Minimum Orders Topic - Class Transcript

   Jspiers: So far we have seen how you come up with a product, how you assure there is at least some market interest, how you find the best place in the world to have the product made, 

   Jspiers: how to leverage the self-interest of the supplier into samples of the product, 

   Jspiers: how to cost the item to figure a cost, and then place a price on the item.  Next we see if 

   Jspiers: there is a larger market, at least large enough to cover the minimum order requirements of the supplier...

   Jspiers: any questions?

 ZaneAgain: So far so good

 ocummings: could you refresh the point on how we know what is the best minimun order  to be safe? please

   Jspiers: ocummmings... the minimum order requirement will come from the supplier...

   Jspiers: usually it is what it is, and cannot be negotiated...

 ocummings: yes but  I cannot negotiate a whole container, if that is the min

 ocummings: for startup

   Jspiers: it may be 5000 pieces... and you learn you can expect orders of only 4 units each from retailers...  if so, then you know you need ot gather 1250 orders from usa retailers to cover supplier minimum, right?

   Jspiers: in htis case, you can either get 1250 in a workable amount of time, or not... if so, go... if not, move on to someting you CAN do...

   Jspiers: make sense on this point?

   Jspiers: having said that, sometimes you can get around this...

 ocummings: ok

 ocummings:  ;-) 

   Jspiers: first, everyone assumes if you are from usa so you want huge (to them) quantity... so it is not uncommon for suppliers to quote you a 20’ container load as a minimum...

   Jspiers: work with them...

   Jspiers: ask if they sell to Denmark...

   Jspiers: (Y)ou:  do you sell to denmark? 

   Jspiers: (S)upplier: Yes, of course, we sell everywhere... 

   Jspiers: Y: do you require a Danish importer to take whole container?

   Jspiers: S: O no, denmark is small country, full container is too much for them...

   Jspiers: Y: O, is a less than container load profitable for you?

   Jspiers: S:  O yes, 1/5th container for denmark is quite profitable for us

   Jspiers: Y: very good, I would like a danish minimum order, not a usa minimum order... but ship it to USA

 ZaneAgain: That is a great strategy, "Flexibility is more important than Economies of Scale"

   Jspiers: perzactly zane...

 ocummings: Thanks I think you have made your point with the dialog

 ocummings: negotiationns skill. lol

   Jspiers: another way...  sometimes...

   Jspiers: this is also from real life

   Jspiers: say the supplier has a minimum prodcution run of 10,000 decal decorated coffee mugs, $2 each... $20,000 shipment of just coffee mugs...

   Jspiers: the mug is fairly plain, standard, stock item, your design is a decal that goes on the mug, making it unique

   Jspiers: no way you want 10,000 mugs as a minimum...

   Jspiers: you go over components, then you find out...  10,000 is minimum for decals, at 5 cents each... since mug is stock item, minimum can be 1000 pieces of mug only...

   Jspiers: mug is $1.20 cost, decal 5 cents cost, total cost to make, $1.25, 75 cent markup for the supplier,  price to you from supplier, $2... or $20,000 for 10,000 mugs.

   Jspiers: make sense so far?

 ZaneAgain: Yes

 ocummings: yes

   Jspiers: ok..so you say, wait...  go ahead and make minimum decal run of 10,000 decals, which cost 10,000 x 5 cents = $500

   Jspiers: ok.. so go ahead and make 10,000 decals, and I will buy all 10,000...

   Jspiers: but only make up 1000 mugs, not 10,000 mugs...

   Jspiers: charge me $1.20 + 50 cents (50 cents x 1000 mugs = $500, which covers the total cost of making the decals now) = $1.70 per mug, and then I have paid for all of the decals... add the suppliers 75 cent markup, and we have $1.70 (mug, total decal cost amortized over one shipment) plus markup of 75 cents = $2.45.

   Jspiers: make up only 1000 mugs, use only 1000 decals, and store the rest of the decals...

   Jspiers: if this item continues to sell, then we have decals ready to go, already paid for... of not, we dump the decals later..   

   Jspiers: at this lower minimum...

   Jspiers: so instead of me paying $20,000 for 10,000 mugs minimum, i pay $2450 for for 1000 mugs minimum...  at $2 the retail would be $10 each, at 2.45 the retail would be $12.25.  Yes, at the higher retail the sales rate would be lower, but not 1/10th as much lower, like you minimum is now 1/10th of what it was. at the higher price it might be 5% lower sales rate... (mugs in above $10 range compete on design, not price...)

   Jspiers: does this make sense?

   Jspiers: often a low cost component has a high production run requirement.. spot this and handle it like the decal example here...

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