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.

ManEx is the best ERP system on the market for electronic contract manufacturers.  No other system provides better control and more detail in component tracking than ManEx ERP.  These features allow contract manufacturers to handle complex situations like the one described in the business case.

Users of ManEx are able to utilize any of the methods described in the business solution.  Depending on the situation and circumstances, ManEx users can employ one of the following methods to accomplish their purposes:

1. Identifying Excess Inventory Values *- Quoting in ManEx allows users to see the value of inventory after production is complete.  Providing this information to the customer in the quoting process enables everyone to plan for it from the start.

2. Track Customer Owned Inventory - Customers can provide their inventory where appropriate and ManEx will manage it throughout the process.

3. Track Inventory by Project *- Users are able to identify the project when purchasing inventory.  This enables simple reporting of the current on-hand value for project inventory.

4. In-Store Inventory *- This can be used to track customer and supplier owned inventory for which the user will need to place an order upon consumption.  Some companies use this to track components covered by excess inventory lot charges, but which remains the property of the user.

5. Standard and Custom Reports - Standard reports in ManEx will help users identify excess inventory for a given customer.  Users can also create custom reports to further aid this process.

Case Solution

NE Company decided to provide visibility of the best pricing and potential excess inventory.  They made the decision a collaborative effort.  The customer agreed to either consume the excess inventory within six months or purchase the inventory and then sell it back as it is needed to fill the production runs.

Because they took a collaborative approach and had the ability to manage the inventory regardless of the owner and status, they were able to win the business and increase their sales and profits.