Announcement

Collapse
No announcement yet.

Bulk Purchase versus Small Frequent Purchase

Collapse
X
  • Filter
  • Time
  • Show
Clear All
new posts

  • Bulk Purchase versus Small Frequent Purchase

    Hello everyone!

    In a business which deals with the need for supplies, it is usually a practice to purchase goods in bulk because bulk purchases mostly have bigger discounts with them and there is no constant need of delivery for a period of time. This is both a win-win situation for the supplier and the customer because they both get to save up in their own way. The customer saves with the discount he/she receives, while the supplier also saves up on delivery operation, also allowing him/her to get an ROI faster.

    There are instances though when small frequent purchase is preferred over bulk because of the short shelf life of the products. It is not advisable to buy in bulk if the products are slow moving and have short shelf lives. There are exchange policies with most suppliers though but there are those who only offer a return percentage for expired goods.

    With all these in mind, I think that one needs to weigh the needs of his/her business first and determine areas which need bulk purchasing and areas which require small frequent purchases.

    What are your thoughts and suggestions on bulk and small frequent purchases?

  • #2
    Re: Bulk Purchase versus Small Frequent Purchase

    I think that in most parts of the world bulk purchase is the way to go because when you are a professional buyer, meaning that you own a business, you will get some perks when you buy in bulk. This is most commonly explained and seen in everyday shopping for your home. The larger the package the more money you will save. A spice mix in Serbia costs 2 Euros for 250 grams and 3,5 Euros for 500 grams. This is usually the case for everything. I believe that it is advisable to shop like this for your home or your business.

    Comment


    • #3
      Re: Bulk Purchase versus Small Frequent Purchase

      Well this is certainly one where it really does depend on the product. If we are talking perishable goods, then I am pretty sure we all know that buying in bulk is rather foolish, and of course the automated purchases is the better route there. Most often, though, when you buy in large quantities you save. Then it is just a matter of space and storage, and it takes a lot of math and number crunching to figure it all out. Hopefully, though, you can come up with a good plan and save the money where you can. Thanks for sharing.

      Comment


      • #4
        Re: Bulk Purchase versus Small Frequent Purchase

        This is not a simple decision. In traditional purchasing environments buyers would buy in bulk thereby obtaining a lower unit cost. But this does not take into account the 'total cost of ownership' such as increased storage, inventory investment, shelf life and so on.

        Really you need to understand the total 'cost to serve' for each product to make an informed decision.

        A couple of articles here explain it.
        http://www.logisticsbureau.com/cost-to-serve-part-1/
        http://www.logisticsbureau.com/cost-to-serve-part-2/

        The cost to serve approach is most commonly used on the outbound side of the Supply Chain, but is equally effective on the inbound end or total end to end.
        Rob O'Byrne
        Site Owner & Sponsor

        | Supply Chain Consultants | Supply Chain Conference | Supply Chain Education |

        Comment


        • #5
          Re: Bulk Purchase versus Small Frequent Purchase

          The bulk purchase may worth it or not depending of the demand needed. A supermarket selling thousands of powdered milk cans or a Heavy steel industry requiring a steady supply of mineral iron each day would buy these items in bulk from its supplier since the % discount really reduce the amount of investment compared to buying the retail default price. Now, a hardware store selling only a few PC builds only needs to do small frequent purchase to satisfy its demand, buying in bulk is more expensive in the long run.

          Comment


          • #6
            Re: Bulk Purchase versus Small Frequent Purchase

            When it comes to business it mostly depends on how fast you sell your goods, for example, if you're a beginner in the sales world then I do not really consider it would be a good idea to buy bulks until you finally reach a stable amount of customers that you really know you're going to sell your merchandise to, it is really hard to build a network when you're a newbie, but it gets quite easier if you know your way around, however, buying in bulk would be a great idea if you already established your brand and your network, it's such a great thing to buy enough merchandise just in case you run out of it due to the high amount of sales you complete successfully, that's my opinion though.

            Comment


            • #7
              Re: Bulk Purchase versus Small Frequent Purchase

              I agree, I think while it's almost always cheaper to buy in bulk, it's arguably not always advisable depending on the situation since some types of products don't lend themselves well to long term storage and also an additional point would be that you would be tying up your money to the products if you buy too much and if it takes a while to sell those items then you would be stuck without liquidity for the duration of that supply.

              Comment


              • #8
                Re: Bulk Purchase versus Small Frequent Purchase

                This thread is a good one for the Warehouse manager or the Inventory manager. I think when the company is small, the purchases is usually in small bursts only particularly if their purchase is on a pickup basis and no delivery is required. Like in the nearby hardware store, when we buy gravel or hollow blocks, we have to wait until the delivery is given a schedule for the truck leaves only when it is full. But if we buy a small item like 1 piece of hollow block that we can carry home then we can get it instantly. That's the reason of small businesses. They don't buy in bulk because it can affect their cash flow - their capital will be in their stocks and their cash will be depleted.

                Comment


                • #9
                  Re: Bulk Purchase versus Small Frequent Purchase

                  Bulk purchases are definitely worth the cost because the product per unit is so much more cheaper, but not all businesses can afford to do it, and not all businesses actually need that much quantity.

                  I love the concept, many big businesses take advantage of the because it's good for profits. You want to get your products as cheap as possible to maximize unit profits. I plan to do it when I start this new business in the future because I know it's worth it. I just don't like knowing that if things don't work out, then I have a bunch of products and lots of money lost.

                  Comment


                  • #10
                    Re: Bulk Purchase versus Small Frequent Purchase

                    I'm seeing a lot of great points from all your posts guys. Thank you for sharing your thoughts on this. I have also read the articles that Rob O'Byrne wrote and they're very informative regarding the understanding of bulk and small order purchases. When I first started our family business, I thought that bulk purchases were always the way to go when it comes to products but as I went on with the business, I began to learn more about the products people purchased more and the needs they wanted from the products we offered. I learned that there should be a way of determining which items need to be purchased in bulk and which items need to be purchased in small quantities. Running a business is also a continuous learning opportunity.

                    Comment


                    • #11
                      Re: Bulk Purchase versus Small Frequent Purchase

                      Originally posted by hades_leae View Post
                      Bulk purchases are definitely worth the cost because the product per unit is so much more cheaper, but not all businesses can afford to do it, and not all businesses actually need that much quantity.

                      I love the concept, many big businesses take advantage of the because it's good for profits. You want to get your products as cheap as possible to maximize unit profits. I plan to do it when I start this new business in the future because I know it's worth it. I just don't like knowing that if things don't work out, then I have a bunch of products and lots of money lost.
                      Yup, I think some businesses compensate the decision to buy more to get the products for cheaper by expanding the business so the equation would work out and it does sometimes work but ample research really has to be put in to make such a decision since the risk also increases greatly even though you are getting a huge discount. I think it's often better to just increase your risk in small increments but sometimes you also just have to go for it.

                      Comment


                      • #12
                        Re: Bulk Purchase versus Small Frequent Purchase

                        It would seem that bulk purchases would be the way to go. However, this may not be the best case scenario in all situations. Goods that are easily perishable would have to be stocked according to the expected demand and the estimated shelf life to prevent losses from spoilage. There may be other goods with extended shelf live but you may have to be careful when bulk stocking some of those items because even though there is potential for attractive gains on these products, they may move very slowly and hold up space that could be used to house faster moving items which may bring a smaller return but have a more rapid rate of turnover.

                        Comment


                        • #13
                          Re: Bulk Purchase versus Small Frequent Purchase

                          Originally posted by explorerx7 View Post
                          It would seem that bulk purchases would be the way to go. However, this may not be the best case scenario in all situations. Goods that are easily perishable would have to be stocked according to the expected demand and the estimated shelf life to prevent losses from spoilage. There may be other goods with extended shelf live but you may have to be careful when bulk stocking some of those items because even though there is potential for attractive gains on these products, they may move very slowly and hold up space that could be used to house faster moving items which may bring a smaller return but have a more rapid rate of turnover.
                          That's also my concern whenever bulk orders is mentioned - perishable goods cannot be stored for so long because of their short shelf life. Spoilage will just cause losses. However, there are times that even perishable goods can be ordered for delivery in bulk when the demand is so great. This condition usually happens during the yuletide season when fruits overflow in the shelves because people gobble them by the bulk. One example is the chestnuts that vendors would order by the tons because they sell hundreds of kilos of cooked chestnuts in one day. But they are discerning in their estimates so as not to exceed their expected sales otherwise they will suffer losses with the spoiled goods.

                          Comment


                          • #14
                            Re: Bulk Purchase versus Small Frequent Purchase

                            Any business owner, even those that are new to the game will know just how important stock is. One of the first things that you'll learn is what stock you can buy in bulk and what stock you have to buy as and when you need it, and even if you yourself aren't sure then you ill employ a warehouseman that is experienced in that side of things. Buying in bulk is cheaper and that will mean that you will have more profit from what you sell, but not everything can be bought in bulk for various reasons and if you don't know what can and what can't be, in the beginning it can be a very expensive mistake to make.

                            Comment


                            • #15
                              Re: Bulk Purchase versus Small Frequent Purchase

                              In addition to the rate of movement of your inventory and price breaks it is also important to make sure there is available square footage in the warehouse to buy in bulk. In my case there are a couple local producers that do provide the ability to purchase smaller amounts more frequently at the same cost you would get if buying a bigger amount. This usually becomes an option after you have established a working relationship with the supplier. The biggest cost for a producer is in initially getting the equipment to be able to produce goods, once they have the ability to produce, in most cases switching production can be done efficiently/cheaply. Unless we have a huge customer who buys a lot from us and it takes awhile to get the inventory to begin with we usually go with small more frequent purchases. This also allows us to provide a larger selection to our customers.

                              Comment

                              Working...
                              X