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Distributor cancelled an order and we need to move 30k bags of coffee [updated]

modest.coffee

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Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#251

Post by lisper »

phphphphp wrote: post #238
lisper wrote: post #174

Others have pointed this out, but no one has actually done the math yet, so... 6000 "units" for $250,000 is $41/unit. At wholesale. For a product that retails for $16/bag. It is just inconceivable that no one noticed this discrepancy. This is not a "grift" by the distributor, this is an elementary and obvious fuckup by the producer. In fact, it's so elementary and obvious that it would not surprise me a bit if this w…

the units weren’t purchased, though, it was an order. If we take them at their word that they worked with a broker, then there’s numerous ways this could have happened. For example, the broker could have said “they’ll pay you $x per bag and they need 6,000 units” which would explain the discrepancy. After all, the order was for “units” but what’s ultimately being sold is bags — so there is some translation happening…

> the broker could have said “they’ll pay you $x per bag and they need 6,000 units”

That's possible, but unlikely. The whole concept of "bags" just doesn't enter into it in a wholesale transaction.

But even if this did happen, they could have avoided the problem by clarifying: "So that's a total of $X, right?"

Also, at some point this deal should have been put in writing, at which point, again any ambiguity should have been resolved. They had a lawyer, surely they would have asked him to review the deal before signing?

Sorry, but there is just absolutely no way to spin this so that this is not 100% their fault.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#252

Post by samwillis »

lisper wrote: post #246
samwillis wrote: post #243

Earlier quoted context omitted.

There is undeniable an F-up on the producers part here, however I think you are assuming too much in your calculation. They don't say at any point the $250k order value was the initial order as they understood it. They explicitly state that they kept getting further orders past what they understood as the initial 6k units. I think what's happed here is that as the order kept a growing they took on more debt to fulfil…

Again, this is not possible unless they were complete morons. At some point they either had some idea of what they were going to be paid, at which point they should have realized that a unit could not possibly be a bag as they were assuming, or they did not, in which case they had no business being in business. There simply is no way to spin this so that this is not 100% their fault.

No one can make that judgment without seeing the paperwork. We don't know how it was written down.

Also they are a really small business. 6k bags a year, their old volume, is only 23 bags per day (5 days week, 52 weeks)! Of course they were out of their depth, and very naive to how this all works. It's not fair saying they are morons and don't deserve to be in business though.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#253

Post by choppaface »

asah wrote: post #21

It's 101 that wholesale buyers order by the case and for producers to specify the casecount and price, and for errors like this to be caught when the prices/etc don't line up. This is equivalent to not knowing that URLs can redirect, or that http:// and https:// aren't the same thing. Distributors work with 1000 brands each and don't have time (or margin) to babysit. Also, when a company gets a much larger and differ…

“The distributor made a mistake and overestimated the needs of the major retailer and the deal was off.”

It wasn’t that the order was too big; it was indeed that the middle-man screwed up. There’s no evidence that had they done more due diligence that they could have avoided the issue. Supply chain has had lots of unexpected waves since COVID anyways.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#254

Post by samwillis »

cauthon wrote: post #247
samwillis wrote: post #243

Earlier quoted context omitted.

There is undeniable an F-up on the producers part here, however I think you are assuming too much in your calculation. They don't say at any point the $250k order value was the initial order as they understood it. They explicitly state that they kept getting further orders past what they understood as the initial 6k units. I think what's happed here is that as the order kept a growing they took on more debt to fulfil…

Is it a standard retail practice to agree to a sale quantity but not a price?

Price per item/unit/case/box whatever and a volume would be on the purchase order, not necessarily the total.

If the PO said "6k units @ $7/bag" (made up price), that's ambiguous enough to cause confusion.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#255

Post by deathanatos »

dtnewman wrote: post #237
lisper wrote: post #174

Others have pointed this out, but no one has actually done the math yet, so... 6000 "units" for $250,000 is $41/unit. At wholesale. For a product that retails for $16/bag. It is just inconceivable that no one noticed this discrepancy. This is not a "grift" by the distributor, this is an elementary and obvious fuckup by the producer. In fact, it's so elementary and obvious that it would not surprise me a bit if this w…

From the article: > June 2022 comes, and the orders for this retailer start coming in from the distributor. This coffee was shipping to five distribution centers so we were receiving multiple orders. The orders were large but we thought we could handle it. Then the orders kept coming, spread apart by days. So it sounds like they had an initial agreement for 6000 units, but the actual purchase orders were coming in pi…

The person's point, I think, is that even if you incorrectly believe a "unit" to be a bag of coffee, and you're purchasing 6k units (bags) for $250k, you're then, in your mind, being charged $41/bag of coffee. That price is far too high, higher than retail: i.e., you'd be selling at a loss, or at a price point that the market wouldn't take. So if you believe a "unit" is a bag of coffee, you're not making that purchase¹, as the price is too high.

The "orders kept coming", as I understood the article, because, again, they were expecting 6,000 bags, not 6,000 cases. So by the 1,001th case arrives, you're raising eyebrows, as you're now getting more than you though you ordered. A few over is perhaps whatever, but they were going to get 5,000 cases more than expected ­— quite a bit more than a few over.

¹… if you've done the math. But I've seen deals in my own field done where I know very little math got done, so … I can kind of see this mistake being made.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#256

Post by theptip »

nebulous1 wrote: post #165
theptip wrote: post #121

Earlier quoted context omitted.

They agreed a per-unit price. But they thought a unit was a bag, when it was actually a case of 6. So they thought they were getting 6x per bag. As someone that has gone through the process of trying go to build a business that sells to distributors, I cannot understand how you’d miss a 6x discrepancy in your price model. Your margins are slim, a 6x markup means you’re seeing more than 500% profit margin. (Probably b…

> They agreed a per-unit price. But they thought a unit was a bag, when it was actually a case of 6. So they thought they were getting 6x per bag. The problem with this interpretation is that it would mean that the entire second half of the story would realistically have to be a lie. Once they realized that they were getting 1/6th of what they thought, they would have to find a way to get out of the contract or go bu…

I agree it's weird, but I don't think it's up for debate on interpretation, they quite clearly state it:

> The food broker laughed and said “I wondered why you’ve been so upset and concerned. When they said ‘units’, that was cases. They’re right on target so far.” You can imagine how we felt in that moment, realizing that the person we hired to make this a smooth transition and to guide us and to tell us the things we don’t know failed to ever ask us if we were ready for a 36,000 bag order.

I.e. they thought they were getting a 6000 bag order, not a 6000 case order.

The error on pricing can only go one way; they can't have signed a deal where they charged per unit and therefore don't break even at 1/6 the per-bag-price, since they would just walk away at that point instead of borrowing money to throw into a deal that they don't break even on.

So they must still break even at 1/6 the price, which means the distributor priced it somewhat-fairly (at least not below-cost) per-bag, and they originally thought they were getting an insanely good per-bag-price that was 6x what they should have been getting per bag. Again, not questioning your working when you think the distributor is paying 6x what they should is a big red flag for me. You should notice a 2x discrepancy as margins are really thin in this kind of business, and your business plan needs to have a pretty good idea of the margins in order to determine if you can even break even.

Edit to add: I suppose it's possible that they agreed a per-bag price, with "bag" and "unit" used in different places in the contract. On reflection I should reduce my certainty on the above.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#257

Post by fabian2k »

zuppy wrote: post #232
whoopdeepoo wrote: post #153

Earlier quoted context omitted.

I am guessing the reason this coffee went fast is because it was a good price and the good sob story. Hard to imagine they can continue to pull that off. Fool me once yada yada

I wouldn’t be that sure about the price being good, if we’re talking about specialty coffee, which is a totally different kind of beast than the supermarket coffee. It’s almost a half a year old coffee (time since roast), a great part of the flavor has been already lost. We also don’t know how it has been stored, temperature will also affect the quality. here’s a very deeply technical explanation of this, right from…

The kind of people that buy specialty coffee would also tend to pay attention to roast dates and have very different expectations compared to people that buy coffee in a supermarket. Half a year is a lot for this audience.

When you buy from a roaster directly something like roasted a week ago would be more like the typical age. So I'm a bit surprised, I would have expected this audience to be much pickier about the age of the coffee.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#258

Post by lisper »

samwillis wrote: post #252
lisper wrote: post #246

Earlier quoted context omitted.

Again, this is not possible unless they were complete morons. At some point they either had some idea of what they were going to be paid, at which point they should have realized that a unit could not possibly be a bag as they were assuming, or they did not, in which case they had no business being in business. There simply is no way to spin this so that this is not 100% their fault.

No one can make that judgment without seeing the paperwork. We don't know how it was written down. Also they are a really small business. 6k bags a year, their old volume, is only 23 bags per day (5 days week, 52 weeks)! Of course they were out of their depth, and very naive to how this all works. It's not fair saying they are morons and don't deserve to be in business though.

The only circumstance in which "how it was written down" might matter is if what was written down is different from what they said in the blog post. Which doesn't really help.

There are only three possibilities:

1. The deal was written down, and it was, as they report, for 6000 units and $250,000 (modulo phraseology)

2. The deal was written down and it was not for 6000 units and $250,000

3. The deal was not written down.

In case 1 and 3 they are morons, and in case 2 they are liars. There are no other possibilities.

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#259

Post by chasd00 »

theptip wrote: post #121
nerdawson wrote: post #82

Earlier quoted context omitted.

That's not the way I read it. Like you said, they must have agreed a per unit price. The mistake had to have been purely in volume. When they recognised the mixup with cases / bags, they wouldn't have pushed to deliver the actual expected volume had the unit pricing been a problem.

They agreed a per-unit price. But they thought a unit was a bag, when it was actually a case of 6. So they thought they were getting 6x per bag. As someone that has gone through the process of trying go to build a business that sells to distributors, I cannot understand how you’d miss a 6x discrepancy in your price model. Your margins are slim, a 6x markup means you’re seeing more than 500% profit margin. (Probably b…

maybe the understood the margin percentage and thought it was a mistake on the other side of the contract and so went along with it. Maybe they thought "hell yeah! they messed up the pricing and we're getting a massive profit on this".

Re: Distributor cancelled an order and we need to move 30k bags of coffee [updated]

#260

Post by dtnewman »

lisper wrote: post #246
samwillis wrote: post #243

Earlier quoted context omitted.

There is undeniable an F-up on the producers part here, however I think you are assuming too much in your calculation. They don't say at any point the $250k order value was the initial order as they understood it. They explicitly state that they kept getting further orders past what they understood as the initial 6k units. I think what's happed here is that as the order kept a growing they took on more debt to fulfil…

Again, this is not possible unless they were complete morons. At some point they either had some idea of what they were going to be paid, at which point they should have realized that a unit could not possibly be a bag as they were assuming, or they did not, in which case they had no business being in business. There simply is no way to spin this so that this is not 100% their fault.

Neh. Perhaps the initial communication from the broker was along the lines of "Here's the deal I cut for you. The distributor is going to place several orders that together are going to add up to 6000 units."

"Great, we can do that... sounds good"

Now, the actual orders come in and the language is more concise and doesn't use industry jargon. The actual purchase order probably says something along the lines

  500 cases regular (6 bags per case) * $40/case = $20000.
  500 cases decaf (6 bags per case) * $42 = $21000
  Total order: $41000
They get the first order like this and they say, great, that 1000 units. We should probably expect 4 more orders roughly like this. When they got more than 5 orders like this, they started to freak out.

For your assumptions to make sense, the initial language had to match up to the PO language, which I wouldn't think it necessarily the case. Not being in the food industry, I can 100% imagine how one would assume units to be bags of coffee. I can also 100% see how people well versed in the industry would know that units means cases. This is obviously a rookie mistake and I'm not even going to claim that these are astute business people, but given a kinder interpretation of events, I would say moron is a strong word here.

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