I’ve been following the tide in the blog-o-sphere lately and writing a lot about stocking up for Mists of Pandaria. It’s almost dishonest of me, because it’s not in line with my normal gold earning philosophy. So I thought I’d write today about my reasons for not stocking up in general using the example of enchanting materials and scrolls.
Enchanting scrolls have become my main source of gold income lately, not by design really — it just naturally happened after I hit my last gold goal. I eased back the intensity of my market presence and it just turned out that scrolls took less time to keep doing. The glyph market on my server goes though periods of heavy competition. I had been shuffling ore but that business suffered from the introduction of epic Cata gems, plus it’s just plain a lot of work to do correctly.
Given that enchanting is a main money making market for me right now, you might think I’d want to stockpile materials or scrolls as a way hedge against anticipated demand driven price spikes. I have to admit that perhaps I could make money doing this. But my business process for enchanting is set up as a lean manufacturing operation, and building up inventory is against the basic principles of lean — it is in fact considered one of the “eight wastes“.
I use a pull system with one piece flow for my enchanting process. To start, I maintain a list of possible scrolls to make. Once a day or so I scan the auction house and identify the scrolls that will make a minimum profit based on the materials costs and market price. From this list of potentially profitable scrolls, I plan to make one of each only if I’m currently completely out of stock. (Make sure there aren’t expired auction scrolls sitting in your mail box when you determine what you are out of.) This is called a pull signal. Being out of stock on a profitable scroll “tells” me to make one, otherwise I do nothing.
Based on this production plan, or queue, I purchase the materials I need. I don’t maintain any inventory of materials beyond the inevitable few leftovers. I use TSM: Shopping, just like I do for herbs, to get the lowest materials prices. Often I can get the materials for below my scan-based cost estimate because TSM allows me to find good deals to disenchant, and my guild has the perk bountiful bags. This creates a profit estimate cushion.
Then I simply make the scrolls and post them at a moderate undercut to the current lowest price. Of course I also repost any auctions that have expired or have been undercut. I can increase my profit by restocking and reposting more often.
The frequency of sales determines a natural “heart beat” for each scroll’s pull signal. To maximize my profit in theory, my process needs to match that “heart beat” as closely as possible. In reality my process frequency is determined by my time availability and an average market “heart beat”. You can adjust to a higher stock level to partially compensate for outlying scrolls that sell much faster than most.
I find it hard to anticipate exactly what will happen as we approach and experience the expansion, and this means that stockpiling creates risk. On the other hand, my process pretty much guarantees I won’t lose money — I’m paying a potential opportunity cost to buy that guarantee. But mostly my reason for not stockpiling boils down to the fact that I like this process. It’s fun, it’s easy, and it’s proven over time to make gold. I’ll be the first to post here when/if I end up regretting my decision to stay on the enchanting stockpiling sidelines.