Businesses always have a desired margin figure for every product on the shelf. But more often than not, these desired margins are not achieved.
This could be due to:
- Errors in price fixation
- EOSS/stock liquidation discounts
- Unplanned overheads such as logistics, space, etc.
To tackle this issue, a business should develop the practice of monitoring section/product category wise actual margins achieved compared to desired margins.
This will give them an opportunity to identify variances and take corrective actions to minimize them.
A retailer can periodically, say quarterly, analyze.
Calculate Supplier-wise Margins to Improve Profitability
Businesses usually calculate product-wise margins or the total margins.
But analyzing supplier-wise margins might give interesting insights. For this analysis, margins have to be calculated using different methods.
Supplier Margin = Gross Sales – Material cost (incl unit logistics costs) – Sales Discount
The above analysis shows that “Bharath Furnitures” and “Diamond & Co” give lesser margins when compared to other suppliers.
Pro Tip
Do this analysis for suppliers from whom similar products are bought and identify opportunities for repricing or better supplier negotiation or supplier replacement.
