Question On Frequency

On Oct 8, 2009, at 9:54 PM, Mel B wrote:

Good day John,

I was not able to attend the lecture but have read the material. I find it interesting and have a question in regards to order frequency.

Why isn’t it recommended to increase the order size to minimize shipping costs and therefore increase your margin and bottom line? I can understand keeping the initial investment low however to be placing an order every 10 days would suggest that payment for goods is flowing and increasing the order size to cover 20 days and saving the shipping on the 2nd order would make sense.


*** Keep in mind at some point of course the quantities would be upped, ordering every ten days is exaggerating to make the point. But the salient points are:

1. The incremental savings would be nearly insignificant.

2. Payment of goods may be flowing, but finance is not, and multiple is easier to finance than larger.

3. Currency risk exposure is easier to handle with multiple shipments than fewer.

4. Redesign, or market reaction, is easier with more shipments than fewer.

5. Larger shipments mean more storage space, cutting into any improvements in economy of scale.

Make sense?

John

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