What is the phrase/terminology to describe buying in bulk now to save future costs?

altomic on 06/11/2013 - 12:27

in economics when you choose to spend money on something then the cost of the choice you didn't select is called the opportunity cost .

what is the terminology used to describe the situation of when you buy something now (and usually in bulk) at a low cost as in the future you will need to buy it anyway but it will be expensive.

Example -

woolworths online - 15 8packs Kleenex Cottonelle for $40.10 delivered.

usually $6.68.
currently halfprice so $3.34
if you buy 15 at this price you can get $10 off
so $2.67 per 8 pack.

so a saving of $4.01 per 8 pack.
or $60.15 in total for 15 8 packs.

I could say savings of $60.15 but I require the terminology which infers the savings/offset of future cost.

not like opportunity cost.

General Discussion

Comments

  • neil on 06/11/2013 - 12:29
    +5

    bulk buy?

    ACA on the "bulk buy queen"

    EDIT: Above is the first question. Second question, perhaps future savings?

  • minijumbuk on 06/11/2013 - 12:31
    -3

    Decreasing marginal cost

    • _Bruce_ on 06/11/2013 - 12:55
      +1

      This isn't really it, unless you are buying a 'buy 2 for $X' special, or buying a larger pack than normal.

  • _Bruce_ on 06/11/2013 - 12:39
    +6

    If you are going to talk accounting you should probably do it as a Net Present Value calcuation (and you won't save $60.15).

    You can price up both places with NPV for your working interest rate (if you have any loans/not paid credit cards, this would be the highest interest rate of them, otherwise it would be your expected interest for savings/investments).

    http://en.wikipedia.org/wiki/Net_present_value

    • tanoshiiki on 06/11/2013 - 12:57

      Sounds like this maybe?

  • ilostnemo on 06/11/2013 - 12:39

    It could be wishful thinking.

    How do we know, what the price will be in 3/6/12 months

    One thing this site has taught me, is items can drop dramatically without notice.

    Anyway a true ozbargainer uses their sleeve.

    • Yacht on 06/11/2013 - 12:46
      +1

      No both side of the paper.

    • altomic on 06/11/2013 - 13:07

      this is relatively inexpensive for toilet paper. it's not going to drop any further. it will only increase/erturn to its pre-sale price.

  • Baghern on 06/11/2013 - 13:00

    Also need to take account space, what is the quantifiable cost of not having access to the space your bulk buying/hoarding takes up.

    Then you also need to quantify the feeling of peace of mind having stuff gives you.

    • _Bruce_ on 06/11/2013 - 13:16

      I thought about adding this but NPV might be comlicated enough. In a business enviroment you would have a dollar value for the space you can use for your calculations, but that is harder for personal use.

      Also the need to satisfy your inner hoarder generally doesn't get a mention in accounting theory. You could argue that there is a net negative effect here anyway if it just encourages you to hold more stuff.

      • Baghern on 06/11/2013 - 13:30
        +2

        i like stuff…

  • ilostnemo on 06/11/2013 - 13:16

    my bad, I thought you were talking tissues.

    We always used to buy cokes and toilet paper when individually they were 50c or less.

    Then we noticed toilet paper always being less than 50c, we then noticed the number of sheets decreasing as well. These companies are getting sneakier.

  • Geewhizz on 06/11/2013 - 13:31
    +2

    15 8packs Kleenex Cottonelle for $40.10 delivered.

    It's called hoarding. lol

    That's a LOT of toilet paper. We bought a 48 roll pack of Cotonelle for about $16 in an IGA sale a while ago. I found it fairly thin and flimsy, and couldn't wait for it to run out - needless to say, it took a while.

    • Kiz on 06/11/2013 - 15:36
      +3

      I'm guessing it's lucky you had it around as it gave you the shits?

      • sparkles on 06/11/2013 - 23:17
        +2

        Yes, here is OzBargain 101. Do not buy Cottonelle in bulk under any circumstances. Months of regret has a very high emotional cost.

        • MementoMori on 07/11/2013 - 10:22
          +1

          Not to mention you can get a better Aussie made/owned Quilton for cheaper!

          Cottonelle quality has really dropped.

  • [Deactivated] on 06/11/2013 - 14:05

    Where are you studying economics at? There is no such thing as future cost in economics.

    There is a price associated with the 'past'. That is to say we pay for past crimes.

    The future has yet to occur therefore is undefined and equals 0. Because the future = 0 it is effectively free, it costs 0 or nothing.

    So, you have 'Past Costs' vs 'Future Freebie'.

    The Future Freebie is entirely dependent on your Past Costs.

    • altomic on 06/11/2013 - 14:18

      not studying economics. just curious as to what the correct terminology may be.

      • [Deactivated] on 06/11/2013 - 15:17

        Like Neil said Future Savings. Future savings is probably better than my Future Freebie ;)

        Future Savings are dependent on your Past Costs.

        Future Savings C = Past Costs XY

  • p1 ama on 06/11/2013 - 14:57

    Altomic, I'm doing a degree in Finance and Econometrics (double degree with IT as well) and as far as I know, I don't think there's a technical term which describes what you're expressing here.

    Bruce is probably the closest, what you're talking about is essentially the Net Present Value (or NPV) calculation. This is because of a concept known as the "time value of money", which means that money today is worth more than money tomorrow because you can invest the money and make more money.

    Thus, in order to calculate the amount you're saving, you don't just subtract dollar amounts, you need to discount the amounts back to the present time by your cost of capital (essentially the rate you can invest at), i.e. your opportunity cost.

    So in order to actually work out your savings, you'll have to model your replacing toilet paper as an annuity - i.e. a series of equal payments made specific times apart. So, if you use a pack a month, you can work out the present value of the annuity for an expenditure of $6.68 for 15 months (i.e. 15 packs).

    Then you take that value and you subtract 2.67*15. That will be your savings. It's actually surprising how much less than $60.15 you're saving! Anyway, I know I haven't answered your question, but I hope I've helped somehow!

    • ilostnemo on 06/11/2013 - 16:42

      First of all I'm not doing or have a degree in Finance and Econometrics.

      I fail to understand this as I believe you are forgetting one important factor.

      This is because of a concept known as the "time value of money", which means that money today is worth more than money tomorrow because you can invest the money and make more money.

      I earn more each year with my job as most people do. I would then say as long as my pay is increasing more than inflation, I'm on a winner.

      I remember my first job and saving up $600 for my first dot matrix printer, I'm so glad I didn't buy in bulk when they went down to 1/2 price.

      • tanoshiiki on 06/11/2013 - 16:46

        There's another term for this type situation, but I can't remember it. Something about increasing disposable earnings and purchasing power. Some eco major will fill in…

      • _Bruce_ on 06/11/2013 - 16:53

        This is where you cross the line between economics and accounting.

        If you had information regarding your projected income and projected inflation you could make such an adjustment, but this is all very speculative and falls outside of accounting.

        Although the OP asked about 'economics' rather than 'accounting' I really don't think that is the approriate field here. If your model is going to include your life stage, employment prospects, global and national economy then you are probably just introducing more ways for your answer to be wrong.

        • tanoshiiki on 06/11/2013 - 17:02

          Then we are factoring actuarial concepts as well…

          I wonder if the OP expected an easy terminology answer.

        • ilostnemo on 06/11/2013 - 17:28

          Yeah you're right, looking back at the first answer, I think Neil got it in one.

          It's a bulk buy.

        • p1 ama on 06/11/2013 - 17:55

          Completely agree with this, you're introducing risk, which is pretty much the domain of actuaries.

    • Architectonic on 07/11/2013 - 00:43

      It's too late for me to do the math in detail, but a typical discount rate would be that of say, sticking the money in the bank (say 4% for a savings account). But compounded monthly, this would only get you about $2 of interest over the whole 15 months if you weren't touching that money at all. Of course you will be spending that capital and you would be down to $0 in about 6 months.

      So on the contrary, it is surprising how close to that $60 one would actually be saving.

      The return on investment is actually quite high compared to sticking the money in the bank.

      • _Bruce_ on 07/11/2013 - 07:43

        Your maths is a bit ogg. Even at 4% (which is quite low) I get $57.06. This assumes it 1 per month and it never goes on sale again.

        Of course you will be spending that capital and you would be down to $0 in about 6 months.

        This comment doesn't make sense. Perhaps you misunderstand NPV?

  • [Deactivated] on 06/11/2013 - 15:31
    +1

    The problem is the question doesn't really make sense.

    "What is the phrase/terminology to describe buying in bulk now to save future costs?"

    This question should be reworded as:

    "What are my Future Savings from my Past Expenses?"

    Make sure you associate 'costs' with the past.

  • francis.tks on 06/11/2013 - 15:43
    -2

    This is a fairly common term here. It is Broden-ing

    • p1 ama on 06/11/2013 - 15:43
      +4

      No it's not, he's not buying to resell.

      • altomic on 07/11/2013 - 04:18

        nor I have boasted about buying an extreme amount of toilet paper only for someone to find out I only bought 1 roll.

        • francis.tks on 07/11/2013 - 12:21

          Dunno, maybe its called capital gain then? Because you bought it at a lower capital but worth more later on.

  • CaptainPlanet on 06/11/2013 - 15:59

    I dont know if this exactly applies, but in terms of manufacturing it would be known as amortising a sunk cost.

    In this instance, your sunk cost is the cost of the 15*8 rolls of toilet paper = $40.10. Say you manage to get 1000 uses out of this hoard of toilet paper, then it amounts to ~4 cents/wipe.

    Compare this to the usual price of 8 rolls for $6.68, where you would only manage to get 1000/15 = 67 wipes from your much smaller hoard of toilet paper. This amounts to a total of ~10 cents/wipe.

    So despite the greater initial sunk cost, the amortised cost, that is the cost per use, is much less in the long run.

  • BlueSkyAPI on 06/11/2013 - 17:48

    The decision process here is to decide between locking in a price for a certain quantity now versus buying the same quantity later under uncertain prices. This generally falls under the framework of multi-period utility maximisation constrained by random variables. There is a discipline called decision analysis that brings together the myriad of the aforementioned concepts together to make optimal decision after considering all sorts of tradeoffs involving time-value of money, stochastic future prices, risk-aversion, economy of scale, etc.

    The case being discussed here is a scenario where the benefit of economy of scale now outweighing the risk-adjusted cost of uncertain future prices.

  • Whodis on 06/11/2013 - 18:16
    +1

    Stockpiling?

  • spoonmugen on 06/11/2013 - 19:17

    reduce total costs of … ownership/expenditure
    reduce average costs …

    and +1 for hoarding on the toilet paper

  • dunnomyname on 06/11/2013 - 19:21

    . delete

  • ilostnemo on 06/11/2013 - 19:27
    +6

    Isn't it covering your ass?

  • Kill Joy on 06/11/2013 - 19:29
    +2

    I swear this is structured like a question from a test i did for accounting in uni last semester..

  • kingsville on 06/11/2013 - 20:05

    how about:

    Present expenditure for expected future avoided costs.

    You do it because you think you'll be saving money in the long run - that the sunk present costs of buying and storage outweigh the counterfactual of purchasing toilet paper on the spot market. You may not of taken into account the risks of inventory spoilage (pantry flooding) or technological change (your partner installs a bidet).

  • bigheadache on 06/11/2013 - 20:06
    +1

    I don't think there is a term in eco.

    In accounting, its a prepaid expense.

    • p1 ama on 06/11/2013 - 20:16

      Haha, those accounting days - I remember you could either record these things as an asset and then transfer it to an expense account on adjustment day or record it as an expense and transfer what was left over into an asset account to carry over to the next accounting period.

  • bocca on 06/11/2013 - 22:48
    +1

    Hoarding?

  • JudasX on 06/11/2013 - 23:40
    +2

    This might make no sense, but here goes :)

    I think it’s just 'hedging'. You’re buying something today and taking a long position to offset the (detrimental-to-you) possible increase in price of something else. In a typical hedging situation, you undertake hedging by taking a position on something different/else that is negatively correlated with what you are exposed to – that way when you sell the long position, and purchase what you had to purchase, any losses incurred due to price increases on the first item, are offset by the gains in your long position (or vice versa). However, in your example, you’ve got the same good (rather than hedging with a different good), and you’ve got different sides of the market position, so you can actually hedge against price increases in the good by taking a position on a second item of that same good whereby you are preparing to enter the market on the other side (i.e. as a seller).

    It’s like when a company knows it has to buy copper next year from its regular supplier, but the supplier will only accept a contract that stipulates that the selling price per unit of copper will be whatever the market price is at the time of delivery (i.e. next year). :- This is like wanting to take today’s price (adjusted for general inflation, foregone interest, storage and maintenance over the relevant duration) for something you want to buy tomorrow, but the supermarket won’t let you do that; they want to make you pay next year’s price when next year comes around.

    Since the buyer wants to lock in a price, they go to the futures market and purchase a futures contract which guarantees them receipt of copper (or something closely related) next year at a stipulated price. :- This is like buying your item today, and holding onto it.

    When next year comes around, the company makes an offsetting transaction on the futures market and cancels out their position (i.e. effectively selling the futures market copper back to the futures market). If the copper (or closely related) price has gone up, then you will make a profit in the futures market, and you can offset the price increase that you face when you buy from your supplier. :- This is like taking the item you have purchased a year in advance, selling it at the market price next year (and making a profit on the difference between the current price and last year’s price), and then purchasing the item you wanted from the market (for effectively last year’s price, once the profits you made from the sale are accounted for). Of course, since you’re hedging one item using effectively the same item, there’s no need to make this final sale and purchase – you just consume the item you purchased at the cheaper price (but it’s easier to see what’s going on, by explaining it this way).

    Please correct me if I've made some ridiculous mistake here or there.

  • HugoHugo on 06/11/2013 - 23:59
    +4

    I'm doing an MBA at Melbourne Uni at the moment, and this sounds like something out of Operations Management.

    By buying up on the toilet paper you're building up inventory based upon your estimation of the EOQ (economic order quantity) which is the order quantity that minimises total inventory holding costs and the ordering cost taking into account the bulk discount.

    Given the demand is constant, you've made a mental calculation of the opportunity cost of capital (all that cash could be earning interest in a term deposit) storage cost (the space in your house costs money in out of pocket rental expenditure or the opportunity cost of renting that room out to backpackers instead) vs the fixed costs of purchase (the car ride to Costco) and the Costco yearly membership…

    • altomic on 07/11/2013 - 02:50

      yes. that's is good.

      • camelgrass on 07/11/2013 - 03:16

        Funny, I was reading that post just when you made your comment. I also think EOQ seems like a good term to describe what you are after. Makes more sense to me compared to the other explanations.

        • BartholemewH on 08/11/2013 - 13:19

          I agree, EOQ is the first thing i thought of.

  • [Deactivated] on 07/11/2013 - 01:02

    I will take a stab at 'economies of scale'. Not exactly the right term for the case but I am guessing it is what the poster is looking for.

  • Lucky13 on 07/11/2013 - 01:33

    Purchasing a surplus of goods to save money in the long term??

    Is this for a uni essay/report?

    • altomic on 07/11/2013 - 02:55

      Is this for a uni essay/report?

      no, but I do enjoy economics (go John Maynard Keynes!) once I get my current degree out of the way I'd like to do post grad economics for fun. how is economics fun?, because a) I'd like to know how to strategically and smartly manage money, b) I'd like to understand how money moves, c) why people are stupid in managing money, d) how to get stupid peoples money into my pockets.

      but I was looking for the "appropriate phrase" to pull out as an obfuscation for when Mrs Altomic asks why I bought 120 rolls of toilet paper. She'll understand the rationale behind the savings, but it always pays to have better answers.

      • Lucky13 on 07/11/2013 - 03:20

        Oh so when she looks at the wall of toilet paper in the cupboard she can think of the witty answer you came up with with the help of hundreds of people on Ozbargain, glad to be of service :)

        • altomic on 07/11/2013 - 03:26
          +2

          not witty. more…complete

          I was struggling to find the exact phrase.

          I'm not sure I have found it.

          I'm sure the Germans have a word for it. probably something like gersleschafftenhauser

          it has created a considerable amount of discussion which is nice. made people think, which is usually good.

      • camelgrass on 07/11/2013 - 03:33

        e) Maybe also help stupid people with their money? Actually a lot of them are not stupid. It may depend on a few things like socio-economic situation, educational opportunities and even cultural background.

        • altomic on 07/11/2013 - 03:41

          or can't be bothered.

        • camelgrass on 07/11/2013 - 04:10

          That's true, there are many of those as well and you will never change them.

          It can easily appear that people in the demographic groups I mentioned can't be bothered, though I don't believe this is always the case. There are many misconceptions. I hope there will be more programs to help some of these people. There are no easy answers.

          ADDED: I do believe it is possible though. Through some of my experience, I have discovered persistence is one of the keys. It can take a long, long time for some people to change their attitude towards money. It's not necessarily their fault.

        • altomic on 07/11/2013 - 04:16

          agreed.

      • p1 ama on 07/11/2013 - 09:56
        +1

        You'll probably be more interested in Finance than Economics then, if you're looking at how to invest, understand how money moves…etc.

        They're more financial concepts that economic concepts, but then and again, finance is based off economics to a large degree.

      • Cheap Steve on 08/11/2013 - 06:36

        Have you read any books about Warren Buffet? He knows a,b,c and d better than anyone else IMO.

        I would also consider doing a Financial Planning elective within your post grad Eco degree.

  • srr on 07/11/2013 - 08:12

    You should take into account the likelihood of the goods coming on a next sale in a period of time. So, in your case, if toilet paper will be on sale in the next 6 months and in that time you swill still have 200 rolls, the savings will be less. It is also possible that next time the sale price will be even lower.

    So my term is sales bridging, or price surfing.

  • arodes on 07/11/2013 - 09:19

    I think Airlines do that a lot, they buy their feul in advance to save on price increase later on.

  • kRaYziE666 on 07/11/2013 - 10:08

    intelligence

  • Cluster on 07/11/2013 - 11:20

    Contango

    http://en.wikipedia.org/wiki/Contango

    Buying toilet paper today carries costs in terms of storage and interest earnings lost on the money spent. But if your toilet paper becomes a hot commodity in the future it's well worth it. It's not quite what you're referring to but still applies. You expect the cost to be higher in the future so you buy the product now even though it costs you in the short term.

    http://www.survivalblog.com/2010/09/letter-re-survival-tips-…

    "After awhile, even gold can lose its luster. But there is no luxury in war quite like toilet paper. Its surplus value is greater than gold's."

    http://www.bbc.co.uk/news/world-latin-america-24185342

    "The Venezuelan government has taken over a toilet paper factory to avoid any scarcity of the product."

    "Earlier this year officials ordered millions of toilet rolls to be imported to counter a chronic shortage."

  • tonka on 07/11/2013 - 13:23

    Hoarding I think is the correct term. ie collecting something you don't need now anticipating it will have future value.
    Could be a touch of commodity trading thrown in.

    • Lucky13 on 07/11/2013 - 14:12

      Hoarding.. u mean like an altomic storing his nuts i mean toilet rolls for the winter (or in this case summer) :)

      • tonka on 07/11/2013 - 15:24

        Yes, (although I thought for a minute an altomic was some breed of squirrel).

        So squirrel is definately a correct term.

        I actually think Altomic has a nice ring.
        'Person who hoards bargains in anticipation of future bargain shortage.'

        • Lucky13 on 07/11/2013 - 17:56

          Do you think we've coined a new phrase here. If we use it enough it might catch on :) I think Im going to be an Altomic and buy a few cans of soup for later hehe.. and maybe some toilet rolls :D

        • tonka on 07/11/2013 - 23:04

          So if I grabbed 20 tins of tuna at 94cents that would be good altomics. Not sure the verb works, say if I am going to altomize a sale.

        • Lucky13 on 08/11/2013 - 02:18
          +1

          You mean Altomise, now ur thinking US speak :)

        • camelgrass on 08/11/2013 - 05:32

          Australia is practically just another state of the US now anyway. We help them spy on the world's leaders and citizens, fight their wars, allow them to set up a US marine base in the NT, don't offer assistance to current Australian political refugees that the Americans happen to be targeting at the moment—and more. Yes allies help each other, but it has gone far beyond that now.

          I see incorrect usage of the letter ''z'' (as above) more and more these days. Are there any school teachers here? Do you mark down a paper if a student inadvertantly uses American English on the odd occasion? What about at uni, do they even care since there are so many international students who learnt the American variety of English? I guess it comes down to how picky a particular teacher is.

        • tonka on 08/11/2013 - 11:26

          Great question, my work spellcheck always corrects my English spelling to American and it was interesting trying to explain the correct spelling to a Chinese trainee last week.

        • Lucky13 on 08/11/2013 - 12:19

          Interesting experiment I just did then.. changed the language setting on MS Word, default was English(US) was going to set it as English(UK) but found English(Australia). So've set it to English(Australia) and tried writing synchronise with an s and with a z and both of them under the Australian setting came up as correct. So we're a happy hybrid country obviously and accept both versions. Good to know :)

        • _Bruce_ on 08/11/2013 - 12:54

          So we're a happy hybrid country obviously and accept both versions.

          Because a Microsoft product defines what Australia accepts?

          Next we'll be looking at Facebook for what is culturally accepta- oh wait.

        • Lucky13 on 08/11/2013 - 16:33

          Yeah I guess we dont know where Microsoft source their language standards from whether its a credible source or not or whether its all just done in house. PS like ur Facebook joke :)

        • camelgrass on 09/11/2013 - 00:25

          Because a Microsoft product defines what Australia accepts?

          No, but considering how vast and widespread the use of Word is in Australia and around the world, I expect it reflects somewhat the ever changing and evolving nature of linguistics in a given population or region.

  • [Deactivated] on 07/11/2013 - 15:17

    What is the phrase/terminology to describe buying in bulk now to save future costs?

    Being awesome.

  • BhanuL on 07/11/2013 - 17:33

    This is Hedge Buying Commodities but with no intention to sell but only consume.

    Someone who does this too much is called a Mental Patient. Someone who doesn't do it at all is called a Disorganized Prick. Someone who does the right amount is called a Smart Ass.

    Edit - damn that JudasX had me beat to it. DAMN DAMN DAMN.

  • imcold on 07/11/2013 - 19:24

    Call it Price Preppers.

    Sort of like Doomsday preppers but instead we prepare for a time of full price commodities which we know will happen guaranteed ^^

    http://www.dailymail.co.uk/home/moslive/article-2296472/Apoc…

    I'm off to a good start lol got 50+ bars of kitkats. ROFL..

  • goms on 07/11/2013 - 21:33

    Is price elasticity the right term?

  • mattawara on 07/11/2013 - 21:59

    Arbitrage?

  • Weezle on 07/11/2013 - 23:39

    Essentially it is economies of scale from the consumer's perspective, as the cost per unit decreases as consumption increases.

  • Wallyt99 on 08/11/2013 - 07:22
    +1

    I lecture international business - the term is forward buying if you pay and take possession, if you do not it is called a forward contract. Buying on the spot as you need it is called spot buying.

    http://www.investorwords.com/17284/forward_buy.html

    • JepunK on 08/11/2013 - 09:17

      Where do you lecture?

      • Wallyt99 on 09/11/2013 - 08:57

        Privacy University.

    • Wallyt99 on 09/11/2013 - 08:57
      +1

      Also - there is no economics based term for the above scenario as in the limited world of economics if a future price was known, then the market would dictate that the future price would become the current price (Either because people would demand more at the lower price pushing the price up, or demand less driving the price down). Commodities futures are a real example of this because of the volume of trades they give a good representation of the economic model.

      Of course - economics is not a reflection of reality because not every market has the same volume of trades, and demand is impacted by other factors - e.g advertising, availability, or professional bargain hunters. It is therefore possible to buy when you know the price is low (E.G WD TV Live cashback deal)but your judgement should be based on a whole range of factors. A good term for this would be prudent OzBargaining.

  • JepunK on 08/11/2013 - 09:15

    It's called Costco!!

  • ss1987 on 08/11/2013 - 11:38

    could be group purchase?

  • ilostnemo on 08/11/2013 - 13:45

    What does one do, if the said product goes even cheaper?

    Do they re buy to average their buying price down.

    What happens if a better product is released and is cheaper?

    If the toilet paper becomes cheaper, the first deal is a dud.

    Shopping is like gambling.

  • jkcat on 08/11/2013 - 14:33

    Binning.

  • jace88 on 08/11/2013 - 15:10

    Felt to me like you were hedging against future price changes.

    • p1 ama on 08/11/2013 - 20:27

      Yeah, that's true actually, because there's a chance that the price could fall even further.

  • FOX on 08/11/2013 - 23:14

    This is consumption and utility functions.

  • antzz on 09/11/2013 - 07:35

    That is called ozbargaining. That is the term i have been using to my family

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