Monday, February 28, 2011

Don't over buy!

    "Don't over buy."  were words of wisdom I heard from suppliers years ago. Those words were frequently followed by the phrase, "you can always come back and get more with the profits you've made from these". I always liked that advise.  Implied was a certain amount of stability, and logic applied to the system of distribution
that I was a part of. In fact they were telling me to consider how many widgets I could sell before I made my purchase. It was their goal as well as mine to have a rapid (or at least acceptable) turn over rate of the items I bought and sold. There was some comfort in knowing we shared a common goal.
    Let me give you a real world example. At one time my company purchased portable cut off machines. I purchased my first ten at a cost of $50.00 each. They arrive I'm pleased. We sold five of them the first week
 they were available to our customers. We realized something we hadn't expected those machines ate up the wheels that did the cutting. I was preparing to reorder machines. I needed to order wheels for the machines.
Cool as a company we liked selling items that were consumable. We had found an unexpected one. My second order was for five more machines {purchased from the profit of the sale of the sold five}and a box of 10 wheels. What I receive is ten new  machines and five wheels. I get on the phone!  I explain the problem to the supplier. What he says is this. "What if I continued to pay the shipping and instead of invoicing you $50.00
each I invoiced you $35.00 ? Would you still be able to net these out in ten days?  Sounds good to me. At the end of the conversation I order ten more wheels. What happens next is amazing! in a couple of days I receive ten more machines!  No wheels!  ARGH. I get on the phone!  "Houston we have a problem!" Sam proposes an interesting solution. "Suppose I continue to pay the shipping, invoice them to you at $35.00 and give you 90 days to pay for them, with no interest on the open account. I'm armed with some information he doesn't have. My company had sold All of the original order, but better than that. we had sold all of the second order. My response was quick, "Sam I like buying these at this price. Please listen carefully. If you'll accept all subsequent business at net 90 and hold this price on these machines to me through the year. I'll take ten more machines today! I don't need any wheels." Sam understands me, his lights have come on. he says "you should buy 20. Why don't you need any wheels?"  "Sam my company has become a distributor for 3M I can now sell them to you. Make the order twenty!"  
     There are lessons here. The only reason I'd ever "over buy" is if I could receive a lower price or better terms. Those two conditions could remove some of the risk of stocking an inventory. But good  price isn't the sole determiner of weather of not I'll change my buying numbers. The real determiner here was I knew how many my company had sold.  Sales and projected sales determined my purchases. There's more to the story.
My company shared the savings with our customers and our sales people. There would come a time when the dollar volume of sales of wheels exceeded the dollar volume to my company of machines. We were positioned for that to happen early. There was never any fear that the price of machines would go up tomorrow. Absolutely none of my companies purchases were fear driven. None!  We found that communication with the customer was our most valued asset.
     Years later I wouldn't be selling cutoff machines, the company still did. I sold it.  I found myself selling diamonds, gold and silver.  Based on lessons learned, from a gentleman who frequently said, "Don't over buy."


1 comment:

  1. Too late, much too late! The little magpie on one shoulder out-talked the little accountant on the other shoulder. I feel like the precioussss....
    The upside is that I beat the silver price increase and the downside is that I'm scared to use it.