The profit-leverage effect of supply savings means that:
A)effective price negotiations with a supplier will lower the supplier's profits.
B)a reduction in purchase spend increases profit more than an equivalent increase in sales.
C)the buyer gains leverage over suppliers when purchases are increased.
D)efficient supply management processes will increase profits.
E)a reduction in money tied up in inventory improves profits.

Question

Quizplus · Accepted Answer

The profit-leverage effect of supply savings means that a reduction in purchase spend increases profit more than an equivalent increase in sales. This is because reducing costs directly increases profit, while increasing sales does not necessarily guarantee increased profit if the costs of producing and selling the additional products exceed the revenue generated. Therefore, effective supply chain management that results in supply savings can have a significant impact on overall profitability.

The Profit-Leverage Effect of Supply Savings Means That