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A Simplified Capital Budgeting Approach to Merchandise Management
Holton, Richard H.
3/3  (Spring 1961): 82-104

The rationalization of decision-making in the manufacturing sector of the economy in recent years has advanced at a pace, which most retailers have apparently been unable to match. Manufacturers have been making increasing use of such devices as mathematical programming of production to make optimum use of equipment; application of the theory of inventory controls to give the economic order quantity and optimum stock levels; and capital budgeting to assure optimal use of funds. Although a handful of large retailers are experimenting with the application of modem control techniques, these advances are clearly neither so numerous nor as significant in retailing as in manufacturing. It may not be an exaggeration to say that in the modernization of decision-making techniques, the race between manufacturing and retailing thus far has been a case of the hare and tortoise. The usual measures of performance of individual lines of merchandise and of departments, such as percentage gross margin, sales per square foot and rate of stock turn, are all inherently inadequate when used alone. The contribution return on inventory investment, however, is a much more inclusive and therefore useful measure.

 

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