In a blog post from July 2021 regarding rising inflation, we explained why inflation is terrible for most people but is wonderful for wholesalers. Here we are seven months later, and we still have “temporary” inflation. As one of our clients said last week, “This is the opportunity of a lifetime!”
Two HIMPACT customers have already rented extra warehouse space just to store forward bought inventory. If ever there was a time to take advantage of forward buying, this is it!
Knowing that forward buying is important is only step one. To do so effectively, you need to first understand how much extra to buy.
How Much Extra Inventory Should You Buy?
In low margin industries, you should be investing up to a third of your inventory in extra stock you bought ahead of price increases or temporary price reductions (TPRs). Done correctly, you can increase your bottom line significantly.
How to Forward Buy when Vendors Can’t Keep Up
Vendor fill rates are very poor these days because of the global impact of pandemic-driven supply chain disruptions. A logical question is, how can you forward buy if vendors aren’t able to ship?
We recently explored this in detail for three different client accounts. For one HIMPACT client, their in-bound vendor fill rate is 72% overall. If they exclude their three largest Health, Beauty & Wellness (HBW) vendors, then their in-bound rate is 85%. It is widely seen among our customers that center store vendors are having the hardest time meeting demand.
We were surprised to learn that forward-bought POs for all the center store items over the most recent three months have a vendor fill rate of 71.5%. Because of the nature of forward buying, one would expect it to be much lower than that. It is more likely a coincidence that this is roughly the total fill rate for all POs.
Our takeaway is that vendors are not limiting forward buys as much as anecdotal lore would have you believe.
We then looked at two other customers who buy forward extensively and their vendor fill rate for forward bought items for center store vendors was 60.7% and 65.4%. Far from excellent, but it means that vendors are not treating forward buys ahead of price increases any differently than a typical PO.
There is no reason to avoid forward buying. Profit levels can exceed the normal levels when done correctly and the vendors are not cutting these orders any more than they are short shipping regular products.
As stated at the end of our last blog article on forward buying, we strongly recommend current customers to schedule a training session with our team. We are always happy and available to answer questions on how forward buying works and how you can get started.
Contact us today so you can profit more from forward buying tomorrow!
