Are reverse auctions a good tool to use with the retail distribution channel cost plus model?

February 16th, 2012

There is no reason at all to not consider alternative suppliers or sources of supply if you are sourcing from a cost plus distributor.

According to Wikipedia Cost-plus pricing is a pricing method used by companies. It is used primarily because it is easy to calculate and requires little information. There are several varieties, but the common thread in all of them is that one first calculates the cost of the product, and then includes an additional amount to represent profit. It is a way for companies to calculate how much profit they will make. Cost-plus pricing is often used on government contracts, and has been criticized as promoting wasteful expenditures.

Once unit level cost has been established for the distribution of products it’s easy to turn that into a percentage and add it to the price of a product coming up with a distributed unit price or category price. The most important part of this pricing exercise for the distributor is to get the distribution costs correct. This can include price of storage, freight, length of travel, driver cost and any number of other costs. This is an area where a distributor can lose a lot of money if they are not very careful

So, are revere auctions a tool that can help distribution companies? The answer is a clear yes both above and below the gross margin line. If you like to know more please contact me at ronsouthard@safesourcing.com.

Who knows, if you partner correctly you might be able to improve your costs and your distributors margins as well.

We look forward to and appreciate your comments.

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