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Thread: Prohibitive cost of supplies

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    Diamond Member Corzhens's Avatar
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    Default Prohibitive cost of supplies

    If you are the supply chain manager and the supplies you distribute have raised their prices to become prohibitive, what can you do about your clients? There was a time when vehicle spare parts were so expensive that importers stopped importing and deliveries halted. The so called refurbished or surplus spare parts were the order of the day. That was in the 1980s when the US dollar was so high that was killing the Philippine peso. The automotive industry was so down because importers didn't have an alternative source of supply.

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    Default Re: Prohibitive cost of supplies

    Well, I am small and a sole propietor. So cost of inventory and supplies is something I watch closely. I have a budget each month and I don't go over. Sometimes this means I can only order from one supplier. Or it may mean that one month I add to inventory and the next month I restock supplies. I haven't wanted to do this with a credit card. And right now, all of what I earn is re-invested. Taking no profit.

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    Default Re: Prohibitive cost of supplies

    I think when something like this happens you can just roll with the punches and figure out what the second best option is. It takes a very creative mind and a lot of resourcefulness to figure it out but in the end it's worth the trouble to save the business. The one important thing to keep in mind when this happens is to know when to give up on certain methods and learn to adapt so you could be more able to see where you can find the next revenue stream with the current tools you currently have.

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    Diamond Member Corzhens's Avatar
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    Default Re: Prohibitive cost of supplies

    Quote Originally Posted by cluckeyo View Post
    Well, I am small and a sole propietor. So cost of inventory and supplies is something I watch closely. I have a budget each month and I don't go over. Sometimes this means I can only order from one supplier. Or it may mean that one month I add to inventory and the next month I restock supplies. I haven't wanted to do this with a credit card. And right now, all of what I earn is re-invested. Taking no profit.
    You remind me of my husband when he was managing our retailing of computer supplies. He would be calling suppliers everyday for the update of prices. If the fluctuation is favorable then he would stock up a little more. His reason is that his customers buy from him in a fixed price that is not affected by the fluctuation of market prices. The problem is when the market prices goes up and he has no more stock then he has to buy at a higher price and sell at the same price, short of saying he loses the margin. Another of his trick is to buy in bundles and pay cash so he gets a discount that he can earn as profit when the goods are sold.

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    Default Re: Prohibitive cost of supplies

    Dear Corzhens,

    Are you manufacturer or distributor? The reply will vary accordingly.

    If you are manufacturer then did you do "Make or Buy" analysis? Secondly, did you search for alternate supplier? Did you find out suppliers from China or India?

    Thanks,

    Dinesh Divekar

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    Default Re: Prohibitive cost of supplies

    Dear Corzhens,

    Reply to your second post is as below:

    When the prices were going up then why not to live with stock-out? How far it would have impacted customer satisfaction?

    For the discounts on bulk orders: - This is typical EOQ problem. Did he calculate Inventory carrying cost and Ordering cost scientifically? In fact, going further, he could have calculated "Total Material Cost" (TMC) and then ordered the bulk quantity. However, to calculate TMC scientifically, one calculate inventory carrying cost and ordering cost also scientifically. Otherwise, all the calculations go haywire.

    Thanks,

    Dinesh Divekar


    You remind me of my husband when he was managing our retailing of computer supplies. He would be calling suppliers everyday for the update of prices. If the fluctuation is favorable then he would stock up a little more. His reason is that his customers buy from him in a fixed price that is not affected by the fluctuation of market prices. The problem is when the market prices goes up and he has no more stock then he has to buy at a higher price and sell at the same price, short of saying he loses the margin. Another of his trick is to buy in bundles and pay cash so he gets a discount that he can earn as profit when the goods are sold.

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    Default Re: Prohibitive cost of supplies

    Quote Originally Posted by Corzhens View Post
    If you are the supply chain manager and the supplies you distribute have raised their prices to become prohibitive, what can you do about your clients?
    If you can't get a supplier who'll sell what your clients need at lower prices then you'll be forced to buy the goods and sell them at a higher price. Sure some of your clients will be unwilling to buy what they need from you but once they find out that they aren't getting better deals elsewhere, they'll eventually start doing business with you again. Rising prices . . . that's something everyone has to get used to thanks to inflation.

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    Default Re: Prohibitive cost of supplies

    This type of situation prevails in Cuba where the embargo made it almost impossible to obtain spares for their vehicles. Their resolve an ingenuity made it possible for them to create their own solutions to keep the vehicles running and they have been extremely successful in this aspect. They have been able to keep cars which are very old in pristine condition which has now become a tourist attraction. I have seen instances where because of difficulties in obtaining supplies, they had formed alliances to produce their requirements.

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    Diamond Member Corzhens's Avatar
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    Default Re: Prohibitive cost of supplies

    Quote Originally Posted by Dinesh Divekar View Post
    Dear Corzhens,

    Reply to your second post is as below:

    When the prices were going up then why not to live with stock-out? How far it would have impacted customer satisfaction?

    For the discounts on bulk orders: - This is typical EOQ problem. Did he calculate Inventory carrying cost and Ordering cost scientifically? In fact, going further, he could have calculated "Total Material Cost" (TMC) and then ordered the bulk quantity. However, to calculate TMC scientifically, one calculate inventory carrying cost and ordering cost also scientifically. Otherwise, all the calculations go haywire.

    Thanks,

    Dinesh Divekar


    You remind me of my husband when he was managing our retailing of computer supplies. He would be calling suppliers everyday for the update of prices. If the fluctuation is favorable then he would stock up a little more. His reason is that his customers buy from him in a fixed price that is not affected by the fluctuation of market prices. The problem is when the market prices goes up and he has no more stock then he has to buy at a higher price and sell at the same price, short of saying he loses the margin. Another of his trick is to buy in bundles and pay cash so he gets a discount that he can earn as profit when the goods are sold.
    Our computer supplies business is a small one that we can afford to buy supplies on a pick-up basis any time that the item is available from our supplier - the stores are just 10 kilometers away. Honestly, I don't understand what stock-out means. If it is bulk orders where the supplies rest in our warehouse, we couldn't do that because of our limited cash flow. In fact, we closed shop due to lack of cash.

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