By Jon Schreibfeder
Often vendors offer a bigger discount or other considerations for placing a larger order. But, will taking advantage of every vendor incentive always increase your overall net profitability?
You must carefully evaluate each vendor offer. You must compare the price reduction you will receive for buying more inventory to the cost of carrying the purchased inventory during the time it takes to sell the shipment.
Know your Cost of Carrying Inventory. Next, perform the following:
- Calculate your Net Investment if you Take Advantage of the Vendor’s Offer
- Determine How Long it Will Take to Sell Each Potential Purchase Quantity.
- Calculate the Total Carrying Cost You will Incur During the Time It Takes to Sell Each Potential Purchase Quantity.
- Calculate Your Total Cost (i.e., Investment + Carrying Cost) at Each Level and Divide by the Net Cost of Purchased Inventory to Determine the Total Cost per Dollar’s Worth of Material:
The full article will take you through the above calculations. Or you can schedule to be part of one of our seminars held throughout the year.