I was at Target the other day, buying socks. They were $4 per pair (when did socks get so expensive, right?).
They also had a had a pre-packaged set of 4 for $10. I bought the set. Why did I make that choice? Well, they were the same kind of socks and the set was cheaper (for each pair of socks).
It's nice to pay less money for the exact same product.
A similar situation also applies to the bulk oil that you buy. You can get the same sort of quick and easy savings on oil, without changing a thing about the actual oil that you're buying. It all has to do with how much oil you're buying.
Change how much you buy, save money.
How To Save Up To $100 Per Pallet On Your Next Bulk Oil Order
Every supplier will have price breaks or volume discounts. This is the point where their oil gets cheaper if you buy more of it. To save money, use these price breaks to your advantage.
Why Do Price Breaks / Volume Discounts Exist?
Why do these price breaks happen in the first place? It has to do with increased efficiency. The break points are the points where your supplier is increasing their own efficiency, which allows them to pass along that savings to you.
I'll give you an example from our own warehouse. We do custom packing for every order, so every time a customer orders 1 pallet of 35 Lb. Containers, we have to flush our packaging lines, clean them and set them up to pack a new type of oil. Then we run production for that pallet.
If instead, someone orders 10 pallets of 35 Lb. Containers, we do the exact same flushing and cleaning process, and then pack 10 pallets instead of 1. Much of the time our warehouse spends in production is actually in the set up and break down of lines. So if you order of 10 pallets at one time instead of 1, that's 9 set-up and break-down processes that our warehouse doesn't have to do. That in itself increases efficiency and saves money and time for our warehouse, so we can pass that savings along to our customers in the form of lower cost.
How To Take Advantage Of Your Suppliers Price Breaks
Step 1: Ask Your Supplier Where Their Price Breaks Are
Every supplier will have a volume of order(s) where the price will begin to get cheaper. For you to be able to take advantage of these discounts, you're going to know where their particular discounts happen.
There are two different common price break systems:
1. Discounts for specific order volumes
In this system, you'll see price breaks at a particular volume. Each supplier will have their own volumes where these price breaks happen-- 5 pallets, 10 pallets, 2 truckloads. After each order, the "volume clock" resets, so your pricing can change every time you buy depending on how much you've ordered that time.
For example, if you order 10 pallets, you'll get a discount of a certain amount per drum or tote as compared to if you'd only ordered one pallet. Centra Foods functions in this way.
2. Discounts once you reach an annual cumulative volume
With this discount system, once you reach a particular total order volume over the course of the year or quarter, you'll get a discount or credit on anything you order after that.
For example, let's assume that your price discount occurs at 500 drums. Within one year, you will get one price for your first 500 drums that you order. Any orders after that however, will be at a lower price.
Make sure that you ask each potential bulk oil supplier what their own volume discount system is, to make strategic decisions about how much you're going to order at each time.
Step 2: Consolidate Your Orders
If your supplier offers discounts for specific order volumes (option #1 above), you can take action accordingly, once you find out what discounts your supplier offes.
Consolidate your orders (when you can) to take advantage of lower price offers. You will save not only on the bulk oil itself, but also on the freight costs for your order.
If they use system #2 above, with discounts once you reach a cumulative annual volume, this advice doesn't really work. There isn't usually anything you can do to buy more in a manufacturing setting-- you simply need what you need.
Real Life Examples & Oil Savings Calculations
Let's pretend that your company uses 1 pallet of bulk oil each week. You buy your oil in 275 gallon totes. In the past, you've had it delivered on a weekly basis. That means you're paying a price for a 1 pallet order volumes, and you're paying freight on that single pallet every time it ships as well.
After reading this article, you decide to try something new. You decide to start ordering 10 pallets, every 10 weeks. That's going to save you quote a bit of money. Exactly how much? Let's take a look at some numbers.
On average, you can save between $0.05 - 0.15 /Lb by moving from 1 pallet to 10 pallet orders (based on Centra Foods system-- every supplier will have their own price structure). That means that by making 1 large bulk purchase instead of 10 smaller ones, you can save between $100 - $310 on each pallet.
$0.05 /Lb savings x 2093 Lbs (for a tote) = $104.64 savings on the low end
$0.15 /Lb savings x 2093 Lbs (for a tote) = $313.95 savings on the high end
So if you order 10 totes at one time, instead of 10 totes spread out over the course of 10 weeks, you will end up saving $1,000 to $3,000 for the 10 pallets.
$104.64 x 10 Totes = $1,046.40 savings on the 10 pallets
$313.95 x 10 Totes = $3,139.50 savings on the 10 pallets
How much will you save over a year? Well, remember that you used 1 pallet consistently each week. You'd save between $5,541 and $16,325 per year.
$104.64 savings x 52 weeks = $5,441.28 in savings per year (on the low end)
$313.95 savings x 52 weeks = $16,325.40 in savings per year (on the high end)
That's no small amount to scoff about! And even more importantly, that's just looking solely at the oil savings. You'll also save a substantial amount on your overall shipping costs by shipping 10 pallets at one time instead of only one pallet, 10 times.
Consider Any Downsides
There are some potential downsides for your business that you need to be aware of moving into this analysis. Ordering in larger quantities will also affect your companies finances and warehouse.
Here's some other important factors you'll need to keep in mind:
- When you're buying larger volumes, are you sure that you'll be able to use up that inventory before its best by date? Most bulk oils have a shelf life of 12-24 months from the date of manufacture, but check the specifics on each oil that you're considering.
- If you're buying more inventory at one time, that's capitol that is tied up in inventory that's just sitting on your floor. Can you afford to do that, even if it does help you save a lot more money in the long run?
- To save $100 per pallet or more on your next bulk oil order, follow these steps.
- Ask your supplier if they have volume discounts depending on how much oil you buy at each order.
- Find out where these price breaks are, and how much you'll save at each one.
- Do the math to see how much you'll save by consolidating orders to fit each price break.
- See if it's possible to bring in more inventory at one time (collaborate with your warehouse and accounting).
- Consolidate your orders as possible.
Topics: Prices & Saving Money