Much of supply chain management is about getting a better deal. A better deal refers to both price and quality. One of the main tenants of supply chain finance is that the more you buy from a vendor, the higher your discounts will be. These discounts are usually called volume discounts and they help big-box companies sell products at a lower price than a smaller store. While the vendor is supposed to calculate these quantity discounts for you on the invoice, it is a good idea to double check with your own calculations.
Obtain the vendor contract(s). Most supplier relationships require a business contract to support the buying agreement. Within this agreement you will find details about quantity or volume discounts under pricing.
Determine the quantity discounts. Discounts are usually based on particular ranges. For instance, you may receive a 15 percent discount if you purchase 1,000 widgets, a 20 percent discount if you purchase 2,000 widgets, and a 35 percent discount if you purchase 3,000 widgets.
Identify how many goods or widgets you purchased. Assume you purchased 2,998 widgets.
Determine the purchasing price of the widget without the discount. Assume the widget is $10 without the discount.
Calculate the quantity discount. Multiply the number of widgets purchased by the discount associated with purchasing that number of widgets. Then multiply this number by the price of each widget. The calculation is 2,998 multiplied by 20 percent multiplied by $10. The answer is $5,996.
