> I had to stop reading when the dog washing company blamed needing to respin a new board on a chip being out of stock due to this
...
> if you aren't buying enough chips to build all the boards you want to build of a revision
Friendly advice:
If you are going to be a consultant to industry, don't post comments like this.
As someone who has been manufacturing tech products for over thirty years, my first reaction to your comment was "this guy doesn't have a clue". Then I looked at your site and was absolutely floored. My guess is you have lived in what I like to call the "SBIR distortion field", which is a domain that is very, very far from the realities of, say, a dog washing company. Not just because of usually just having to make one or a few of something (rather than 10,000), but also because of the financial dynamics of these programs --I have experience in that domain as well.
Your vision of how this dog washing-machine company should operate does not align with the realities of a business outside of the "SBIR distortion field". Companies don't have cash reserves to fill the warehouse to the brim with components and product, weather a storm, keep the business afloat and everyone employed simultaneously. On top of that, manufacturing at any non-trivial scale is such a cash intensive endeavor that cash must be managed very carefully. If you buy too much inventory you can end-up in financial dire straits.
The phase lag between spending money to manufacture a product and getting a return on that investment can be in the order of months, and that assumes a "linear" market. If you include R&D in that equation, it's even worse, years.
I experienced this personally back in 2008. I did precisely what you suggested above and filled the warehouse with some two million dollars in components and assemblies to get ready for sales of our new product. We had demand. In fact, the purchase of the components and assemblies was triggered by receiving a purchase order for five million dollars of this product. And that was just one customer. I didn't know better. I thought it was perfectly sensible to place large PO's for critical components that would cover us for at least a year and tool-up. We even bought a bunch of brand new CNC equipment to bring manufacturing of heat sinks and other mechanical components in-house in order to reduce our cost basis. In fact, interestingly enough given some of what you have on your site, I made the single largest purchase to date (at that time) from Osram's high power LED division. No company in the world had ordered that many high power LEDs from them.
And then the music stopped.
The economy came to a grinding halt.
Sales went to ZERO.
The five million dollar purchase order? They went insolvent when their bank cut-down and eventually cancelled their line of credit. Other orders from major companies were put on hold (we had a PO but were told they were not going to accept deliveries, so, don't ship). We went from having tens of millions of dollars in orders for that product and that year to, effectively, zero.
What was the end result? It was very rough. All of our cash was in the warehouse, on shelves, as components and assemblies we could not sell. We couldn't even get a loan to weather the storm. Nobody was buying anything, not at scale anyhow. We had to sell some of our component inventory for ten or twenty cents on the dollar just to bring in cash. It was worthless.
I had to take a second mortgage on my home and use credit cards to make payroll (big mistakes, both of them). We survived for two years on bread crumbs. And then I had to shut down the company. It too me years to even be able to talk about this episode of my life to anyone. It was horrible.
The two millions dollars I spent on "buying enough chips to build all the boards", as you put it (it was more than chips, but the example fits) was the single biggest mistake I have made in my business career. And this one cost me a business I built over a decade, starting in my garage with $5,000 to receiving a $30MM acquisition offer just as the economy took a shit (the offer was rescinded).
So, please, pretty please, with sugar on top, if you want to be a consultant, don't say anything unless you really understand it. In this case, you clearly do not. To someone like me --who has actually lived through many ups and downs in life and business-- such comments result in what I will call "less-than-favorable conclusions" about the author. This isn't good for a consultant, unless the consulting is in a domain that does not necessarily align with reality outside of something like the SBIR/academic domains.
It took years to recover, both mentally and financially. I eventually launched a new business, also in tech. Today we are facing having to manufacture 10K to 20K units per month of a new product. When we started design we picked readily available components and went on to design the product over about twelve months (real product design for scale manufacturing takes time).
Today, as we approach production requirements, we are being quoted anywhere from 40 to 50 weeks for some of the components. In other words, we can't even buy them. We are having to consider having multiple alternative designs to see if we can manufacture functionally equivalent versions of the hardware using different chip sets. This means all of our regulatory and safety testing --another thing you ignored-- (FCC, CE, TUV, UL, environmental, thermal, lifetime, etc.) has to be redone, not once, but likely four to six times (depending on how many versions we end-up with). It's a nightmare.
And, no, buying a million chips a year ago wasn't the solution. The cash drain would have resulted in people losing their jobs and possibly even going out of business again as sales levels last years went down some 80%.
You buy as close to just-in-time as you possibly can. This practice has gained acceptance over the years for a reason. Sadly, I happen to have learned the lesson the hard way. If you have to weather a storm it is far better to have cash in the bank than a warehouse full of worthless components that you can't turn into cash precisely because of the storm.
"A man holding a cat by the tail learns something he can learn in no other way". --Mark Twain
So true.