How an inventory management tool could help your finances

Just-in-Time Purchasing

by Rick Kahler


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"Just-in-time" purchasing. It's a method of inventory management used by some manufacturers to control warehousing costs and avoid being stuck with unusable components. It can be a cost-saving practice for certain types of businesses.

Unfortunately, according to a Wall Street Journal article, increasing numbers of consumers are using just-in-time purchasing in their personal lives. This is merely swapping one set of poor financial behaviors for another.

When credit is easy, stocking up is a simple matter. It is not uncommon for savvy consumers to buy several of an item that is on sale, or bulk items that are cheaper than individually packaged items.

When people are strapped for cash and living month to month, rather than buying in bulk or stocking up on sales, more consumers buy only what they need. As a result, they also increase their number of trips to the store.

Companies adjust to this downward trend by decreasing the number or size of goods found in the packages. While purchasing less of an item may give consumers some short-term relief on the total grocery bill, the sad reality is that in the long run, it's costing them more. Buying a number of frequently used items when they are on sale or purchasing in bulk can save consumers money. Sometimes the savings amounts to a lot of money.

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For example, I eat a half-cup serving of oatmeal almost every morning when I am in Rapid City, which is about 36 weeks a year. That amounts to about 252 servings a year. I have several ways to purchase my oatmeal.

If I chose to do just-in-time purchasing, spending the smallest amount up front, I could buy a box of 12 individually packaged servings of Quaker Oats for $4.15. That would be 35 cents a serving. Over 36 weeks, it would require 21 trips to the store and a total expenditure of $87.15.

Another option would be to buy the 42-ounce carton of oatmeal, which provides 31 servings. It isn't as convenient, requiring me to own a measuring cup and measure out my daily allotment. It also costs a little more up front, $5. The per-serving cost, though, drops to 16 cents. My 36 weeks' worth of oatmeal would require eight trips to the store and a total expenditure of $40.

Finally, since oatmeal isn't highly perishable, I could buy it in bulk. In addition to owning a measuring cup, this would also require having a place to store a 25-pound bag. This is the most expensive option in the short term, costing $17.23 at our local food co-op. Figuring 295 servings in that 25-pound bag, however, the per-serving price is just under six cents. My entire 36 weeks of oatmeal would cost less than $15 and take only one shopping trip.

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To summarize, just-in-time purchasing for my oatmeal would cost $72 more over 36 weeks than bulk purchasing. That's for just one small product. Now, imagine the savings if you purchase as many items as possible in bulk.

This illustrates one of the benefits of having a spending plan and saving for various expenses like food, car repairs, travel, gifts, etc. Having a margin in your budget and saving for consumer purchases allows you to be much more flexible about buying in bulk or on sale. The result is significant savings.

Thinking short term might save a little on this week's grocery bill, but it costs a bundle in the long run. My advice? Just say no to just-in-time purchasing.


Rick Kahler

Rick Kahler, MSFP, ChFC, CFP, is a fee-only financial planner and author. Find more information at KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com or 343-1400, ext. 111.

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