One of the best ways to buy bulk olive oil for less is to change the way that it’s packaged. Packaging can affect your landed price substantially. The standard rule is, the more packaging there is, the more you’ll pay for your bulk ingredient.
If you’re a large manufacturer using a substantial amount of drums or totes, it may be time to consider if moving to a larger storage size is right for your business. The next size up is large in-house storage tank installed in your facility, with deliveries of olive coming in flexitanks or tanker trucks depending on the type of oil. Putting storage tanks into your facility allows you to store the oil in it’s largest bulk form and save as much money as absolutely possible.
How Much Oil You Need To Be Using To Get A Good Return On Investment
We’d only suggest looking at this change if you use 250,000 lbs of olive oil or more per year (that’s about 33,000 gallons or 125,000 liters for those of you that just pulled your calculators out). This suggestion has to do with how quickly you’ll see a return on your investment into the storage tanks, and how long we recommend the oil be on hand before using it.
How Much You’ll Save
You can expect to save an average of $0.10 /lb on olive oil by making this change, as compared to getting your oil in totes. That can vary depending on the oil grade you choose and how the oil commodity market is doing at the time that you order or lock in your contract.
Of course, you’ll also save on the domestic LTL shipping costs that you pay to have each individual tote shipped from your suppliers location to your own. If you pay $250 per pallet in shipping costs right now, that’s $5,000 you’ll be saving per truck delivery (20 pallets is the equivalent of 1 flexitank). Divided out, that works out to an additional $0.12 /lb in savings off your total landed cost.
How Much You’ll Spend To Set Up Storage Tanks
You’ll need to buy the storage tank that the oil will be pumped into. You’ll also need to buy a pump to get the oil from the flexitank (which is just a simple bladder with a valve) to the storage tank. You’ll also need to buy any attachments that you’ll use to get the oil from the storage tank out into your production runs and into your product.
Expect to spend about $30,000 to set up each storage tank. The pump to connect the flexitank to the storage tank will be a one time purchase of about $1,000. The total cost of the valve/pump set up (that get the oil out of your storage tank and onto your production line) will depend on what you choose. Estimate anywhere between $500-$3,000 depending on the complexity of the set up.
Of course, there will be the inherent cost of getting this storage tank physically set up, training your staff and other logistical issues. Add on a few thousand extra dollars to make up for that, though you may not be able to quantify exactly the dollars spend on that part. That number will also vary depending on your business size and flexibility.
Let’s Do Some Calculations
Savings
Costs
Return on investment
Full costs recovered within 10 months
Annual recurring savings
$55,000 based on 250,000 pounds annual olive oil usage
Our Recommendation & Next Steps
As you can see, if you’re using enough oil it makes sense to make this change. It will be a big transition for your business, yes. But, imagine saving your company over $50,000 per year! That’s a whopping $235,000 in savings over the next 5 years, when you take into account both the savings and the investment. That’s a something that your bosses would be thrilled about.
What’s next? Put together calculations based on your own usage and how many tanks you would need. See how quickly you would see a return on investment and how much the annual savings would be after that. Evaluate any company-wide goals to bring costs down, and see how this system would meet those goals. Then bring these numbers it to your company’s CEO or other decision maker.
We know that as a purchasing manager your job is get the necessary ingredients in, save the company money, and add to the bottom line. If you can add $50,000 or more to your company’s annual bottom line-- well, that’s a valuable employee if you ask me!
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Topics: Food Manufacturing, Packaging, Prices & Saving Money
