For small retailers, comparing wholesale suppliers purely by unit price can therefore be misleading. The figure printed beside a product is only one component of what that product ultimately costs the business. Quality, ordering requirements, delivery performance and administrative headaches all deserve a place in the calculation.
Cheap Stock That Cannot Be Sold Is Not Cheap
Quality differences are particularly important when comparing suppliers. Imagine Supplier A sells an item for $8 while Supplier B charges $9. At first glance, Supplier A wins without requiring the assistance of a calculator.But suppose one item in every twenty from Supplier A arrives damaged, badly finished or otherwise unsuitable for sale. Add the cost of checking the delivery, photographing faults, contacting the supplier and arranging credits or replacements, and that $1 saving starts disappearing remarkably quickly.
There is also a customer-facing cost. Products that fail shortly after purchase can generate refunds, complaints and negative reviews. A retailer might recover the wholesale price from the supplier eventually, but recovering a customer’s confidence is rather more complicated.
Minimum Orders Can Create Maximum Problems
Low wholesale prices frequently come with minimum order quantities. There is nothing inherently wrong with that arrangement. Suppliers need efficient production and distribution, and larger orders can legitimately reduce costs. Problems arise when retailers buy quantities based on the discount rather than realistic demand.A $6 product with a minimum order of 200 units may be less attractive than an $8 product available in batches of 50. The first option requires $1,200 upfront, compared with $400 for the second. More importantly, another $800 is now sitting on shelves waiting for customers to become as enthusiastic about the product as the purchasing manager was.
Excess inventory also occupies storage space and ties up working capital that could have been used for faster-selling products. If the stock is seasonal, fashionable or perishable, the problem becomes more serious. Eventually, the retailer may have to discount it simply to make it leave the building.
Late Deliveries Have Their Own Price Tag
Delivery reliability is another cost that rarely appears beside the wholesale price. A supplier who consistently delivers when promised allows a retailer to operate with leaner inventory and greater confidence.An unreliable supplier creates the opposite effect. Retailers may compensate by holding extra safety stock, placing orders earlier than necessary or purchasing emergency replacements elsewhere. A shipment arriving ten days late might therefore cost far more than the freight charge. Empty shelves represent missed sales, while emergency purchasing can eliminate the savings that made the cheaper supplier attractive in the first place.
A low price is useful. A low price attached to a mysterious delivery date somewhere between Tuesday and the next geological era is considerably less useful.
Returns Can Turn Into a Part-Time Job
Returns are another area where apparently minor differences between suppliers can become expensive. A straightforward returns process might require little more than reporting the problem and receiving a credit. A difficult one can involve forms, photographs, repeated emails, disputed claims and the occasional telephone conversation that appears determined to outlive everyone involved.The important cost here is staff time. If an employee earning $30 an hour spends an hour resolving a problem involving $40 worth of stock, the economics are already looking rather peculiar. Multiply that across regular deliveries and a retailer can lose hundreds or thousands of dollars annually simply administering problems that a more reliable supplier rarely creates.
Returns policies should therefore be examined before placing substantial orders. Look at who pays return freight, how quickly credits are issued, what evidence is required and how damaged or incorrect deliveries are handled. A supplier that charges slightly more but resolves problems quickly may offer substantially better value.
Put a Price on Your Own Time
Small business owners often overlook their own time when calculating purchasing costs. Spending twenty minutes chasing an order feels different from spending $20, but economically the two can be surprisingly similar.Keep a simple record for several months. Note how often each supplier requires additional contact, how many deliveries contain errors and how much time is spent dealing with problems. There is no need to create an accounting system capable of frightening a multinational corporation. A basic spreadsheet is enough.
Retailers can then assign an approximate hourly value to administrative time and include it in supplier comparisons. This turns vague impressions such as “they’re a bit difficult to deal with” into something measurable.
Calculate the Real Cost Per Sellable Item
A useful comparison should go beyond catalogue prices. For each supplier, calculate the total amount spent obtaining stock that can actually be sold. Relevant costs can include:- The wholesale purchase price
- Freight and handling charges
- Damaged, defective or unsellable stock
- Return and replacement expenses
- Storage costs created by large minimum orders
- Staff or owner time spent resolving problems
- Lost sales caused by late or incomplete deliveries
This does not mean the cheapest supplier should automatically be avoided. Sometimes the lowest-priced option genuinely is the best. The point is to make sure it remains the cheapest once the entire purchasing relationship is considered.
A Bargain Worth Buying
Good wholesale purchasing is ultimately about value rather than hunting relentlessly for the smallest number on a price list. Reliable quality, sensible order quantities, dependable delivery and efficient customer service all have financial value, even when they are harder to see on an invoice.Small retailers do not need complicated procurement models to recognise that value. Track problems, estimate their cost and compare suppliers using what actually happens after an order is placed. The cheapest supplier may still come out on top. If not, at least the bargain has been caught before it quietly sends another invoice.
Article kindly provided by wholesalesuppliersaustralia.com.au
