Carefully Consider Vendor Offers

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:

  1. 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.

Buy at the Right Time

By Jon Schreibfeder

It is imperative that you calculate or manually maintain order cycles (or review cycles) that are not too long or too short.  We recommend that you maintain order cycles between 4 and 30 days for primary vendors.  This will facilitate more efficient warehouse and back office operations.  Learn more about inventory management.

Suppose a vendor has no minimum order requirement.  You could place individual replenishment orders for single products all day long.  But, this is not practical because of the volume of small receipts that your receiving and accounts payable departments would have to deal with.

But what happens if you only generate enough demand to place an order with the vendor every two or three months.  Problem:

  • It can harm customer service
  • It will increase your costs and inventory investment. 
  • You are gambling that demand will follow your forecasts.
  • You are betting that the cost will not decrease before you can sell the large quantity you purchased.