How to Know How Much You Buy of Each Product
How to Know How Much You Buy of Each Product
Many small businesses buy from memory. The owner knows that a lot was ordered from a certain supplier last month, or that the storeroom always fills up with some products and empties out with others, but cannot answer a simple question with numbers: how many units of each item came in during the year and how much money went into each one. That lack of detail is expensive, because you negotiate without data, you reorder what is already piling up and you neglect what is actually running out.
Knowing how much you buy of each product is not a luxury reserved for large companies: it is one of the most profitable questions a small business can answer. With that figure you negotiate better with suppliers, avoid piling up stock that does not move and plan the budget of the next period based on reality instead of intuition. In this article we explain why that figure matters, how to build it from purchase orders and what decisions to make once you have it.
Why it matters to know how much you buy of each product
The total amount purchased in a year says very little: knowing that the business bought eighty million pesos worth of goods does not help make any concrete decision. The useful part is the detail per product, because each figure answers a different question:
- To negotiate with suppliers. A supplier listens differently when you say that your business bought twelve hundred units of one product from him this year than when you simply ask for a discount because you are a good customer. Real volume per item is the best negotiation tool: with it you can ask for better payment terms, volume discounts or priority in deliveries, and you know which supplier deserves the pressure.
- To avoid over-buying and running short. When orders are decided by feeling, the same mistake repeats every time: you order too much of the product you believe sells best and forget the one that is actually running out. With the number in hand, the order is split according to what each product consumed in the period, not according to what the buyer remembers.
- To spot what does not move. Some products take up space and capital for months while orders keep arriving out of inertia. When you compare what was bought with the real movement of each item in inventory, those products become obvious and you can stop buying before the problem grows.
- To plan the budget. Next year's purchase budget is not invented: it is projected from what each product demanded this year. Whoever knows how much was bought per product knows how much money will be needed and when, and can arrange credit or plan payments in advance.
The purchase order is where the data comes from
The figure of how much is bought of each product is not made up: it is read from documents the business already creates. The purchase order is the record where the buying decision is written down: which product, how many units, at what cost and from which supplier. Every order is linked to the item that was requested, so the history of the year is nothing more than the orderly sum of all those orders.
In Kardex Tauro, the business records its purchase orders and, when the goods arrive, receiving that purchase generates the inventory receipt with its cost; every purchase stays linked to its product. This means that the basis for answering how much was bought of each item is already being recorded every day: there is no need to keep a parallel accounting, only to take advantage of the information that purchase orders already contain.
How to build the figure month by month
Keeping this data does not require complicated formulas. The idea is simple: at the end of each period, add up the purchases of every product and keep accumulating them through the year. These are the steps:
- Define the period. The natural choice is the year, but it is worth accumulating by month as well, to see in which seasons the purchases of each item are concentrated.
- Gather the orders of the period. Every recorded purchase order must be included, whether large or small; small and frequent orders are the ones that get forgotten.
- Add up per product. For each item, accumulate two figures: the units purchased and the total value of those purchases. Both matter: one says how much volume moved and the other how much money was committed.
- Calculate the share. Divide the value purchased of each product by the total value purchased in the period. That percentage shows how important each item is within the purchases of the business.
- Review the result with judgment. The consolidated table is not filled in and forgotten: it is reviewed before every buying round and at least once a month.
An example with numbers
Consider a hardware store that wants to know how it distributed its purchases during the year. After consolidating its purchase orders product by product, it gets this table (illustrative values in Colombian pesos):
| Product | Purchases per year | Quantity | Value | % of total |
|---|---|---|---|---|
| Gray cement, 50 kg | 6 orders | 260 bags | $8,840,000 | 34% |
| White paint, 4 L | 4 orders | 130 units | $5,460,000 | 21% |
| Leather work gloves | 5 orders | 300 pairs | $3,900,000 | 15% |
| Concrete drill bits | 7 orders | 240 units | $4,680,000 | 18% |
| Wood sandpaper | 3 orders | 240 packs | $3,120,000 | 12% |
| Total | 25 orders | 1,170 units | $26,000,000 | 100% |
The reading is immediate. Cement concentrates 34% of the money purchased and is, by far, the most important product of the store: any improvement in its purchase cost is worth more than a discount spread among the other items. That is why it deserves dedicated negotiation with its supplier and purchases planned well in advance.
The drill bits show another pattern: seven orders in the year for 240 units point to small, repeated purchases. Consolidating those purchases into fewer, larger orders reduces the time spent processing orders and gives more strength when negotiating the price. Sandpaper, with only three orders and 12% of the value, is a support item: it does not deserve great negotiation efforts, but it does deserve watching, so that its order is renewed before it runs out and not out of habit.
The table also invites comparing each row with the movement of inventory. If a product accumulates high purchases but leaves the storeroom slowly, the conclusion is not that it sells badly, but that too much is being bought: the money ended up turned into idle merchandise.
What decisions to make with that information
The value of the table is not in filling it in, but in the decisions it allows you to make. These are the most frequent uses:
- Prioritize negotiation. A small share of the products usually concentrates most of the value purchased. Negotiating first with the suppliers of those items pays more than spreading the effort evenly among all of them.
- Adjust the purchase frequency. Whoever buys little and often wastes time and negotiation power; whoever buys too much at once risks being left with idle inventory. The number per product helps find the middle ground for each item.
- Clean up the purchase list. Products with low purchases and low movement should be reviewed: they may remain on the list out of habit, and their space could be used better.
- Project the budget. With the value purchased per product this year, you build the starting point of next year's budget, adjusted by the changes the business plans.
- Catch mistakes early. A duplicated purchase, a wrongly typed quantity or an order that never arrived leaves a mark on the monthly total; reviewing it regularly allows you to correct the error before it affects the inventory.
Knowing how much you buy of each product turns purchasing into an informed decision instead of a guess. Recording purchase orders in Kardex Tauro, receiving the merchandise with its cost and reviewing the total per product once a month is enough for any small business to talk to its suppliers with data in hand and buy only what it needs.