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Maintaining Predictable Sales Income by Re-Ordering Components at the Right Time

If you want consistent and predictable sales income, you need an uninterrupted production schedule. And if you want an uninterrupted production schedule, you need to consistently stock components.

There are two parts to ensuring consistent component stock. You must know what your current component inventory is. And you also must know what your future component needs are. The solution to knowing your current inventory is record keeping. The solution to knowing your future component needs is more art than science. But you will do fine because you probably went to art school.

The science part involves using basic arithmetic. Just as a reminder since you went to art school, arithmetic is adding and subtracting numbers. The art part involves interpreting your sales history data to give you a sales and production forecast, and then weighing that against cash flow concerns to give you a long term production plan.

I’ve found equal pain in the two situations that can arise if you are not artful enough with this balance. You don’t want to be stuck with a pile of components that you won’t need to use for a year. But you also can’t afford to delay or miss orders because you are waiting on components to show up.

Here’s the gist. Know how many components you have and how many are needed to make a finished product. Decide how many finished products you want to make in the future. Do the magic arithmetic on these two numbers and voila! you’ve got the number of components that you need to order for the next production run.

The tough part is projecting out for several production run and sales cycles, especially if you have components that are shared among several finished products. I rely on a few concepts in order to do the best I can to keep steady inventory numbers.

The first concept is to plan out way into the future. Way farther than you think is necessary. Maybe you’ll plan your production batches for the entire year. Give yourself a baseline of the total number and mix of components that you will need to use for the next year. You can always move things around, cancel batches, add in new products. But you’ll have the long term plan to fall back on and adjust, rather than trying to scramble to create a new production plan every week.

The second concept is to predict when you will run out of each component. Have a solid idea of lead time of all of your components and set up a spreadsheet that will tell you when each component will run out, based on the long term production plan.

I tend to lean more towards having too many components on hand rather than too few because too few components really truly messes with production and manpower planning. You will have to find the balance that you are personally comfortable with and I know that forecasting and inventory tracking don’t sound all that fun compared to designing and making stuff. But if you use these two concepts you may find your stress levels going down and your creative time going up.

Filling orders on time and keeping a steady income has a way of making the creative part of the job more fulfilling and sustainable.

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