In our last blog we highlighted that ‘effective input purchasing is critical to the running of a profitable and sustainable farming business’. But what is the most effective way to buy your inputs?
As with most things in farming, there’s no one-size-fits-all solution. Farmers on Yagro buy their inputs in several different ways. We’ve selected the most popular and have taken a look at their pros and cons.
i.e. Single supplier relationship
There’s a lot to be said for having a meaningful, well established relationship with a single supplier. For a start, it means only having to manage one relationship, make one call when you’re ordering and only one van will be coming up the drive to make deliveries, which saves you time.
Also, in the unlikely event that there is a huge run on a single product, a preferred supplier with a closer relationship may be more inclined to look after you and help you access the product you need.
It’s very difficult to meaningfully benchmark prices – ad hoc manual benchmarking cannot provide an accurate picture. Can you be sure that your supplier’s always giving you the best deal? To be effective, a trusted relationship ought to be openly backed up with facts and benchmarks.
Working with a single supplier also makes you heavily reliant on that supplier in the event of a product shortage and you’re restricted to the limited product set they supply.
BEST FOR: farms looking for simplicity and supplier advice
i.e. Get quotes from multiple suppliers for each order
Shopping around gives you full visibility on prices available in the market, giving you the confidence that you’re getting the best deal for your business at any given time. This visibility allows also allows you to track and respond to input price fluctuations, ensuring you’re purchasing at the right time.
Competitive purchasing also provides full access to all products on the market and gives an opportunity to find cheaper or higher performing alternatives to the brands you might usually order.
The major setback of this approach is simply how time-consuming it can be. In the thick of the buying season, this might even turn into a full-time job, endlessly calling suppliers, manually comparing an array of different quotes and potentially coordinating multiple deliveries from different suppliers each week.
If products are running short, not having a single supplier relationship could also be a disadvantage.
BEST FOR: more commoditised products with lots of alternatives available
i.e. Securing your product for the season in advance
Committing to products at the beginning of the season is a great way to secure product and you might be able to secure a great price too.
Once commercial agreements are in place, work load throughout the season will be reduced as ordering becomes as simple as calling down from commitments that have already been made. Knowing prices upfront also makes accounting and monitoring cash flow a great deal easier.
It does mean more work at the start of the season – predicting as accurately as possible the volume of products required and managing a potentially cumbersome tendering process.
Also just because a price has been secured upfront, doesn’t mean you’re necessarily getting the best price. You might end up paying above market rate if prices drop throughout the season and most rebate mechanisms are complex and hard to understand.
BEST FOR: securing products with high demand
i.e. Small farms joining forces to aggregate demand
Groups are a great way to increase a farm’s buying power, resulting in keener prices and preferable payment terms. Some groups also offer advice and can automate payments by direct debit, saving you time and the headache of processing invoices and making payments.
There is a price to pay though. Groups will generally charge a membership or commission fee and can result in a lack of visibility on products and price.
You also might end up losing control over what products are ordered. Different brands arriving on farm to those actually requested is a common complaint, but is necessary for groups trying to aggregate demand and access volume savings. If there’s a specific brand you need, you may have to go outside the group or settle for an alternative product.
The collective nature of groups also means that ultimately larger farms will end up subsidising the smaller farms as they all access the same price. The larger your farm, the more likely you’ll be able to secure a better price going direct.
BEST FOR: small farms wanting to outsource their procurement
As expected, there’s no simple answer to the input purchasing question. Effective input purchasing involves sophisticated procurement and risk management practices, likely involving a combination of the approaches outlined above depending on the products required and on your farm set-up.
That’s why we built Yagro to cater to all of these approaches.
With Yagro you could shop around on your chem and seed, forward buy your fuel and work with a preferred supplier for your fert, giving you an effortless, optimised procurement approach across all your inputs.