Inventory Purchases

When their client is making a decision about which supplier or vendor to purchase their inventory from, the part time CFO needs to make sure their client is considering all factors. Sometimes this particular CFO service is forgotten, but it’s a service that can save the client many dollars all facts considered.

Consider the following when choosing what supplier to purchase inventory from:

  1. Terms
  2. Price
  3. Price breaks
  4. Freight costs
  5. Turnaround time
  6. Restocking charges
  7. Minimum quantities
  8. Does the vendor confidently stand by their product?
  9. How efficiently is the product handled?
  10. Is the product packaged efficiently?
  11. How efficiently can the product be used?
  12. Are you getting sufficient support from the vendor to help sell their product?
  13. Is the Vendors’ credit department flexible?
  14. What products do your competitors sell?
  15. Can orders be cancelled without penalty?

The obvious part is looking for the best price, but remember it’s also important to know where the quantity discounts or price breaks are in comparison to other suppliers. If you hit a brick wall in your attempts to negotiate with your vendor, ask for free freight. It’s an offer many suppliers will give you.

You need to understand what the turn around time is and how quickly your customers will receive a product after it’s been ordered. If you have a cash flow problem, it is especially important for you to know turn around times because you need to time your inventory receipts very precisely. It helps to know minimum order quantities if you have a cash flow problem, sometimes all you need is a small quantity.

Vendors need to take full responsibility for their product. That means if something goes wrong with the product, be it an issue of quality or technicality, the vendor needs to issue proper credit upon the product’s return, and the client needs to feel absolutely confident in the fact that their vendor will do that. Vendors should wave restocking charges unless the client is in an industry where there are a lot of special orders, so make sure and check what their restocking fees are for a product that has been incorrectly ordered.

The receiving department depends on the efficient handling of products. You need to consider all possible methods and avenues at once to save costs through out the entire process. This means you need to consider everything from logistics to manufacturing to merchandising/packaging to how efficient the product is to use at once, and figure out where you need to sacrifice and where you shouldn’t to end up with the most cost efficient solution. For example, one of my clients in the insulation business uses the pink panther insulation because although it is more expensive, it is so much easier to install that it makes up for any extra cost it incurs.

Support from your vendor to help you sell the product is a very big help and a sign of good faith. Anything from free displays and marketing materials to coop advertising programs tells you that the vendor is dedicated to working with you and is happy to be. It’s always good to know when you’re in a cash crunch that your vendor is willing to work with you, and hopefully also that their credit policies are flexible enough to with stand economic shifts and industry downturns.

If you know what your competitors sell, you can use that information to find a vendor who is not with competitors in your market. You will probably be able to get a good deal out of such a vendor because they do not yet have much market share in the market you serve, and chances are they’d love to work with you to get in there.

One of the most common things businesses (especially retail businesses) get in trouble for is over buying inventory. You will want the flexibility from your vendor to cancel your orders with out being penalized. This option will cut down on your risk of overbuying by giving you the option to reassess what you really need and change your mind, and also protecting you from having impulsive purchase decisions become permanent.

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