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Why do vendors offer quantity based discounts?
We have seen across organisations that Procurement professionals take pride in getting quantity based discounts from vendors. It helps them achieve their own functional goal of low unit purchase cost, though it often interferes with the organisation’s goal of improving availability and freshness.
Let’s see why vendors offer such quantity based discounts in the first place. They incur certain cost, often in terms of their time and effort, in getting each and every order. This cost is built into pricing, which means that higher quantities can afford a little bit of discount.
If such large quantity purchases interfere with organisation’s goals of availability and freshness, how should we resolve this conflict?
The solution lies in reducing vendor’s perceived cost of order procurement to zero! If we enter into a strategic partnership with vendors, which ensures that they would get regular orders based on expected consumption of the material, they can pass on this saving on every unit.
It effectively delinks pricing from individual purchase quantities.