Chapter 10
The Optimal Price
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What Is the Optimal Price?
• The optimal price is the price that, when
combined with optimal quality and supplier
services, produces the optimal value.
• It represents the lowest possible EP cost
consistent with the optimal value of the
product.
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EP Cost Calculation
EP cost = AP price ÷ edible yield
3
How Do Attitudes Affect the
Purchasing Process?
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Novice buyers overrate AP prices
Price normally follows quality
Derived demand
Sometimes price is secondary
Requesting itemized bills
A particular product represents a huge expense
Tight materials budget
4
How Are AP Prices Determined?
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A function of the suppliers cost
A function of supply and demand
A function of competitive pressure
Buyer pricing
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Ways to Reduce AP Price
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Make or buy analysis
Provide your own supplier services
Shop around
Lower your quality standard
Blanket orders on miscellaneous items
Improved negotiations
Substitutions
Cash discounts
6
Ways to Reduce AP Price, Cont.
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Hedging
Economical packaging
Odd-hours deliveries
Co-op purchasing
Cost-plus purchasing
Promotional discount
Exchange bartering
Introductory offers
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Ways to Reduce AP Price, Cont.
• Reevaluate EP cost
– Calculate PF, PD, and EP costs
• Opportunity buys
– Evaluate their benefits
8
Copyright ©2008 John Wiley & Sons, Inc.
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