Cash flow

Cheap and far or dear and near? Comparing two suppliers on the full cost

The quote with the lower unit price wins the email. Whether it wins the year depends on two numbers that never appear on a quote.

Marcus VolstedCo-founder, Restocio Published 10 October 202611 min read

When two suppliers you already know could fill the same order, one cheap and far away, one dearer and nearby, compare the full cost of that order rather than the unit price: what each unit costs once it has landed, plus the cash the slower route keeps tied up in goods still travelling and in the extra safety stock a long lead time needs. On the example below a 20 per cent price gap shrinks to about 8 per cent once all of that is counted.

That is one choice, made before one order. Running both suppliers at once and splitting volume between them is dual sourcing, a different strategy and not the one here. What your cost figure does after you have switched is covered in what a supplier price change does to your numbers, and placing a first order with a supplier you have never used is its own problem, worked through in setting a reorder point without a lead time.

Why the unit price picks the wrong supplier

A quote tells you what the factory charges. It leaves out what it costs to bring the goods to your shelf, and it leaves out time entirely, even though time is the thing the two suppliers differ on most.

The far supplier usually ships further and slower. Further means more freight per unit, sometimes much more. Slower means you pay for the goods earlier relative to the day you sell them, and you hold more spare stock in case something goes wrong on a longer trip. None of that shows up on an invoice, and all of it is money.

A nearby supplier has the opposite problem. Its quote looks worse than it is, because the advantages it sells are the ones a quote cannot print.

What goes into a fair comparison?

Two halves, and most comparisons stop after the first.

The landed cost per unit. Supplier price plus that unit's share of freight, plus duty and import charges. The parts of that sum, and how to split a freight bill across products, are on the landed cost page and not repeated here. One warning for this comparison specifically: duty can differ by where the goods come from, so the two suppliers may not carry the same rate. Take each figure from your own customs paperwork or broker, add it to that supplier's column, and do not borrow one rate for both. The example below leaves duty out of both sides so the arithmetic stays visible.

What the lead time costs in cash. This is the half nobody invoices you for. It has two parts you can measure.

Goods paid for and not yet on your shelf. If you pay when you order, the money for every unit is gone for the whole lead time before that unit can be sold. Averaged over a year, the amount sitting in that state is your daily spend on goods multiplied by the days from order to shelf. It does not depend on how big each order is, only on how long the trip takes.
Extra safety stock. The longer you wait for a delivery, the more your sales can drift from the forecast before it lands, so the cushion has to be bigger. The textbook formula on our reorder point page grows the buffer with the square root of the lead time: four times the lead time, twice the buffer. That covers swings in demand only. A long sea route also has more ways to run late, which pushes the far supplier's cushion up further still.

Both parts are cash you have spent and cannot use for anything else. To turn them into a cost, multiply by what money costs you a year, whether that is the interest on a loan or what the same cash would earn in ads or another product.

Two suppliers, side by side

Made-up round numbers, chosen to be easy to check rather than to describe any real lane. A product sells 20 units a day, 7,300 a year, and you order 90 days of sales at a time, 1,800 units, from whichever supplier you pick. Supplier A is far away and ships by boat. Supplier B is nearby and ships by truck. Both are paid in full on the day you order, and freight is paid when the goods land (a simplification: with a deposit and a balance at shipping, see step 3). Money costs you 10 per cent a year, which is a placeholder for your own figure.

	Supplier A, far, by boat	Supplier B, near, by truck
Unit price	6.00	7.20
Freight per unit	0.90	0.40
Landed cost per unit	6.90	7.60
Order to shelf	100 days	25 days
One order of 1,800, landed	12,420	13,680
Goods paid for, not yet on the shelf (20 a day × price × days)	12,000	3,600
Safety stock	30 days, 600 units, 4,140	15 days, 300 units, 2,280
Average stock from the order itself, 900 units	6,210	6,840
Cash tied up	22,350	12,720
What that cash costs a year at 10%	2,235	1,272
Landed cost of a year's sales, 7,300 units	50,370	55,480
Total cost of the year	52,605	56,752
All in, per unit sold	7.21	7.77

The safety stock rows follow the square root rule. A's trip is four times B's, so A's cushion is twice B's, 30 days against 15. Those two numbers are an illustration of the ratio, not a recommendation for your product.

Read the gap down the table. On the quote, B is 20 per cent dearer. Landed, the gap is about 10 per cent, because B's freight is cheaper. All in, with the cash counted, B is about 8 per cent dearer, and on average A keeps 9,630 more of your money tied up, all year round.

So the cheaper supplier still wins?

On money alone, in this example, yes, by 4,147 a year. That is the honest result and it is worth sitting with, because a lot of what gets written about buying closer to home assumes the lead time saving pays for the price difference on its own. Here it pays for about a fifth of the landed gap: 963 a year against 5,110.

Two numbers tell you how far the result is from flipping.

B wins on cost once its landed price is within about 0.14 of A's, roughly 2 per cent. Or, keeping the prices as they are, once money costs you about 53 per cent a year. The first is a negotiation away. The second is not a rate anyone should be paying.

Ordering smaller is the lever B gives you that A cannot. With a 25 day trip you could order a month at a time instead of a quarter, if B's minimum allows it and freight per unit holds on a smaller load. On these numbers that frees another 4,560 of cash. At 10 per cent that is worth 456 a year, so A's lead drops to 3,691. Smaller, still there.

What the table cannot price

A spreadsheet only counts what you can write down as a rate. The reasons people actually switch to a nearby supplier mostly sit outside it.

Whether you have the 9,630 at all. A cost of money assumes you can borrow or move cash at that rate. If you cannot, the question stops being what the cash costs and becomes whether the next order gets paid for, which is the subject of how much cash your next container ties up. A store that is short of cash can rationally pay 8 per cent more per unit to tie up just over half the cash.

How far ahead you have to guess. An order from A covers sales from more than three months out to over six. An order from B starts selling within a month, and if you order from B monthly, it never looks more than about two months ahead. For a steady product that hardly matters. For something new, seasonal or trend-driven, a forecast that far out is often wrong in one of two expensive directions: stock you cannot sell, or a gap you cannot fill. The table prices neither.

What a late boat costs. When the far shipment slips, the usual rescue is to fly some units in, at a landed cost that can wipe out the price advantage on everything that flew. How that bridge is priced is in air or sea freight, and how to work out the split. The near supplier's trip is short enough that a delay usually costs days rather than a plane.

Minimums. If one supplier's minimum forces you to buy more than you need, price the quantity you would actually have to take, and count the surplus as cash tied up too. The arithmetic for that is on the minimum order quantity page.

How to run this for your own two suppliers

Get each supplier's landed cost per unit: price, freight per unit on the route that supplier would actually use, and duty from your own paperwork.
Write down each supplier's days from order to shelf, all of it, as described in the supplier lead time guide. A quoted transit time alone will understate the far supplier more than the near one.
Work out the goods sitting between payment and shelf: daily sales × unit price × those days. If you pay a deposit at order and the balance before shipping, rather than everything up front, count each part only from the day you pay it. Both figures shrink, the far supplier's the most, so use your real terms.
Size each supplier's safety stock in days, using the square root of the lead time ratio as a starting point, and value it at that supplier's landed cost.
Multiply the cash tied up by your own cost of money and add it to a year of landed cost. Then look at the gap and ask whether the things the table cannot price are worth more or less than it.

Half an hour with two quotes and last year's sales covers it. Do it per product rather than per supplier, since the answer for a steady best seller and a trend-driven newcomer from the same factory can be opposite.

If the nearby supplier would come by road, Restocio keeps the truck route's delivery time and cost per kilo in their own fields in Settings, described in the freight mode toggles guide.

Comparing suppliers in Restocio

Restocio has a comparison for exactly this moment. On the Suppliers page, open the actions menu on a product's row and choose Compare suppliers. It lists every supplier recorded for that product with a cost per unit, a minimum and a lead time, and you type the Quantity you want. For each supplier it shows what You would pay, priced at the quantity that supplier's minimum and pack size would force you to take, and it tags the cheapest and the fastest. When those are different suppliers it says so in one line: “The fastest supplier costs [the difference] more and saves [the days] days. Neither answer is automatically right.” A supplier with no price is listed and labelled, never treated as free.

Here is what it does not do, checked against the code on 2 October 2026. “You would pay” is cost per unit times quantity and nothing else. It adds no freight per supplier, and it puts no money value on the days. The extra safety stock and the goods on the water, the second half of the comparison above, are not in it. So the trade-off line is honest about money against days and leaves the conversion of days into money to you.

Two habits close most of that gap. Type each supplier's landed cost per unit into the Cost / unit box rather than the invoice price: that box is read only by this comparison, so a landed figure there changes nothing else in the app and brings freight into “You would pay”. Then take the days it reports and run the cash half by hand, as above. The lead time you type in this view belongs to the comparison too, and it does not move an order deadline or a quantity. Nothing you pick here places or changes an order either.

Common questions

Is a cheaper supplier with a longer lead time worth it?

Often, on cost alone, but by less than the quote suggests. Add freight to get each supplier's landed cost, then add what the longer lead time costs you in cash: goods paid for and still travelling, plus a bigger safety stock. In the example on this page a 20 per cent price gap became about 8 per cent once everything was counted. The usual reasons to pick the nearby supplier anyway are a shortage of cash, or a product whose sales are hard to forecast months ahead.

How do I compare a supplier in China with one in Europe?

Put both on the same footing: landed cost per unit, including freight on the route each would actually use and duty from your own paperwork, since duty can differ by origin. Then add the cash cost of each lead time, which is daily spend on goods times the days from order to shelf, plus the extra safety stock the longer route needs, multiplied by what money costs you. Compare the yearly totals rather than the unit prices.

How much more safety stock does a longer lead time need?

With the standard formula, safety stock grows with the square root of the lead time, so a lead time four times as long needs about twice the buffer to cover the same swings in demand. That is a floor. A long sea route is also more likely to run late, and covering lateness needs extra days on top.

Is this the same as dual sourcing?

No. Dual sourcing means running two suppliers at the same time, usually splitting volume between them so one can cover if the other fails. This page is about a single choice made before an order: which of two suppliers you already know should get it.

Does Restocio's Compare suppliers include freight and the cost of lead time?

No. It multiplies each supplier's cost per unit by the quantity their minimum would force and shows the lead time beside it, then states how much more the fastest one costs and how many days it saves. It adds no freight and puts no money value on the days. Typing a landed cost per unit into its cost box brings freight in. The cash cost of the lead time is still a calculation you do yourself.

Marcus Volsted

Co-founder, Restocio

Marcus co-founded Restocio and works on it daily with a Swedish importer who plans their purchasing in it every working day. Restocio is built in Sweden by two founders, one Swedish and one Danish, and Marcus is the Danish one. Why we are building it.