> 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
First off, I really hope things go well for you and thank you for sharing your amazing story. I went through something similar in the software side of things.
Second, that was a great post and I want to read your (I’m sure imaginary) blog. It was like a mini business education in modern manufacturing.
Finally, I am amazed you’re able to write this with no bitterness. Hats off to you.
Oh, there's emotion there. No question about it. Not bitter. Angry, maybe. I made a really bad decision because I thought business was going to take off like crazy that year. We were running on all cylinders. It was going to be the culmination of a ten year effort.
You don't go through something like that without the emotion staying with you. Yet, if you are going to move on you have to be able to put it in a drawer and only look at it every so often just to make sure you are not going to do something dumb again. As time passes you have less time to make mistakes like that.
That's a tale as old as time to anyone who weathered the great recession, and I can deeply sympathize.
You've highlighted exactly the value and difference experience makes. People born at the crest of the wave can only take for granted their position until they have lived enough to reflect.
As I finished writing that comment (and I truly tried to be constructive as the author is young and inexperienced) I remembered another traumatic event of that era.
Every order we received was like precious molecules of much needed oxygen. We got this order from one of our resellers (we had about fifty all over the world at the time) for about half a million dollars in product. This needs to be in the right context: I had just taken out nearly all of the equity in my home to keep the business going and took out a bunch of cash on all of my credit cards, personal and business. I had already been to the hospital once due to stress and dehydration (I managed to do that twice in a year). A half million dollar order felt like a billion dollars.
We had product. We shipped it and awaited payment in thirty days. That's the other reality, it just takes time to convert components to money.
Almost precisely thirty days into this cycle FedEx freight shows-up with a shipment. Our reseller returned 100% of the order we shipped a month earlier. All of it.
I called the owner of the company and unloaded on him. At the end of the call I ended-up having to thank him.
You see, they were going down in flames, just as most of us were. He was at the point where the banks forced him into bankruptcy. He knew that within days people were going to descend on him to take inventory (and possession) of everything under their roof.
He sent us our hardware back because he actually care for us and did not want the bank to grab hardware he had not paid for. Like I said, I had to say "thanks" and wish him luck.
I can't remember if we ever got another order of that size between that point in time and when we closed our doors.
Maybe the real lesson of the whole thread is to require customers to pay in advance with a non-reversible wire transfer, or at least via an escrow service contingent on delivering the goods. Or alternatively, somehow buy insurance against the customer failing to pay.
There are an enormous number of marketplace norms which prevent being able to make demands on a customer like that. If you're the only vendor trying to protect your downside like that, then you look like a bad vendor, and it can affect your ability to close the deal at all. Especially in enterprise/B2B markets there's an amount of ceremony and playing of the game required, not because it's actually good for any of the parties involved, but because it's just the thing everybody does, so you have to do it too.
For example, we sell into markets like automotive, aerospace, and medical. Being a startup we have basically zero leverage in how to go about conducting business with large well entrenched enterprises with business development dynamics that were calcified decades ago. Part of managing my business is accepting and working with the risk profile of having to keep the company solvent long enough to actually engage these customers in the ways they're able to be engaged. I'm not going to be in a position to make demands that they conduct business significantly differently with us relative to their hundreds of other vendors regardless of if it would ultimately benefit both of us to do so. There's an amount of inertia in any status quo that needs to be overcome, and the problem with that is that the party with the most motivation to displace that inertia is also the one with the least power to do so. That reality gets baked into our capitalization and operations strategy.
I'd love to be able to demand that automotive OEMs actually cover the cost of engaging in a PoC with them which isn't going to have any real payoff for months or years, but every single other supplier they have eats that cost just like we do, and betting my company on the incredibly low probability that I'm going to displace the pandering that they expect from their supply-chain all by ourselves would be crazy.
> There are an enormous number of marketplace norms which prevent being able to make demands on a customer like that
There's also the reality that every business is on a 30, 60 or 90 day phase lag from delivery to getting paid, and so they have no choice but to enforce those rules up the supply chain. If you don't you need piles of cash upfront months before you generate any revenue, at scale that is really tough to manage and there's a very real cost to money.
The simplest example of this I can offer is that if you have to borrow ten million dollars to pay all your suppliers upfront and this money cost you 1% per month (making the numbers simple for the sake of an example), you are going to incur a 5% cost of money if you have to wait five months to get paid (again, keeping numbers simple).
I have a friend in the production business who made commercials for a major animation studio. He told me it typically took them about six months to collect. They would invest massive amounts of money on equipment and personnel to shoot, edit and deliver a commercial and their payment would not come for six months after delivering the end product. The entire cycle would easily have taken a year.
You are not going to find any sizable player who will agree to immediate payment. Even getting someone to agree net 30 can be pulling teeth from time to time.
This war was fought decades ago. Just-in-time production won, and it was a decisive victory. This chip shortage is rough, but nowhere near as rough as it would be if we weren't doing things the way we are right now. Everything that has happened has happened for a reason. Attempting to disrupt this will put you in way over your head in ways you couldn't imagine.
> Maybe the real lesson of the whole thread is to require customers to pay in advance with a non-reversible wire transfer
Not so easy. This is particularly true as you start to get into higher dollar amounts. Also, it tends to be far more common with international orders than with domestic business. I can say that nearly 100% of our international business was prepaid. Sadly, during the 2008 downturn, all business came to a halt. There were very we places where you could find income that could sustain the prior state of business.
In the case of the the five million dollar contract I mentioned, we did get a $500K deposit with the order. Well, the $500K was spent on components pretty much as soon as it hit the bank, within a week. It's very hard to escape something like what happened in 2008 if all your cash in in a warehouse filled with parts and product you just can't sell.
If you can find a customer who will pay in advance on product with (reportedly) 40+ weeks lead time, then you've found a customer who will probably be insolvent by the time you ship
This is great. Thank you. This is like flippantly suggesting we all just drive on the other side of the road. Genius. Ignoring all the complexities involved in getting such an endeavour to happen.
>It too me years to even be able to talk about this episode of my life to anyone. It was horrible.
I am glad you found the courage to share a bleak chapter in your life, and for being unflinchingly honest. I hope it was cathartic ─ your lived experience will serve as an extremely valuable lesson for those of us, who might encounter such circumstances.
To this day I don't really like to talk about it because it is easy to blame myself for more and more and I need to focus on the future. One of the things that happens to you when you fail like that after a ten+ year effort is that you sort of lose your identity. By that I mean that I was very well known in my industry, gave seminars to hundreds of people, etc. I went from that to evaporating from the scene for many years. I left the industry and never went back. I shifted into other domains. That identity is gone. In the new context I am nobody. That's a tough shift. Not because I value being somebody, but because losing your professional identity isn't a great thing to having to navigate.
Yes, it is cathartic to some extent. And yet I don't really enjoy talking about it. It still hurts.
Thank you for sharing that. One of the biggest laments I've run into trying to help someone get businesses bootstrapped is some of the very lessons you just shared.
That sharing is so damn rare, and I think a lot of people end up in a really bad place because we don't do a great job at teaching the failure states of business.
So again, thank you. Life willing, you sound like someone I'd be thrilled to do business with.
> One of the biggest laments I've run into trying to help someone get businesses bootstrapped is some of the very lessons you just shared.
This is one of those things that makes hardware businesses so darn hard and something software-only startup folks just don't understand. The marginal cost difference and phasing of money you need to support, say 10K SaaS clients vs. shipping 10K non-trivial hardware products can be massive.
In my case the company was 100% bootstrapped. In retrospect I should have gone for investment as soon as we started to take flight. Frankly, I was too busy gasping for air (money) and absolutely overloaded with work to even consider it. Any investor type I spoke to was going to suck time and resources I simply did not have. So we kept going. Had it not been for the 2008 economic downturn we would have had an amazing exit.
> That sharing is so damn rare
Frankly, the experience was at the limit of darkness for me and sharing was nearly impossible for years. In December of 2009 I wrote a friend an email where, among other things, I said "I now understand, in no uncertain terms, why people jump off buildings or walk in front of trains during hard times". He was knocking on my front door within 15 minutes, after breaking the sound barrier driving from his office to mine.
No, I wasn't thinkin of ending my life. Not even close. It's just that the darkness I was facing at that moment in time produced a clarity of understanding I had never had before. I felt that I had full understanding of how someone could make that kind of a decisions. I was simply communicating the revelation I had. I can see how bad it must have sounded.
I wrote a simple inventory program for a yachting company, after entering the inventory data into the computer it turns out a lot of expensive parts had been double ordered and even triple ordered.
But the Ontario added a luxury tax and sales tanked. It looks like they had over three million dollars in excess inventory. And soon the company went bankrupt, to this day I think the company would had pulled thru if it did not have the extra money in the bank instead of inventory they could not use.
I can't tell you how often I see comments on HN about "corporate greed" and such things as "businesses just want to make money at any cost". What these commenters don't understand is that cash is like the blood pumping through the veins of the business. Without cash the business dies. Even worse, people lose jobs, families lose security and the chain reaction can be massive. Businesses need profit and careful management in order to accumulate cash to grow and survive through events and circumstances most people who have never run a non-trivial business couldn't even begin to imagine.
Every time I read such comments I reflect upon how terrible of a job we are doing in teaching young people about finance, business and entrepreneurship. In the US most high school graduates have no skills to offer other than, perhaps, stacking boxes and making coffee (after some training). I truly don't understand how people are happy with this in a so-called "developed" nation. We launch young adults into the world and they know so little about it. That's where such comments come from. How could you blame them? The entire country failed them by not ensuring their education includes perspectives and knowledge that allows them to deliver value to potential employers.
If a company has a honest business, then i agree with you. Money is the blood in their vein and they need it and should get it.
Well, i cant speak for others, but when i talk about company greed i think of practices like using fake cheese to cut costs but hide it from the customer.
Or when they break their product by update and tell you to buy the bigger one. (Like Synology recently)
Or to intentionally slow down the product by Update (like Apple) and lie to your customers about doing it.
Or drying up the well from villages(Like Nestle).
Or demanding tax returns from taxes you never paid (Cum-Ex).
Those companies give a shit on society for each dollar they can get no matter what.
that is greedy and in my opinion very wrong.
Every time i read a comment about how someone defends that i reflect upon how short sighted or antisocial a person must be.
Those people have probably no skill beside locust style investment and stealing lolipops from little babies.
We launch young Business Administrators into the society and they know so little about how to actually be productive. That's where such comments come from. How could you blame them? The entire Society failed them by not ensuring their education includes perspectives and knowledge that allows them to deliver actual value to economy or society.
Starting from the basis that there are less-than-honorable people in every domain it is perfectly reasonable to assume that a certain percentage of businesses might be (or are) willing to cut corners or behave badly in pursuit of whatever drives them. This could be profits, survival, competitive advantage, all of the above, etc.
I tend to react badly to broad-brush painting of business and those who run them as greedy and evil. There is a cultural undertone that seems to think this way. I can't understand how this happens other than to think that people who think this way (broad characterization) simply don't engage in any critical thinking at all and don't understand business.
The vast majority of businesses, large and small, are comprised of honest hard-working people who have no ill intent of any kind. The percentage has to be in the high 9's, like 99.999%. If this were not the case it would be very evident.
Large corporations can behave badly due to the power they can wield. A simple example of this are companies that have entire floors full of attorneys and can muscle little guys into submission by simply being able to outspend them in legal jousting. I have been at the receiving end of this and it is nasty. You are entirely powerless and can't do a thing about you. The asymmetry is beyond evident and, yes, very much unfair.
This, in my opinion, is a structural failure of our legal system. I am not a lawyer, so I can't really dissect this down to details. I just think that "equal under the law" depend on how much money you have to tilt that equality. I don't know what could be changed in order to achieve balance.
A simple example of this could be patents. A good utility patent can cost in the order of $25K to $50K to secure and take years. A large company has the resources to write hundreds of patents per year. Small to medium businesses are generally more innovative and creative than large organizations with lots of inertia. However, they are often starved for cash, which means they have to choose between innovating, paying the bills, keeping people employed and existing or dumping cash into patent after patent. This creates a situation where small to medium businesses end-up living in a very real legal mine field of patents that could, at any time, take them out. Beyond that, patent litigation --any litigation-- is so expensive that almost anyone has to cave immediately.
Yes, we could do a lot better in ensuring fairness and socially responsible behavior across the board. Not sure how we get there when our political system's fitness function is completely disconnected from delivering anything of true value to society. As long as politicians are evaluated through a fitness function with that consists of votes and not much else, we are not going to have leadership who cares about doing anything other than lying and pandering for votes. How do we fix anything when these are the kinds of people running the nation?
Sure. Agreed. However, I think it is entirely fair to say that this isn't a 50/50 situation where half the companies are evil. In fact, even companies like Google --which I have grown to dislike-- are not evil. They behave badly in some areas while doing great things in others.
One of the things I have grown fond of forcing myself to say or think as a way to center myself is that reality can't be reduced to a single variable. Reality is a complex multivariate problem. As such, a reduction to a single variable, is both irrational and unrealistic. No matter the issue, there's a lot more under the surface than a single variable, issue, property, behavior, etc. A lot more. The sophisticated thinker will recognize this and try their best to avoid the kinds of sweeping generalizations that are, sadly, so common these days. Entire groups of people negatively painted with a broad brush is probably the most recognizable for of this effect today.
thanks for the very interesting story. i never went beyond the prototyping stage for the products i designed. i always thought that small scale production would be an easy next step. i understand how wrong i could have been thinking it was "easy".
You did not offend me at all. I'm not a kid. I am just offering a mirror from the perspective of someone who has actually lived the kind of thing you are proposing.
Look at it a different way: Back then I thought what you are proposing was sensible enough that I spent two million dollars to execute precisely that strategy. I ended-up losing a business that I built over ten years because of that decision at a time when it was the worst decision one could make.
In other words, if I called you a fool I would be calling my younger self an even bigger fool. I actually believed it enough to effectively destroy my company and affect my life for years. I am not calling you a fool. I am sharing a lesson I learned the hard way and simply warning readers not to assume they understand reality without the benefit of experience. Sadly some of this stuff we only learn after the fact, not before. I can't blame you at all for not understanding it.
EDIT: If there's emotion in my tone, please forgive me, ten years later and this still hurts. The experience put me in the hospital more than once and nearly cost us everything, we were horribly close from losing our home and everything we built over decades.
I appreciate it, but still apologize for being flippant.
I did intend the comment to be about the dog washing startup that I assumed to be a fairly small business. Not buying the (presumed to be in the 10,000 quantity range) MCUs they needed ahead of time, knowing that they will be the single linchpin chip that there will be no pin-compatible replacement for, is what I found to be ridiculous.
I hope you find that perspective to clarify my intent some.
That's the good-old hindsight is 20/20 business, isn't it?
No need to apologize at all. This is conversation. We all have much to learn.
Today, what you suggested is precisely what I do. I try to make sure there are at least three pin/function-compatible chips that can swap in for any given device. Preferably from different manufacturers. I also talk to distributors to get a sense of volume. I prefer to buy devices and components that are being manufactured and stocked in larger quantities. A silly example of this is that it is much easier to find a 47 uH inductor in stock than a 50 uH part. One has easy substitutes, the other can turn into a nightmare.
As for buying 10K microprocessors, again, that can be a tough decision to make. On the financial front, you could be talking about a $50K to $200K expenditure before you sell any product. In terms of logistics, if I have $200K in microprocessors in stock and I can't buy RS422 drivers I can't build a product. Which means that the decision of locking-up cash in the warehouse can quickly turn into a nearly all-or-nothing proposition. In other words, if you are going to stockpile microprocessors you might have to stockpile another $500K in parts in order to ensure that the investment isn't worthless if there's a shortage.
And then there's the issue of what you do with your nice pile of components if nobody is buying anything. As 2020 has proven, if you are in the wrong category, you could literally sit there for a year without selling much. That's what really hurts when you locked-up a pile of cash in the warehouse. We have a client who's business went down 80% last year. They had to shrink from 50 employees to three. They had to further shrink from a 100K square foot facility to a 22,000 sq ft building. And business is slowly crawling up. Had they made a huge cash investment early last year they would have been out of business by now.
In the electronics manufacturing business you have at least three tiers of manufacturers.
One is the super small shop that just sends everything out to contract manufacturers, along with parts they purchase themselves.
The next is the small-to-medium shop that graduated to having the CM provide parts. In other words, you design your product and fully trust your contract manufacturer to handle the supply chain. CM's will work with distributors to stock components and build boards. There is no way CM's are going to stock components clients don't need just to be sure they have a supply for a year's worth of boards. The only components CM's might stock in large quantities are parts others are using that are low cost. A simple example of this might be resistors.
The next level is a case where a manufacturer has enters into a contract with the distributor and the CM to have "bonded" inventory. They commit to buying a certain quantity of product --no matter what-- and, in exchange, the distributor and CM will inventory enough product to meet the demands of that contract. For example, you might commit to manufacturing 10K LED bulbs per month and need to ensure a supply of, say, half a million LEDs. You sign a contract and this happens. The advantage of this approach is that you are billed as product is delivered rather than for the entire half million LEDs you bonded. Of course, you are buying 10K bulbs per month. It's a machine, once it is set in motion you have to meet your obligation.
The next level might be manufacturers that do their own in-house assembly. I've lived in all of the above categories. The in-house assembly case can give you a lot of control and even lower your COGS, but you are now paying for everything pretty much upfront.
Once you start adding other component classes (mechanical, optical, etc.) things get even more complicated.
Each of these models has a financial formula associated with it. I have no idea where CCSI (the dog washing machine guys sit). My guess is it isn't a high volume business. I would further guess they make boards in batches of 100 or so (I could be wrong). When you don't know a pandemic is coming and the world is going to come to a halt, buying enough to make 100 boards a month is the right decision. If someone suggested they should buy enough to make boards for the entire year it would not sound like good advise unless the cost basis of those boards was such that it materially affected profitability in a significant way.
Business has become so competitive and fast that everyone pretty much ends-up adopting a JIT (Just in Time) manufacturing methodology. Anything else is suicide.
Here's another take: Do I invest money parking components in a warehouse for a year --just in case-- or do I put it into marketing, R&D and new product development? I think I can say that, under normal circumstances, it would be irresponsible (as learned the hard way) to park it in the warehouse. No crystal balls.
As someone else in this thread mentioned, I too wish there were more documented stories of business failures. That's where the real lessons for all of us lie.
As someone else in this thread mentioned, I too wish there were more documented stories of business failures. That's where the real lessons for all of us lie.
Usually telling someone to "get a blog, dude" is an insult, but in this case it's a real shame that the experience you're relating is going to be buried and forgotten in an ephemeral HN thread. Have you considered sharing your experiences and thoughts on an actual blog, perhaps in conjunction with whatever business you're engaged in nowadays? That's one page I'd bookmark for sure.
I have. And I will. Eventually. I just don't have the time to do something like that justice at this point and the emotional ride might not serve me well. It's one thing to open-up on rare occasion on HN, it's quite another to make a regular thing out of it. Revisiting your failures doesn't necessarily make for the best frame of mind as you work hard to push forward.
Extremely well said. my gut reaction to the comment you were replying to was similar to yours which was this person clearly has no clue about smaller batch manufacturing.
It kind of ties into Steve Jobs comments on consultants versus people who have to live with the consequences of their decisions.
...
> 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.