Purchasing bulk materials and stockpiling is a great lesson in tangible investments.
1) Reduce the cost of purchases
Its obvious that buying in bulk can reduce costs. So what kind of saving can you expect?
I think its fair to say that profit margins vary depending on the item. But bulk purchases for me have varied up to 80% savings over retail. I would estimate that if I could stock a warehouse full of wholesale materials I could reduce costs by almost 50%. Realistically depending on the space and budget you are working with this may be significantly less. Mine is closer to 10% overall.
2) Capital Investment
While Washington D.C. continues to leverage our future you can take an opportunity to leverage the past. Prices on construction materials are going up everyday and will continue to do so. Selling yesterdays drywall at today’s new higher prices is another way stockpiling materials can earn a profit. Materials are a hedge against inflation and are of wide use to many people which means you can trade or sell them fairly easily. When you business is growing you will at some point have too much cash.(yes its a real problem, although only temporary). Purchasing materials at 30% discount will outpace the S&P 500 on any metric.
There are a few other considerations when stockpiling materials
Are you wasting space that could be rented out to another business?
Are you buying things that will be used or are you buying things just because its a “good deal”. How practical are the purchases.
On a 5 year average how are materials prices? If they are really high lately then it may be wise to wait until they normalize before stocking up.
Will they survive storage in your facility?
Here are a few great things to store as capital investments
1) Screws and nails – These are great because they will always get used up and last forever in storage. They also carry a high markup when sold through retail or even wholesale stores.
2) Pipe, wire, EMT & common fittings – Metal prices are all over the map these days. Hedge against future price increases and also receive very attractive factory discounts.
3) Gypsum Products – Drywall takes a lot of space considering the value of the investment. However it should be mentioned because a large enough contractor can negotiate directly from the factory and save lots of money if they order by the truck load.
4) Metal stud – Again metal prices are unpredictable and metal studs can sit for years in perfect condition.
Some material are less attractive but when ordered in bulk and used quickly can still offer some value.
1) Lumber – Only a framing contractor ordering 2×4 or a cabinet shop ordering plywood could pull this one off. These types of materials can be bulk priced but the saving are negligible and the materials cant sit around for too long.
2) Glass, windows and doors – I do know of a few division 8 contractors who order large shipments of standardized products from china. Its hard to say what their saving are but it must be worthwhile if they are continuing to make these large bulk orders.
Some materials are of zero value. Any type of finish material such as tile or carpet will never get used. When stockpiling material focus on basics materials that are use to most people.
For example if you are a flooring subcontractor you should purchase bulk glue padding or nails. If you are a painting contractor you should purchase chemicals, roller pads or brushes. Carefully consider buying any premixed paint or super cheap carpet unless you are sure a customer will buy it.
Where to look?
Often times I can find leftover material posted in the classified adds on craigslist. Someone finishes a job and is dumping material for pennies on the dollar. If this is something I will use in the next few months and I have space to store it then why not?
Many domestic factories that were once obscure and hard to find now have websites. They may require a resale license or something similar but they are usually willing to skip the middleman if your order is large enough.
Websites like Alibaba are now connecting international traders. If you can use a container full material then ordering internationally is easier than ever.