Page 14 - UnderstandingJanSanRedistribution_flipbook

Manufacturer: XYZ MANUFACTURING Total Annual Spend: $250,000

STEP 1: ESTIMATE PRICE DIFFERENCE FOR WHOLESALER SOURCING VS. DIRECT SOURCING using top 5
items
Annual Cs Price Direct Annual Price Annual Cost Annual Wtd Avg
Key Items Cost from from Cost Price
Volume from Mfr from Whlslr
Mfr Whlslr Difference Difference
Floor Pads 2,000 $30.00 $60,000 $32.50 $65,000 $5,000
Spray Triggers 1,200 $48.00 $57,600 $51.00 $61,200 $3,600
Spray Bottles 600 $36.00 $21,600 $37.80 $22,680 $1,080
Mop Heads 1,000 $24.00 $24,000 $25.75 $25,750 $1,750
Trash Cans 400 $22.60 $9,040 $23.80 $9,520 $480
TOTAL 5,200 $172,240 $184,150 $11,910 6.9%
For Top 5 Items; Apply to Total Annual Spend

STEP 2: CALCULATE DIFFERENCE IN MARKUP ON COST AND GROSS MARGIN
Sourcing Sourcing
From Mfr From Whlsr Difference
Total Annual Spend: (from top line) $250,000 x 6.9% = $267,287 $17,287
Average Markup on Cost 30% 22% -8%
Total Annual Revenue: $325,000 $325,000 -
Less: Cost of Goods Sold $250,000 $267,287 $17,287
Gross Margin: $75,000 $57,713 $(17,287)
Less: Operating Expenses (example: 75% of Gross Margin) $56,250 $43,285 $(12,965)
Operating Income: $18,750 $14,428 $(4,322)
Operating Income %: 6% 4% -2%

STEP 3: CALCULATE DIFFERENCE IN INVENTORY TURNS
Sourcing Sourcing
From Mfr From Whlsr Difference
Total Annual Spend: (from step 2) $250,000 $267,287 $17,287
# of Orders/Year 12 52 +40
Weekly Shipment from Wholesaler vs. Monthly Shipment from Manufacturer

Average Order Value $20,833 $5,140 $(15,693)
Per Order SAVINGS
Safety Stock (weeks) 2 1 (1)
Minimum Invty (weeks) 2 1 (1)
Maximum Invty (weeks) 6.3 2 (4.3)
Average Invty (weeks) 4.2 1.5 (2.7)
REDUCTION in Average Inventory Level

Average Inventory Cost (total spend ÷ 52 x avg.inv.wks) $20,192 $7,710 $(12,322)
REDUCTION in Inventory Investment ($$ tied up in inventory)

Annual Invty Turns 12.5 34.7 +22.2
STEP 4: CALCULATE CHANGE IN ROI (Return On Investment)
Sourcing Sourcing
From Mfr. From Whslr Difference
Operating Income (from step 2) $18,750 $14,428
÷ Avg. Inventory Investment (from step 3) $20,192 $7,710
ROI 92.8% 187.1% +94.3%
STEP 5: UNDERSTAND YOUR TURN-EARN INDEX
Sourcing Sourcing Lower your
From Mfr. From Whslr Inventory
Avg. Inventory Turns (from step 3) 12.5 34.7 Investment & Earn
x Markup% (from step 2) 30 22 Higher Rates of
Turn-Earn Index (# Turns x Markup) 375 763 Return!

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