BOGOF's outed

When purchasing, price alone does not necessarily constitute value.

For example, in addition to the points made in the BOGOF (Buy One Get One Free) article around inefficiencies in the supply chain, bulk buying can often result in waste for the purchaser, particularly if the items have a shelf life, use-by-date or the item itself becomes obsolete before it can be used. Here the original purchase does not deliver the perceived value.

Bulk buying can also lead to higher costs especially in storage costs or in tying cash up making it difficult to purchase other needed items or having to take out loans where interest is payable to make these purchases.

As stated in the article above rapid fluctuation in demand can cause serious problems for the supply chain often resulting in higher costs. These higher costs are either as a result of the supply chain having to pay premium prices to obtain the necessary goods or services in order to respond to the demand or the costs are higher as the supply chain has to incur additional costs, e.g. having to pay premium overtime rates or the cost of maintaining high inventory levels.

Demand management and forecasting is therefore a key supply chain activity. In an industrial environment it is normal for purchasers to provide the supply chain with forecasts of their requirements, especially for bespoke items, allowing the supply chain to plan in advance. A consumer does not provide the supermarket a forecast of future needs but the retail industry will analyse the buying patterns of individuals in order to forecast future demand.

Talking point

  • When making a purchase do we understand who we are buying for and what their needs and values are?
  • When making a purchase, other than the customer, what or who may influence our development of the specification?

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This article is from the free online course:

Supply Chains in Practice: How Things Get to You

The University of Warwick