Thursday, 30 May 2013

08:30 – I didn’t quite finish the 30 biology kits yesterday. I have 30 shipping boxes arrayed on the work tables downstairs, each box filled with all of the required items, but I haven’t yet gotten the shipping boxes packed and sealed. I’ll finish that today and get started on filling bottles for the new batch of 30 forensics kits. That, and figuring out what we’re short of for a new batch of 60 chemistry kits.

One of the unfortunate realities of the business ramping up is that we end up with more and more working capital sunk in inventory, both finished goods and raw materials. I saw that coming from the first, and I was determined to fund that inventory from working cash flow, which we’ve done. The result, of course, is that we’re not taking much money out of the business. Instead, we end up with $1,000 worth of thermometers in stock, $2,000 worth of bottles, several thousand dollars worth of microscope slides, and on and on. That’s okay, for now. In fact, I’d much rather have funds in the form of hard assets rather than money in the bank. Money loses value constantly, while hard assets appreciate. And, as we begin drawing down inventory levels over the peak summer months, that inventory gets converted to cash.

The other unfortunate reality is that as volumes increase we become less cost-efficient. For example, I just got a partial shipment of some backordered items yesterday. Shipping on that small backorder was about 30% of the item cost. In the past, we would have combined orders and waited until the whole order was ready to ship before having it shipped, thereby saving on shipping costs. Now that we’re doing higher volumes, that’s impractical. One item may be the showstopper that’s holding up assembling a batch of kits, and we have neither the room nor the time to wait. So that item gets shipped by itself, which boosts our overall shipping costs. Still, we’re doing pretty well at keeping things reasonable. We’ve not yet had to resort to anything faster than ground shipping. For example, that order of bottles and caps I placed earlier this week included free ground shipping. If I’d needed expedited shipping, that would have increased our cost by about $1,000.