Sourcing Decision Support, Inc. Specific Quantity Discount Analysis...Are discounts for larger quantities real or illusionary? What is the maximum quantity you should buy in each price break?

In specific quantities pricing there is a price for each quantity on the price list or quotation (1 unit for $10.00, 2 units for $9.50 each, etc). Quantity Discount Analysis (QDA) calculates the incremental price difference for each quantity and price. This process shows the real price that is being charged for the next quantity rather than average price for the entire quantity. This analysis either confirms that you are in fact getting an increasing lower price as the unit volume increases or that the incremental unit price is increasing and decreasing as volume increases (irrational behavior). What you would like to see are two lines starting from the same point with a gap between increasing as volume increases. Perform a QDA analysis on all pricing to determine if the if price schedule you are analyzing is rational (the discount is consistent with larger volumes) or irrational (the discount is not consistent with larger volumes) before performing other SDS analyses.

Sourcing Decision Support, Inc. Range Quantity Discount Analysis

In range pricing there is a price for range of quantities (1-4 units for $10.00 each, 5-9 units for $9.50 each). Quantity Discount Analysis (QDA) calculates the incremental price difference for each quantity and price. This process shows the real price that is being charged for the next quantity rather than average price for the entire quantity. This analysis either confirms that you are in fact getting an increasing lower price as the unit volume increases or that the incremental unit price is increasing and decreasing as volume increases (irrational behavior). What you would like to see are two lines starting from the same point with a gap between increasing as volume increases.

The "Range" worksheet also calculates the maximum quantity to purchase in each quantity range. All range quantity pricing has the potential for concealing that maximum units to purchase in a given price range is less than the maximum in that range. Therefore, it may be cheaper to purchasing the minimum quantity in the next range rather than buying above a certain quantity (see the Range worksheet for an example of this effect).

Perform a QDA analysis on all pricing to determine if the if price schedule you are analyzing is rational (the discount is consistent with larger volumes) or irrational (the discount is not consistent with larger volumes) before performing other SDS analyses.