Email
sinha.rk.dr@gmail.com
Bulk purchases – are you really going to use all of it?
We had a useful discussion on my yesterday’s post of why bulk purchases at a discount carry certain risks, arising from the underlying hidden assumptions.
Let’s discuss the first of these assumptions. We believe that we are going to use all of those units purchased as a part of the discount offer. The reality is often quite different. Let me illustrate with some personal examples.
Do you recall purchasing a dozen of the N95 masks during Covid? These were available at a discount. Or six bottles of hand sanitizers at a special price? How many of those are still lying around unused? A friend of mine loved such offers, he would buy 6 ties at a time to get 1 tie free. Many of those ties are still lying around in the shelf!
If you do have ‘minimize unit cost’ as a KPI, you must qualify the formula to calculate it. Instead of dividing the purchase price by number of units ‘purchased’, you should divide it by the number of units ‘consumed’. Any unused quantity would then push the unit cost upwards!