In many cases, this is a wonderful guideline to follow. However, if it is an edict, too often additional cash is spent on inventory to meet the freight-free minimums without regard for cash that will be spent carrying these additional quantities. Everyone knows there is a carrying cost of inventory. So the moment inventory arrives at your location, the internal cash begins to flow in terms of warehousing, counting, moving and possibly losing any product. In other words, look at your computer system master file controls to review all the ordering controls currently being used.
Many systems come with defaults for the ordering controls, as that allows for easier installation.
After you have reviewed the ordering controls in the system, it is critical to educate your receiving personnel on their role in cash management. Since you have started the ball rolling by placing a purchase order with the vendor, you need to manage the cash impact of that order all the way through the entire process. When items are received on the dock, they need to be accurately put into the system. This requires matching quantities received with quantities ordered, not accepting damaged or wrong items, and identifying whether lead time for the items received should or should not be recorded in the system. Since lead time is a critical piece of the order point, safety stock and line point calculations, mismanaging lead times in the system will impact your ultimate cash flow.