Component Pricing and Residual Inventory are critical factors in the contract manufacturing world.  The selected method of dealing with these issues can mean the difference between new business and not, or profit and loss.

Some of the most common methods for handling a situation like this are:

1. Quoting best price and sitting on the excess inventory - This method may win you the order, but can cost you the business.  Excess inventory can quickly exceed order profits and while the order may be great business, it may reduce overall profitability as you try to consume or dispose of the inventory.

2. Quoting and purchasing actual quantities needed - This works well for small and proto-type runs.  It reduces excess inventory and keeps record keeping simple.  However, it requires extra work to source the parts, does not provide much attrition and scrap, and requires starting over for future orders.

3. Charging for the full reel - This ensures that all material is covered by the order and the customer is responsible for the cost.  This also keeps internal inventory levels at the lowest possible level.  However, it increases the unit price per assembly, which can cost you the business, and makes you responsible for managing the customer owned inventory.

4. Adding a lot charge for excess inventory - This method provides for the lowest possible price on the assembly, and identifies the value of inventory purchased in excess of demand.  This also makes it easier to add flexibility to any contracts regarding how and when a customer would purchase the extra inventory.  However, you must still have a way to track the inventory so that you know how much is still on hand in order to charge accordingly.