Why is Volume Discount used in the Procurement life cycle?

The reasons for volume discount in procurement life cycle are:

·         Is to entice buyers to purchase in larger quantities

·         It enables the seller to move more goods or materials, reduce inventory by selling more units to incentivised buyers and free up space in the warehouse

·         It also enables the seller to reduce its inventory holding cost.

·         It also enables seller’s to reduce incidences of obsolescence, bad and damage goods

·         It enables the buying organisation to consolidate its purchases.

Advantages of Volume Discount are:

·         It allows buyers to purchase additional inventory at reduced cost (discounted rate)

·         These savings are often passed on to consumers. For example if Shoprite purchased large quantities of each of its good and receives volume discounts from its suppliers. Shoprite will in-turn pass this discount to their consumers who are able to purchase these goods for less money than what they can buy from store that did not buy in such great volume like Shoprite. This discount increases as the volume increases.

·         It also grant consumers quantity discount, in the form of appear as buy one get one.  (BOGO)