A quantity discount is a pricing strategy in which suppliers give customers a lower price per unit when they buy more of a product. This incentive can drastically lower procurement costs and promote bulk buying. Quantity discounts offer both advantages and disadvantages for inventory optimization. Larger purchases may result in lower purchase prices, but if demand projections are off, there may be cash flow issues, higher inventory holding costs, and an increased risk of obsolescence. The advantages of quantity discounts must be carefully weighed against the higher carrying costs associated with keeping excess inventory. Analyzing supplier terms, demand trends, and budgetary constraints is necessary for effective inventory management in order to determine whether the potential risks are outweighed by the savings from discounts. Firms can benefit from flexible ordering policies and strategic negotiation.
