It does not take much effort to buy 2000pcs Transistors bulk and sell them as 50pcs, also mixed types and kits.

But it takes some effort to wrap them each single in bags and sell them for $2, and create an item page for a device "similar to 2n3906" but not telling what it is exavtly.

To me it is clear- management has not much of a clue about electric parts no sense for details, the market, and customers, and guarantee they dont use the parts themselves for any circuits or research (hands on parts).

For them it's an asset they think people only need one transistor and its OK to raise price 150 times.

Business model = fail.

 

In NYC, where supposedly you can get anything at any time of day or night, RS is about the only thing left where you can get last minute things over the counter. There are, obnoxiously, so many locations it makes it pretty darn easy. Granted the things they sell are fairly, er, lowest common denominator.... but still. That said, especially in NYC, the folks working in the store are the kings of the blank looks, and extremely loud music. I have a hard time concentrating looking through the bin of parts with music that loud... even if it was Charlie Parker, Wayne Shorter or Mahler, which it ain't, trust me. RS did up their game a bit with the component bins in recent years, but there certainly isn't the joy and the knowledge I remember in the 80's...

Once we lose RS, we only have Leeds Radio, which is AWESOME, but, as it's name implies, mostly analog stuff ... ham radio, tubes... no so much digital or smaller signal parts. That said, I can't complain too much, as there's nothing like Leeds or it's owner Richard, anywhere that I have seen. He's moving the shop from Williamsburg Brooklyn to the Bronx. Less convenient for me, but at least he's not closing.

And then we'll have that one shop in the back of 269 Electronics on Canal. I'll go to him and try to keep him open, even if going to Canal Street is less fun than a root canal. Yes, we'll have options... but only two. Ok, maybe three, I just remembered there's one other place way out in Queens Allstate Electronics 170 - 30 Jamaica Ave. I've been there once... they have a lot of stuff... That's a haul though, an hour on subway for me, and I live in Queens! But, for NYC, which again, at the place that's supposed to have everything... pickin's are pretty slim, and will be much slimmer once RS is gone.

 

Agreed.

 

For them it's an asset they think people only need one transistor and its OK to raise price 150 times.

Interesting. Can you tell me how you would price an item from acquisition costs, marketing costs, sales costs, and a little profit for you the owner.

There is a story or joke about an IRS agent visiting a farmer to check on a few of the items he claimed. The farmer stated his ranch hand is living rent and utility free in the house a section down the road and get's 10 per hour. The cook lives in the house down from that and makes 10 per hour. Both work about 40 hours a week. Then we have one person that works 60 hours per week for about 3.25 per hour and no overtime. The IRS agent wanted to meet that person. The farmer said, "your looking at him."

 

Interesting. Can you tell me how you would price an item from acquisition costs, marketing costs, sales costs, and a little profit for you the owner.

A quick rule of thumb in business is that, if your selling price is not at least about double your direct costs, you need to do something else. 50% gross margin. All your overhead, depreciation and so forth comes out of that and hopefully there's a bit left for profit.

Of course there are plenty of exceptions to any rule of thumb. An electric utility is very different than, say, the iPhone business, and will have a much lower gross margin.

It's rare you have so little competition to get away with fat margins of 70% or more.

 

I agree on the rule of thumb to double direct costs. The problem is in determining direct costs. We used to spend a lot of effort to determine direct costs. That can be quite difficult when you have a lot of products, and the biggest cost is labor, as in a clinical laboratry. As a bit of historical fact, Andrew Carnegie (founder of Carnegie Steel -- > US Steel) was one of the early adopters of cost accounting. His data were so good, that he could bid on a bridge knowing that his competitors would need to lose money to beat him. He was ruthless and very successful.

John

 

I agree on the rule of thumb to double direct costs. The problem is in determining direct costs. We used to spend a lot of effort to determine direct costs. That can be quite difficult when you have a lot of products, and the biggest cost is labor, as in a clinical laboratry. As a bit of historical fact, Andrew Carnegie (founder of Carnegie Steel -- > US Steel) was one of the early adopters of cost accounting. His data were so good, that he could bid on a bridge knowing that his competitors would need to lose money to beat him. He was ruthless and very successful.

John

Yes, there is cost accounting and there is cost accounting. If the manufacturing engineers are not talking to the accountants and both are not talking to the marketing teams and planner/schedulers, the whole thing becomes a mess when you try to calculate machine time costs (work cell costs). Then trying to jam new products into existing assets to fill idle capacity also adds to complexity, especially when you multiply that effort by 20 years and people with various motivations and skills.

My favored method, ignore the ERP system's costing data and calculate the incremental costs of doing a project vs not doing the project.

 

We had a chairman who believed in costing incremental business as incremental cost based only on what he thought was incremental cost. That can be a slippery slope.

My administrators always wanted us to do time-motion studies. That is extremely time-consuming, and in my opinion, very inaccurate. I wanted to do still-frame studies (i.e, take time lapse pictures and categorize what each person was doing in each snapshot). I never won that argument, but then most of the administrators I dealt with were from Wharton School of Business or acted like they were.

John

 

A lesson in margins.

multiplying the cost by 1.33 is approximately a 25 percent margin.

Margin = (sale - cost) / sale

Doubling the costs is a 50 percent margin.

While I was thinking about this topic, I did discover http://www.business2community.com/o...-average-conversion-rates-by-industry-0318438 which had an interesting graphic concerning impressions, click through rate, and conversion rates. The costs of acquiring customers is pretty high and as a cost, it will drive up whatever margin you have, if your strickly an online business.

Attached is an interesting graphic from the electronic service's Certified Service Manager training material. It illustrated the costs for carrying inventory to provide a various service levels for your customers.

Given the costs, that $1.50 transistor from Radio Shack could be attractive, especially when juxtaposed of that $0.29 transistor that cost you $4.95 to have shipped to your location. Using the bulk costs per item in not viable unless your manufacturing or have a ton of similar equipments backed up for repair.

 

The costs of acquiring customers is pretty high and as a cost, it will drive up whatever margin you have, if your strickly an online business.

I assume you meant that a higher cost of acquiring customers will drive margin down.

 

Your correct, when working with an established margins. My line of thought, was initially establishing a margin based on the best estimates of the costs involved, not using a rule of thumb. There are some locales where there is one shop within a 60 mile radius. If they do "house calls", their productivity is low because of the driving ... even if they charge a mileage rate.

The statement I disagreed with was that it was bad business for RS to charge 1.50 for a one cent transistor. My personal belief that RS lost out when less people moved into electronics as "software" became more prevalent choice over hardware. That left RS with a declining base that would purchase their components. They branched out trying to gain some business away from their roots.

Charging 150 times the cost is possible, especially if the cost is really cheap. You could get a good buy on a component, and turn over the inventory enough times to take advantage of that good buy, while charging 150 times the cost. Inventory control is an interesting study in itself.

I didn't mention labor productivity nor MTBFs and their effects on the repair business. In the last 20 years, the cost of replacements was less than a repair labor. Your client would need some serious sentimental value to get something repaired under some conditions. Computers got so cheap it's a client decision to either buy new or have the OS re-installed, along with all the updates, their software plus updates, and updated drivers. Ten years ago, it took about 4 hours to do those tasks.

We all know that auto mechanics use real time, a program that tells the mechanics what the average time it takes to do a job. The shop owner can figure out their shop hourly rate and apply a fair price for repairs. The rookie mechanic might take a little longer but the ASE certified master mechanic can beat those times easily, being more productive, and earning higher from each repair.

 

We had a chairman who believed in costing incremental business as incremental cost based only on what he thought was incremental cost. That can be a slippery slope.

My administrators always wanted us to do time-motion studies. That is extremely time-consuming, and in my opinion, very inaccurate. I wanted to do still-frame studies (i.e, take time lapse pictures and categorize what each person was doing in each snapshot). I never won that argument, but then most of the administrators I dealt with were from Wharton School of Business or acted like they were.

John

Incremental costing should be incremental costing, not pricing. Pricing should be based on competitive options. Costing models should only represent the lower limit of pricing.

 

Yup, that's the first thing you learn in any pricing training. Cost-based pricing may be common but it's rarely the best method.

I agree with the comments above about not relying on standard costs. You really have to have a broad knowledge of the process and production issues, for instance knowing where and how the various fixed costs are being allocated, and how labor gets allocated. The simple number used by the accountants may be valid within only a small range of operation.

I remember once trying to convince my company's President of the value of a technical advance that would make our product doubly potent and thus double our plant's productivity. He wasn't interested because, unless we also doubled our sales (which he had no confidence in doing), the fixed costs per pound would double. Same costs, half the production. He viewed that as a bad thing. It was one of those surreal moments with the pointy-haired boss that you just never forget.

 

The statement I disagreed with was that it was bad business for RS to charge 1.50 for a one cent transistor. My personal belief that RS lost out when less people moved into electronics as "software" became more prevalent choice over hardware. That left RS with a declining base that would purchase their components. They branched out trying to gain some business away from their roots.

Charging 150 times the cost is possible, especially if the cost is really cheap. You could get a good buy on a component, and turn over the inventory enough times to take advantage of that good buy, while charging 150 times the cost. Inventory control is an interesting study in itself.

Of course it is bad, and just one example.

I buy audio transformers, just increase the price somehow, but not doubling it.
And they do sell. I dont buy single pieces, only full boxes.

They dont need any extra work or service or advice, just leave the box where it it.

They do sell because I only make a modest increase in price, and probably make a dollar on shipping too.

Had to reorder larger amount of one kind recently.

If it would be RS they'd have to aquire a large quantity to make more money:

-Take a whole shelf of space perhaps
-Need to invest a large amount of money
-Wait a long time because lead times for large quantity

And they'd never have permission "just try" to sell a kit of all kinds 1pcs each, just decide adhoc to try it (a staff member). They have a marketing team giving instructions to website maintenance and so forth...

Yet, it creates additional sales, and not bad actually, people who dont want 2 or 3 of one kind (a single one would be too much shipping cost), but they are interested to get one of each kind.

Like as for RS, if they'd offer 25pcs 2n3904 + 25pcs 2n3906 + 25pcs 2n2222 + ......,
and sell for a few $ all together.

Sold full bags of transistors already. People like component kits.

Guess the problems at RS are relating to bad management, stifling any efforts to increase sales where they happen- when working directly with customers.

You see the results!