Are you better off buying in bulk or only ordering what is necessary to meet your current needs, as in a just in time (JIT) setup? There are advantages and drawbacks to each order management strategy.
You’ll often receive discounts for reaching a high threshold of items in one order, and you’ll save money on shipping fees. But you’ll also have higher carrying costs, more money tied up in inventory, and the potential for product spoilage if it sits on the shelf for too long. When you order smaller quantities, you will avoid unnecessary storage costs and be able to run a leaner warehouse. However, you need to have incredible precision in your inventory data because you risk running out of items if you order too few, and you will likely have higher shipping costs as you place more orders over time.
I’d like to share two personal experiences from my life that allude to the dangers of going to one extreme or the other, and the need for finding a healthy balance in your ordering strategy.
It’s Tempting to Buy in Bulk
I remember once when I was a kid helping my mom take groceries out of the car and into the house. I loaded myself with many bags, almost to the point of dropping them, and carefully made my way inside. My mom noticed me struggling under the weight. When I put everything safely on the table, she asked me why I didn’t just carry fewer things and take more trips.
I stopped and considered it. I realized that the reason I had overloaded myself was because I wanted to take as few trips as possible between the car and the house, but now I questioned whether that was the best thing to do. I decided to take her advice and just take two bags each time. That required more trips, but it was safer and it didn’t overtax my body.
It’s Easy to Go Overboard Cutting Costs
My dad encouraged me to buy a vacuum cleaner when I moved out of my childhood house into an apartment to live alone for the first time. I didn’t take his advice. Instead, I opted to buy an unpowered floor-cleaning device because my apartment was small, and I didn’t think I would need anything huge to keep its carpet clean. However, I only stayed there for a year and a half before I got married and needed to move into a bigger place.
Over time, I’ve come to realize the wisdom of my dad’s advice. He had a more long-distance view of my cleaning needs, and he knew that a good vacuum would be a wise purchase because then I wouldn’t have to replace my inadequate first choice. I did indeed buy a vacuum cleaner shortly after that, and it has served me well for many years.
Find a Moderate Approach
You don’t necessarily have to choose only one ordering strategy. Instead, it might be wise to have a primary one and a backup one. For example, you can set up auto reorder points on most of your products that get triggered when you reach a certain quantity and only reorder what you need to replace the items you sold. And then you can assign much higher reorder quantities to items that are particularly popular at specific times. You can look at seasonal sales trends and adjust how many products you order based on the time of year and the number you expect to sell.
Whatever order management approach you take, Fishbowl can help you make it work. Fishbowl is a manufacturing and warehouse management solution that gives you the tools to create auto reorder points, manage relationships with many vendors and shippers, and generate reports that bring sales trends to light.
Sign up for an online demo of Fishbowl software to check out these and many other useful features.
Robert Lockard is a copywriter with Fishbowl. He writes for several blogs about inventory management, manufacturing, QuickBooks, and small business. Fishbowl is the #1-requested manufacturing and warehouse management software for QuickBooks users. Robert enjoys running, reading, writing, spending time with his wife and children, and watching movies.