It is imperative for businesses to pay attention to how much inventory they need to order and when. It is actually a necessity in order to minimize storage costs and still have a surplus to meet customer demand. Buying inventory stock is a critical aspect of the inventory management process and hence needs optimization to achieve steady growth.
Ways of Buying Inventory Stock
Manufacturers and retailers use several methods to buy inventory stock and each of these methods has its pros and cons. So, let’s have a look to understand what works for you.
Bulk Buying: One of the most well-known ways to buy inventory stocks, is where a company buys the inventory in bulk units that are stored at its own facility or third-party warehouse. This involves buying finished products or raw material in large quantities and is done to ensure supply for future demand.
Pros: Buying in bulk can result in discounts and a greater profit margin due to less cost per unit.
Cons: Storage/ warehousing cost and inaccurate forecasting could lead to loss.
Drop Shipping: With dropship, no actual buying of inventory stock is involved, instead items are purchased from a third-party supplier as per the customer order. The supplier directly ships the product to the customer, as a result, the retailer does not have to handle or own the stock themselves.
Pros: No need for inventory management, no warehouse needed, no cash tied up in inventory.
Cons: less profit margin, no control over branding, tough competition.
Just-in-time: This is better suited for retailers that manufacture their own product and involves ordering raw materials and fulfilling each order as and when it comes in. it requires less ‘on hand’ inventory but a highly reliable supply chain.
Pros: Reduced warehouse costing, full control of product quality and branding, less wastage of raw materials.
Cons: supply chain hiccup can cause higher TAT, requires reliable management and processes.
When purchasing
in bulk, the first question is when is the right time to buy inventory stock.
To determine the right time, there are three methods to use:
● Order Pattern Method: This method of buying inventory stock involved making regular purchases of fixed amounts. The method is ideal for retailers who have almost constant sales figures.
● Control Rhythm Method: This method suits retailers with a good grasp on demand and supply forecasts. This involves checking inventory at a fixed duration and buying inventory stock after adjusting.
● Reorder Point Method: This method involves ordering the stock once it is below a certain level. It serves to be an ideal method of buying inventory stock for retailers who deal with fewer products.
Now that we know
what’s the best time to buy inventory stock, the second most important question
to answer is, how much to order at one time? Before answering this, there are
some things that we need to consider:
● Demand Forecast, which constitutes the number of units sold over a given period of time.
● Storage Costs, which is calculated by assuming the items in stock for the said given time period and interpreting the cost per item.
● Ordering Costs are usually the total cost per order. It also includes logistics and other costs involved in making the purchase, excluding the actual order cost.
Sometimes delivery can be delayed, so it’s imperative to keep into account the lead time between ordering and receiving the delivery. This helps to strikes a balance between demand and stockouts
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