Suppliers generally have minimum order requirements which retailers need to comply with, especially if they want to sell their products at competitive prices.

The supplier’s order requirements might include a minimum order value, a certain number of packs, boxes or pallets, or it might be that you need to order a full truckload or container to get a good price.

For the sake of discussion, if you want to know what a supplier’s minimum order requirement means for your business, in terms of order cycles, you could look at it this way;

1. Your current annual purchases from ‘Supplier X’ = $60,000
2. Supplier X minimum order value = $2,500
3. Therefore, divide 60,000 by 2,500 and you get 24

So, you can place about 24 orders with this supplier and maintain your advantage of  supposedly ‘free freight’, or receive the best buy price… and that might allow you to remain competitive in the marketplace.

Next step, divide the year, 365 days, by the annual orders, 24, and you get 15. That’s a 15-day order cycle.
Setting your products with the correct re-order quantities is your next step. Of course, you want to avoid stock-outs and maintain customer satisfaction levels as well as meeting the supplier minimum order levels. This means you must include in the purchase order placed today, any item that will fall into a dangerous stock level before the next cycle is due from this supplier.
Failure to do the above results in smaller top-up orders being placed by staff, as well as the ‘reactionary’ customer special orders, and therefore multiple breaches of the supplier minimum order requirements. Culminating in the dramatic increase in freight charges, higher buy prices and, of course, the increased administration expenses associated with raising, placing, receipting and putting away all these extra stock orders. That all amounts to lost dollars in your business.

Summarise the above paragraph simply as; ‘profit leakage’.

Do the staff in your business raise orders against suppliers according to their gut-feel and then top-up the orders with whatever they can think of so it gets above the supplier minimum order value? If so, it might be time to put some education into your team and some dollars into your pocket. It’s a win/win/win for the suppliers, your customers and your business profits.

Systemise your ordering processes as outlined above and you’ll stand a much better chance at keeping your profit in your pocket!