Thoughts on inventory for kit/gizmo business?
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Thoughts on inventory for kit/gizmo business?

by george graves on Sat Dec 25, 2010 2:02 am

One of the things I was taught was that a business shouldn't have too much inventory(finished product) and raw materials laying around. And now-a-days you hear a lot of talk about "just in time manufacturing" where you get the components in, right as you need them for assembly.

I know there are a few advantages: Smaller warehouse, less capital tied up in parts vs. have a bunch of money tied up in parts that's not making money,....ect. But does any of that really apply to a small electronics business? That's not to say someone the size of sparkfun or adafruit doesn't have those issues, but I'm asking more for the little guy starting out.

I don't think storage size is really an issue for the little guy? 4 shelves vs 2 shelves? As a small start up, that would be the least of your worries. Right?

What about the money issue. When you're small, it really seems as if missing that $50 is sales is more that keeping inventory low. Sure a rack of parts might be $1000, $2000? But you'd grow that over time right? It's not one lump sum you have to come up with...

Anyways, I've been trying to keep very low inventory, and I think I've driven myself crazy (as you can tell by this rant) - constantly keeping track of parts, having to put a parts order in cause you're low of something trivial, missing out on sales, constant list of parts that need re-supplies, not sleeping at night, excuses to customers, ect, ect...

I'm beginning to think that I'm going about things the wrong way. Has anyone been down this path and can lend some insight?

Thanks in advance!

George Graves
New blog - www.digitalunderpants.com
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Re: Thoughts on inventory for kit/gizmo business?

by westfw on Sat Dec 25, 2010 3:01 am

I *think* most of the "JIT" manufacturing noise is about major components which cost a lot of money and take a lot of space. Chassis sheet metal, major sub-contracted PCBs, etc. It doesn't mean you should be messing around with "cut tape" instead of full reels of your jelly-bean components (shucks, reels of jelly beans is "lab stock" rather than manufacturing stock, right?) (OTOH, you might think twice about 1000 bare PCBs.) Also, I think part of the idea is to be able to predict what you'll need to ship accurately enough to set of "flows" of components; so many of each part each month. If you can't do that (and I don't think that it's supposed to be easy), I think you're pretty much forced to buy enough of each component to absorb typical lead-times and hope that nothing extraordinary comes up...
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Re: Thoughts on inventory for kit/gizmo business?

by mitpatterson on Sat Dec 25, 2010 5:27 pm

yah, i agree with westfw, like i'm working on a kit, and i'm pricing things based on buying enough for 1, 10, 25, 50, 75, and 100 kits, and for most parts the prices go down(especially the PCB's). and also trying to find out if they are pats that the likes of digikey and mouser carry like all the time and rarely run out of(common parts, resistors, caps ect) and if they do run out a lot, see if a drop in part will work, or it may be something that if lead times are long(think atmel parts) then you better order a BUNCH at a time. If you haven't already seen it check out this video from Dave Jones(EEVBlog) he talks about sourcing parts for your own kit/product. Link here: http://www.eevblog.com/2010/11/15/eevblog-127-pcb-design-for-manufacture-tutorial/ Note, its like 51 minutes long, he starts talking about component sourcing ect, at about 5 minutes in.

Just my 2 cents

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Re: Thoughts on inventory for kit/gizmo business?

by winch on Sun Dec 26, 2010 7:21 pm

I think for $2000 of components you are really wasting your time worrying about it. Bigger companies need to worry about because they are working with bigger sums of money. Do it badly and you can end up with millions of dollars worth of stock pointlessly sitting on shelves.
An individual working with there own money isn't likely to make the same stupid mistakes because they have a good view of the entire business.


JIT can be used for everything, right down to nuts and bolts. For that sort of stuff you would still be buying in the same sort of quantities, just feeding parts onto the production lines in smaller quantities.
If you have say 10 lines then the you can end up with lots of $ on the lines just because of the large quantities involved. Operators like nothing more than working from big boxes since it means they never have to worry about running out of parts.

Plus from a quality POV it means you can ban boxes of banned from production. If all the bulk parts boxes have to live in stores you can have more control over your stock.
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Re: Thoughts on inventory for kit/gizmo business?

by mikeselectricstuff on Sun Dec 26, 2010 9:05 pm

There isn't an easy answer, but looking at component price breaks will generally give a big clue as to sensible purchase quantities. Passives etc. are lots cheaper by the reel - often even if you will only ever use half a reel in your lifetime.
Almost everything has a significant price hike below 100x, and PCBs are very quantity sensitive. Few parts have significant shelf-life issues so at least you don't have spoilage issues, although it is generally recommended that old PCBs are baked before reflow due to moisture absorbtion.
If you're doing pick/place either in-house or subcontract, then batch setup times and part losses on tape leaders can make short runs costly.
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Re: Thoughts on inventory for kit/gizmo business?

by mitpatterson on Sun Dec 26, 2010 11:01 pm

@mike, yah, when i need a couple resitstors(from mouser or digikey) i normally order like 20-50, or the last time i ordered 200 :D lol, i'll never use that many, but what the heck it cost like $2.00 for them(standard 1/4W through hole)

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Re: Thoughts on inventory for kit/gizmo business?

by richms on Mon Dec 27, 2010 8:35 am

With typical kitbiz markups between raw parts and packaged kits I dont think you will have a problem with overstocking on things, most parts should be readily liquidatable other than the boards and the total outlay is quite low compared with the time you put into it. Its not like shoes where the things are worthless once new lines come out and you have to dump them at a loss, there will be no next seasons resistor to worry about.

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Re: Thoughts on inventory for kit/gizmo business?

by mikeselectricstuff on Mon Dec 27, 2010 8:44 am

And another thing to bear in mind is that if you're making your own designs, you can design new products around parts you are already stocking (or are leftovers from obsolete products). It can often make sense, for example to use 2 or 3 resistors of values you already use in series/parallel combinations instead of adding a new values, as parts cost will be less than the cost of increasing inventory and loading more reels on the P&P machine.
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Re: Thoughts on inventory for kit/gizmo business?

by neutron spin on Mon Dec 27, 2010 12:18 pm

Although I do not sell kits I do use Mouser's project feature on their website. Once you have the parts list, just import it into a project and then you can order any multiple of projects. I order from 5 to 10 copies at times for some projects with the savings in volume for some parts. Very little inventory excesses that way.
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Re: Thoughts on inventory for kit/gizmo business?

by rocketgeek on Tue Feb 15, 2011 11:18 am

JIT only works really well when you have a very good idea of how much product you are going to be selling and are a big enough customer to have a close relationship with your suppliers. Then you can plan rolling orders for all of your parts out several months (or years, if you're someone like Boeing) so small batches are arriving at your factory as you need them... and supplies are arriving at your suppliers as they need them to feed you and so on up the line.

It does not work so well for a kitbiz. Cheap stuff should be bought by the reel; my rule is that any part that costs less than $50 for a reel, I buy a reel. Also, if buying how many I need costs more than a third of the cost of a reel of that part, I buy a reel. There's a reasonably efficient market for used parts, so you shouldn't be too concerned about overbuying. Big batches of PCBs are a hard one; they're much cheaper, but you're then locked into that design iteration for a lot longer.
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Re: Thoughts on inventory for kit/gizmo business?

by ktownsend on Sun Mar 27, 2011 8:48 pm

A good rule of thumb is keep plenty of the cheap stuff on hand (discretes, common connectors that you need to order 1K or to get a good price and use often, etc.), and source the expensive stuff on an as needed basis (MCUs, expensive ICs, etc.).

At $15 per reel, order reels of all the resistors and caps you commonly use, as well as LEDs, etc., and learn to optimise all your boards to use as many similar parts (and sizes!) as possible. Bite the bullet and get an entire reel of USB mini B connectors off somewhere like 4UConnector, for example, since you'll pay 10x the price in small quantities and it's probably something you'll use all the time. Same for 0.1" headers ... save your pennies and order 1000 once of a decent size and be done with it.

I actively stock about 50-60 reels of 0603 caps and resistors and common parts like PNP/NPN transistors, Green + Red 0805 LEDs, and the connectors I use the most (USB Mini B, JST PH 2 Pin). It can hurt to buy an entire reel of things like microSD connectors ($350?), but if you use them regularly you want to have things like that on hand due to the large minimum order quantity and difference in price compared to Digikey, etc.

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