I’m here to get some feedback and do some market research.
I’m working on a tool that can help sellers maximize their profit and discounts when it comes to their purchase orders from suppliers.
The tool takes the following into account:
min/max orders from suppliers to gain discounts
We currently have one seller with $9Million in sales using the tool and is able to remove the headache of manually managing and calculating the optimum inventory to hold.
So my question is would you sellers, who have to manage over 500+ skus, use a tool that would automatically calculate the min/max number of products to order to take advantage of supplier discounts?
How are you currently managing your purchase orders?
I don’t know for sure, but I would think it highly likely that any seller managing an inventory of more than 500 products will already be using some sort of automated process. I can’t imagine how they would survive otherwise.
If that’s right, maybe you should not be asking whether sellers in general would use your tool. You should be looking to see where the existing tools are lacking, and whether you can provide a better solution.
Okay but how sophisticated are these inventory systems? Can they optimize your re-ordering?
Here is an example on what I mean by optimize.
Let’s say based on your current inventory and sales rates the software would normally order 300 units of A and 500 units of product B, in order to stock you for 3 more weeks (perhaps a holiday is coming up). This creates an order for $6000.
Meanwhile,the supplier offers 20% discount if you order $10,000 units of their products.
The software will calculate how many to order to make the most profit, knowing that it can order more to to save on the discount but pay increased carrying cost. This works also on multi-tier pricing per item and factors case pack requirements as well.
Of course for this example, it’s just 2 products. Image how you would optimize your order for thousands of products.
So would this tool be helpful?
What you describe is exactly what any self-respecting inventory management system will do. In fact, you are describing a low-end system. Any reasonably useful system will do more.
Essentially, the goal is to determine, for each product, the re-order level and the re-order quantity, based on the following factors:
Forecast sales (which in turn are based on past sales, growth trends, seasonal factors, and special circumstances);
Cost of ordering (the cost and effort of placing one order and receiving one delivery);
Payment terms (which affects how long your money is tied up in your inventory); this also depends on:
Price breaks (these are the discounts you refer to, where discounts are based on the quantity ordered);
Cost of being out of stock (this is mainly the cost of lost sales, but also includes the loss of customer goodwill; it depends partly on how likely it is that the customer will wait for the product to come into stock, or will purchase an alternative product).
There might be some others that I haven’t thought of.
My point is that it would be almost impossible to manage a large inventory without an automatic way of determining the relevant figures. Many well-established and mature tools already exist - and have done for a long time. (I spent part of my career designing and programming this kind of system, and that was before personal computers were widely used; the market has become much more sophisticated since then.)
This is why I suggest that you don’t waste time looking for customers who are not using such a system. Rather, you focus on looking for weaknesses and deficiencies in the existing systems, and then try to produce something better.
Do you have any example inventory management system that do this?
A Google search for “inventory management system” should give you the names of the leading systems and/or their vendors.
I’ve got clients who already have systems in place to do this.
One example is a clothing retailer. They (obviously) sell items in different sizes, S/M/L/XL etc and they keep a track of how many of each size they sell for any one product. From there they can tell what % of each size a product sells, in each season, so know what and when they need to reorder. It’s all done via a simple database, on which they can manually add data or import sales data from their web site.
From what I’ve googled, looks like of these systems only re-order the product and doesn’t take account for the supplier discounts.
@BlueDreamer. Thanks for the reply, please refer to my second post above.You you sure if your clients are re-ordering on a supplier bases to take advantage of minimal purchase order discounts?