2,751 parts in the supply chain sounds like a lot, but you’re competing for all those components with everyone from Subaru to Saleae. The flip side of the existing inventory level coin is lead time: how long will it take for your critical components to get back into inventory. An automotive manufacturer that spends millions of dollars at once can get on the phone with their golfing buddy and say, “Look, I want 3,000 SPC563M64L5’s ready to go at the start of each quarter.”, but you don’t have that power. You need to do a little forecasting then.
This is part 2 of a series on getting ready to buy parts for a production run. Production Part Purchasing Part 1 covered identifying critical components, looking at part cost over time, and verifying inventory levels.
Planning Your Supply Chain
Grab some essential data points…
1. Find the factory lead time for your critical components.
2. Determine how the production run will take.
2. Make an educated guess at your expected sales volume for that production run.
Finding the lead time isn’t the easiest task. Some distributors publish it, some don’t. Your best bet is to work the phones and email. Contact the sales department at the manufacturer for each critical component and get that time frame direct from them. This is a very important value, because it tells you how screwed you are if you go to spend money and come up empty. I know this feeling first hand, and it isn’t pretty.
Production Run Timeline
The time frame for your production run will be quoted to you by your Contract Manufacturer. If (God help you), you’re planning on doing assembly and testing yourself, add 100% slop to your estimate for how long it will take you. That’s right: double it.
Sales volume, well, I can’t really help you with that. Like I said, make an educated guess, and don’t beat yourself up too much if you’re way off base. Particularly with new products that lack existing orders, a WAG is about as good as you can get. But even a WAG is better than nothing.
A Supply Chain Example
So let’s take these data points and add some real world values to them.
1. Looking at your list, the longest factory lead time turns out to be 16 weeks.
2. Your CM tells you production will take 6 weeks.
3. Your sales volume says you’ll sell out in six months.
Let’s make two assumptions. One, our production calendar starts on January 1st, and two, we have enough parts inventory in the supply chain to safely make our first production run.
So, we sign the purchase order and celebrate as our CM goes to work on January 1st. With a six week production schedule, that means we’ll get the product mid-February. If the CM ships mid-February, our estimated sales volume says we’ll be at 0 stock on hand by mid-August. Now let’s work backwards from there.
We don’t really want to drop to zero inventory, so we’ll move back from that mid-August date by two weeks. That’s when we want the next shipment for the CM to arrive – August 1st. With a six week production schedule, that means you’ll be signing another PO June 15th so the CM will start up the factory again.
June 15th is the day when the CM must have all the components to do the work. But the factory lead time on the most critical component is 16 weeks, so ideally, you’ll be checking inventory levels beginning March 15th!
Planning For Supply Chain Nightmares
You’ve identified the critical date for when you need to start considering the inventory levels of components. Since you’re not buying at a volume that allows you to call the manufacturer and have them crank out a reel for you, there are only two risk mitigation strategies available.
- Buy enough inventory of the critical parts to cover two production runs. That way you always have a spare reel in the cabinet ready to go.
- Identify FFF equivalents so that you can supplement your production buy with sufficient replacements that you meet the manufacturing demand.
Despite all the best planning though, you can still come up short. What are you looking at if worse comes to worse and there isn’t enough quantity available of a critical part? First off, you gotta talk with your CM. The larger the CM, the more resources they have that might be outside your sphere of influence. Even with smaller contract manufacturers, they deal with this stuff all the time, and you might be surprised what they can pull out of their hat (“I just had a guy that did a run with that part. Let me call him and see if he’s got some spares you can buy.”).
Failing that sort of miracle though, you can accept the risk of delaying production by whatever the required lead time is to get your parts back in stock. If you don’t have the money up front of buy excess, and there is no FFF equivalent, this might just be the only option. I have been there, and it sucks having to make those phone calls, but being up front with your customers and your CM is a lot easier than trying to tap dance for 8 weeks.
If there is a smaller quantity available, you can also drop your production quantity to match the inventory on hand. Again, you have to work with your CM on this. If you’re doing a smaller run, it might affect their costs. It takes time, aside from the non-recurring setup costs to smear paste on boards and place components, and they amortize that cost across the whole run of your product. If you have a significant drop in quantity, then the manufacturing cost may very well go up.
With all the items above, the key is to be aware of the risks in your production cycle, and have a plan to mitigate those risks, even if the only mitigation is to say, “I knew this was a possibility and now I just have to suck it up.”