One supplier offers a lower unit price but needs three weeks' lead time. A local supplier costs more and can replenish us in two days. The cheaper option looks great until demand changes and we either run out or hold too much inventory. I'm considering using the long-lead supplier for predictable baseline volume and the local one for spikes. How do you evaluate the hidden cost of holding stock against a quoted unit-price saving?
Comparing a cheaper supplier with longer lead times against a more expensive local one
- small-business
- comparing
- cheaper
- supplier
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4 replies
I’d cost it out as more than unit price versus unit price. Add storage, shrink, rush orders, and the lost sales when you run short.
I’d cost it out as more than unit price versus unit price. Add storage, shrink, rush orders, and the lost sales when you run short.
Right. Once you estimate average demand and variability, the cheap supplier can look expensive if the lead time forces you to hold extra stock.
This is where the baseline-plus-spikes idea makes sense. The question is how stable the baseline really is, because if it isn’t stable, the...
We keep one vendor for the predictable stuff and another for the emergency fills. It saves arguments, but only because we defined the reorder point clearly.
Same here. If you don’t set a reorder trigger, “the cheap one” just becomes “the one we panic-buy from later.”