Musical
Personality
Technical expertise
Scientific evidence
Testimonial
Setting the right tone of copy : Social
responsibility
 Window Display
Display are advertisements shown across the
streets, roads, railway network stations, sea side
fronts, Hugh buildings, squares or junctions,
Public plazas, underground railway etc. The cost
of display and period of display are the
prominent costs. They are seasonal and
selection of site depends upon size, variability,
density of population, floating population,
location, no. of posters in vicinity, size of poster,
availability of electricity, cost of display etc.
 Design of Posters
Computers, flex printing are the main aids in
designing posters / displays. Traditionally hand
painting and block printing were the techniques
used for large posters and offset printing was
done for bulk printing of posters. The former
offers vivid colours with natural effect to be used.
The posters are attractively designed to convey
the idea and generate interest. It should arrest
attention and create interest of the on-looker, but
should be simple, effective, legible and pleasing.
 Window Display
A smaller version of mass display but with
many more advantages. It
„ Attracts attention at a short distance and
offers good visibility.
„ It can project dominant idea : disease,
season, festival etc.
„ Uses colours, physical display, arrangement
spot light etc.
„ It helps in reminding forgotten needs.
Psychology of Window display
Merchandise on physical display
Demonstrate product superiority
Special Sale / Price, features etc.
Reminder of forgotten needs
Refresh consumers mind
Convey message
 Types of Window Display
Window Display
Shadow Box Display
Showcase Display
Counter Display
Hot Spot Display
 Construction of a Window Display
Three Steps:
Build a dominant Idea
„ Major theme : Central Idea or a Product
„ Develop the theme
„ Associated theme (Current news, Season, Festival
etc)
„ Price, Quality, Product feature
Arrange Display (construction)
„ Cleaning area of display
„ Selection of the theme
„ Assembling of all accessories, props etc.
„ Sketch Layout (pattern : Symmetric, asymmetric,
gradient, monolithic or block etc)
„ Lighting, colour scheme, product exposure, etc.
Construction of a Window Display
Construction & Execution of Display
„ Assembling
„ Cleaning
„ Creating background
„ Physical arrangement
„ Change display daily, weekly or fortnightly
„ Co-ordinate with Other advertising media
 Direct Mail
It is a form of publicity that can be used for
any type of commerce.
Gaining wide acceptance
Offers mail order business (Popular in
West)
„ Catalog or rate chart mailed and orders
booked on phone / internet / fax etc.
„ Mostly used by direct to order mfrs.,
wholesalers, etc.
 Advantages of Direct Mail
Cultivate customers
Establish buying pattern / habits
Direct to consumer, benefit in cost , quality etc.
Keep in touch concept
Supplements salesman
Supplements advertising
Creates database / infobase
Home delivery
Speciality selling
 Other methods of promotion
Personal Selling
“On the Spot” Promotions @ various
places in the area
Tele Shopping
Exhibitions, cultural Fairs, Conferences etc
Use of Festivals to promote events, Trade
exhibitions
Internet Selling