The Pros and Cons of Buying in Bulk

Is buying in bulk right for you?

Somewhere out there on this spinning globe is a person who knows more about the history of retail than anyone else. That person is not me.

Having said that, you should know that I’ve been actively involved in ecommerce for the past eight years, which means I still have something to bring to the table. That undiscovered expert and I would probably agree on topics like supply and demand, the rise of the Industrial Revolution, causes of the Great Depression and how retailing has changed due to current world conditions. But when it comes to a discussion of the best methods of securing inventory, buying in bulk and drop shipping, fisticuffs might ensue.  That’s because retailers — big or small, experienced or beginners — have different notions about being effective with inventory.

For the online seller, deciding whether or not to incorporate bulk buying into your enterprise is a decision that shouldn’t be put aside or ignored. There are many great things about bulk buying to consider. The first thing to think about is a word/concept that some people love just a little too much: Control. Bulk buying gives the retailer the control to –

• Guarantee orders will be shipped out within minutes and provide various shipping options
• Be certain of inventory levels
• Add marketing messages and branding inside and outside the boxes
• Easily bundle together products for cross-selling opportunities. (for more on this point, I suggest reading “Boosting Your Profits with Up-Sales and Cross-Sales”)
• Inspect items before shipment to ensure quality standards
• Break into people’s subconscious through dreams and plant ideas. (Just kidding — I had to throw that in there. The new film, Inception is awesome! Go see it if you haven’t yet.)

The other major advantage of bulk buying is the price of the products. Manufacturers, distributors and wholesale suppliers want to make money just like you do. Suppliers are in the business of moving inventory, and there is no better way to move it than to move a lot of it all at once. In most cases the suppliers will give you substantial discounts to buy in bulk, which of course means higher margins for your business.

However, there are some negatives to bulk buying that you should also consider. Control comes at price, both in terms of money and responsibility. Whether it’s just a room in your house or a huge building, you will need to maintain a warehouse. Warehouses — and the employees needed to keep them running — don’t come cheap. To be effective and safe, retailers need tracking systems to keep tabs on the inventory levels of their products. You are responsible for the shipping costs, and you’ll need a good way to let your customers know beforehand how much shipping will cost from your warehouse. And those systems that show web visitors what you have in your warehouse aren’t cheap either. Warehouses are simply a lot of work.

Of course, the biggest drawback to bulk buying is not being able to sell the inventory you purchased. Businesses can fail quickly if they invest too much money in inventory that doesn’t bring them a profit.

Now let’s add drop shipping into the mix. Drop-shipping instantly solves the risks of buying physical inventory. It allows you to test the market and see what sells. If certain products don’t move well, you can simply walk away from them. No warehouse full of products you can’t sell. While the base cost of drop-ship products will be a little higher than items purchased in bulk, keep in mind how much the warehousing will cost. Drop shipping allows you – the online retailers – to focus on more important issues, such as advertising, selling and getting customers to return to your website. It’s true that retailers are at the mercy of the drop-ship suppliers with whom they work, and there is, of course, less control than with bulk buying. The secret is to work with suppliers who fit your business model. That’s where Doba comes in, providing supplier scorecards with historical data we collect on every supplier. This can help you make some pretty sound decisions on the suppliers with whom you choose to work.

So what’s the best method of acquiring inventory? All drop ship? All bulk buy? A combo plate? (Warning – a cheesy analogy follows!):

Some of the best meals in the world are prepared by using a combination of ingredients. Likewise, most of the larger and successful ecommerce companies have a careful mix of both drop shipping and bulk inventory. This delicate mix doesn’t end up as a delicious crème Brule, but it can result in higher profits, more times than not. Online retailers need to make well-planned decisions on the inventory they prefer to warehouse themselves versus work with drop-ship suppliers. The simplest advice I can offer to retailers  is to weigh your options, and be smart about your business.

Then go see Inception. You’ll love it!