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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.26 17:55:00 -
[1] - Quote
Hexxx and I talked about this, while Hexxx is looking at it from an accounting and consolidation point of view, I was looking at it from a "user" point of view. With my first hand experience of running a slightly complex large manufactures operation I had similar thoughts a while ago.
The issue at hand is inventory vs market value and how to account for that when calculating profits. If you persistently use averages you'll notice it works well for raw materials on the rise in price, but it starts to get ugly when materials drop in price.
FIFO Hexxx mentioned actually solves this issue, as mineral get consumed the cost of the minerals adjusts to real pricing rather then averages. This gives you a much better handle on how much something cost. While averages are OK for smaller or small number of items produces, it doesn't work really well for large bulk mass item production when you have large inventories of the materials needed.
An example of this would Shuttles.
You purchase enough Trit to manufacture 10,000 shuttles.
But you only produce 5,000 of them, sell them, then purchase enough minerals to make another 5,000 shuttles while you are producing and selling the second batch of 5,000.
The Trit price has changed, gone down. Working on averages the trit average when you calculate the cost also went down. If the average went down low enough, the second lot of 5,000 Shuttles would actually be sold at a loss, even though according to the average you made a profit. With what Hexxx is thinking about, is account method the would report real time consumption and cost of those materials consumed.
Like I said for smaller businesses this is not a real major concern, but when you run multi-hundred billion ISK worth of production lines the "Average" can work against you.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.26 22:22:00 -
[2] - Quote
 Originally by: Don Caetano
I gave some hard thought to the subject recently (when I was setting up my manufacturing profit database) and what I was actually looking for was not FIFO but LIFO accounting, as I am more interested in accurate representation of current P/L than balance sheet.
After some more hard thought on how it could be acheived (and how much time it would take) I settled on averaging as an acceptable compromise.
That is what got me about 5 months ago, if I had put the time and effort into it, I would have considered using my own take on the ideas of both. CIFO Cheapest In First Out. This would have allowed for a much higher margin of return. By my desire to create this was simply replaced with my laziness, and I went with averages.
Originally by: Claire Voyant
What I'm suggesting is something like the "mark to market" accounting rules for financial companies. For my business, I could take the inventory of all my raw materials, components, and finished products and calculate their value according to the current prices of 7 minerals. Seems a lot simpler to me.
That would work for current valuation of the product as a check, for something like a Titan this would be different. By the time the Titan came out of Production the price of minerals would have changed enough to significantly impact the cost. You could either be turned a larger profit or a smaller one depending on when you purchased the materials. Cost needs to be collected before production, not after.
FIFO on Income and Market valuation on Balance, No I don't agree. Balance sheet would need to be FIFO as well, but assets would be considered market valuation, maybe as some sort of passive growth. Say you have 100mil units of trit which you purchased for 2ISK each, and it's now worth 2.1 ISK each. You'd show 10mil in asset growth, which on the balance sheet would be it's own line entry. Each month this could be up or down. However it doesn't effect FIFO as it's asset value is being captured on it's own record.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.26 23:14:00 -
[3] - Quote
Edited by: SencneS on 26/10/2009 23:15:36
Originally by: Prodigal
Asset "appreciation" (asset growth as you called it) does not make it on the balance sheet in its own line. On the balance sheet that becomes Gross Profit and valued against the Cost of Goods Sold line of the assets of your Balance Sheet.
The only time an assets market value is being considered is when said company is disposing of that asset (or i.e. selling said asset) is looking to sell shares of said company or selling the entire company or operation.
In real life this is acceptable, however in EVE, you never really "Dispose" of an asset. Sure you can, but why would you, you'd sell it for whatever you can get for it. Since items don't expire, appreciation and depreciation should be accounted for when running an audit. Although I can see it being used in "Gross Profit" I think it's a little dangerous in there, because unrealized gain or loss. You really shouldn't report it month after month in profits or losses for that matter.
Imagine you buy something for 100mil and it's value goes up to say 110mil and you don't move it for 3 months. It stays at 110mil for those three months, in which you finally sell it for 110mil. However, each month your profits would report 10mil profit for that month, over say 3 months it would appear you have 30mil Profit. An auditor or an investor would expect that profit to be those three months of Gross Profit ie 30MIL, which in this case it's not, it's just 10mil.
edit:- lol sorry I had a brain fart, you wouldn't report it 10mil per month LOL Just 10mil on the first month and 0 as it's value hasn't gone up any more. duh, been a long day. 
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 13:54:00 -
[4] - Quote
Edited by: SencneS on 27/10/2009 13:55:24
Dzil - Lucky for EBANK I never dealt with EBANK accounting, didn't handle ISK apart from Teller ISK, It wasn't what I brought on to do, so nana naana na. Besides my failure to read "ie Sell said asset" Disposal to me means literally trash the item. Which I even confirmed that is what I was thinking in my reply. If you read this line which I'm sure you just skimmed over "You really shouldn't report it month after month in profits or losses for that matter." So well done on you to graduating from Failure to Read 101.
Which brings me to the next point NAV. It appears or has been a part of "Monthly" reports in EVE that NAV be calculated for the only reason I can think of is "Share value" for people to gauge the value of the share when buying or selling.
In case no one realized this, what Hexxx is trying to do is create some sort of Automated Audit/Reporting system to allow people to run Cash Flow, Profit, NAV reports on any company that is in the system. NAV reporting must be a part of that, as MD have grown accustom to seeing it in reports. We all know MD/EVE Accounting differs from real life accounting, this is just one of them.
I now believe asset value SHOULD be included in a standard report. Looking back on what people class as "Great reporting" NAV and Share Value has been a part of every monthly report. So before anyone else gets on their high horse with a one credit in basic accounting, make sure you think about what it is in EVE players look for.
If held inventory appreciates that directly effects NAV, so it has to be somewhere, otherwise NAV will be off on the balance sheet.
My choice to have it's own line makes the most sense as it could be up or down. The impact the inventory has on the NAV can't be ignored, and if that means adding some "new EVE only" line in the balance sheet then it should be there.
My suggestion is pretty simple solution, Before NAV, have a "Asset Appreciation/Depreciation" Line item.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 16:22:00 -
[5] - Quote
I sorted Hexxx out, to the shock and horror some of you are experiancing when reading "I sorted Hexxx out"
Unlike the apparent lack of understanding goals and objectives of this thread, with every other poster heavy in criticizing. I enjoy a rather unique perspective of holding enough knowledge to be dangerous and enough stupids to see a non-ground in perspective of accounting.
Everyone needs to think outside their little accounting classes because EVE is not the same as Real life.
A Raven is a Raven is a Raven made up of exactly the same materials in "similar" quantity and when reprocessed results in the same number of minerals being produced because of the reprocessing. The item never expires or gets old or damaged and holding on to either the minerals or the Raven doesn't change or reduce the cost it took to acquire the Raven or the Minerals.
This pretty much negates a good part of real life accounting consideration and brings it down to a really simple math. Cost in and Value out
I realized why the big hangup most have mentioned about asset valuation on the balance sheet. It's cost viewed as a item rather then a cost.
Dumbed down version, if I purchase 100mil of something, and sell 50mil worth of something, I still have 50mil worth of something to sell. Regardless of how much that 50mil worth of something or how much it's sold for, I have 50mil worth of cost to sell, so it should be accounted for as 50mil and nothing else.
Where the hangup was, that 50mil of something could be worth 100mil or could be worth 5mil on the market. While a NAV would show either 50mil gain or 45mil loss because that asset is only worth 100mil or 5mil. However the balance sheet is pure, so it must say, I have 50mil of something to sell. At the time of sale of that 50mil for whatever price, the balance sheet is then back to zero.
Like Hexxx, I believe asset value is important enough for overall corporation health. Trying to include that on the Balance sheet was trying to simplify it enough for normal people without the slightest understanding of accounting practices, to at least understand the corp is worth more then it was last month.
Now that all of that is out of the way, can we get to what else would make a good automated report LOL
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 17:08:00 -
[6] - Quote
Originally by: Phoebe Halliwel
3 or 4 different people have explained to you simply that profits are only realised at the point of sale on statutory reports, which the P&L/Balance sheet are. These are governed by global accounting standards. You and Hexx appear to be taking this as a criticism of your point of view, it's not, it's basic accounting. No matter how many times it's explained to you, you apparently aren't going to get it.
I don't understand why you think I'm saying something different..
In fact what I said in there is exactly what you say right here, where in what I said indicated anything other then keeping the remainder of the 50mil of unsold assets should be recorded as 50mil ONLY...
Did you even READ what I said?
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 18:27:00 -
[7] - Quote
Edited by: SencneS on 27/10/2009 18:33:43
Originally by: Wyehr
What he should not do is feel overly constrained by real world conventions. There are no "statutory reports". Those laws do not exist here. There is no advantage in recording a profit or loss at any time more than another. The tax laws and wall street reporting cycles that make this important in real life do not exist here.
As it's plainly clear a simple question like "Should assets be recorded as cost or value" on a the balance sheet yielded a heap of posts, people from different countries and different point of views, all had similar tones. What's funny is the same argument used in a different case would indicate that "MINED MINERALS ARE FREE".
In a Balance sheet any minerals you had mind could have a "Zero" cost. Mining companies use the costs associated with mining as the "Cost" of the materials they have mined. It also includes depreciated fixed assets. In EVE there is no depreciation of your mining equipment apart from Mining Crystals (If you use them). You also don't have to pay out workers or any other real cost. While the initial cost is there, you could depreciate the value of the equipment as some sort of cost. However, after a while you will have mined out enough to have paid back 100% of the initial cost, or be fully depreciated.
What now? You have this equipment, which doesn't "cost" you anything yet can grow the value of your company to an infinite value over time. You could potentially have an endless supply of raw materials that cost nothing on your balance sheet if you go with what these "accountants" say. This goes against the "Mined minerals should be marked at market value" these same accountants peddle every time someone asks!
Don't get me wrong I'm on the side of using fair value for mined minerals. However it's a classic example of Real Life and EVE Life simply do NOT translate. So why would a Balance sheet need to be 1:1 translation when a 1:1 translation could land you in some SERIOUS trouble in EVE..
Edit:- MIND into MINED
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 19:21:00 -
[8] - Quote
Originally by: Mme Pinkerton
Guess what, the "value" of the actual water will never appear on my balance sheet (only the cost of refining/bottling the water). Not any different from EVE. Yes, even in EVE, ore/minerals you mine yourself are free - only the time you needed to mine/refine them is not.
The only difference is that for statuary purposes you cannot book opportunity costs, while for internal management usage it might be useful to include some kinds of opportunity costs in your "balance" sheet (e.g. if you don't pay yourself a wage, but only pay yourself out of your ventures' profit, you should definetely have a look at your labor's opportunity cost - but that's only for *internal* decision making).
That really didn't address the issue :) However, I have applied bold your statement. From my understanding the costs associated with the refining and bottling of the water IS the cost of the bottled water in inventory. While the water is in the spring it's not in sell able form and you certainly can't claim it as an asset on your balance sheet. Only until it's been extracted from the spring and placed in sell able form can you actually sell it. The costs associated with making it sell able is what is used.
Mind you I don't work for a Mining company I'm going of a few investment sites information about how to read a mining companies balance sheet. Apparently it's vastly different then an average companies balance sheet.
The issue that it didn't solve is how do you account for magical items that appear in inventory with no "Cost" associated with them. Things like Mined minerals, Mission Loot, Exploration rewards, and salvage etc.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 22:00:00 -
[9] - Quote
Originally by: Varo Jan
Off the top of my head that includes:
1. Mined ores
2. Mission rewards (including Cosmos, Epic Arc, Data Centre... Any others?)
3. Mission drops
4. PvP drops (or can the API extract this info from kill mails?)
5. Salvage (from missions, ratting and ninja activities)
6. Direct Trades (?)
Am I missing any?
Valuation at market cost gets my vote.
Exploration items. Which is a tricky one because you literally go up to a can and open it. Even API would have a hard time tracking that, good luck getting CCP and CMSs to push for some way to track items that came from a can out in space. You could also account for pirate activity this way, you blow up a ship and steel the mods. Now EVE API does track ship kills and loot drops from kills so you "could" account for that. But it doesn't account for the random drive by can thievery 
There is also a small issue of Contracts, lets assume you did all of these and purchased stuff on contract. Manual and Automatic are going to have a hard time knowing what came from the contract. :(
Maybe the solution is as simple as a "Magic Bucket" for these items. Anything that API can't account for in some way, including contract cost and profit, and any disappearing items that don't have a API record should be included in that bucket. Anything "new" unaccounted for is Profit according to it's fair value. Anything that disappears and doesn't have previous API records simply shows up at a loss from the bucket.
Originally by: Phoebe Halliwel
I don't think the accountants that are posting have been "yapping" SencneS or being overtly hostile. They are offering their opinion and being countered repeatedly with "Eve isn't the real world", "MD is used to the (laughable) NAV report" and "I think it should be like this". At which point they'll either try to explain their POV or walk away. What's the point of creating a discussion thread about accounting standards if you are not willing to accept these points of view without throwing a forum tantrum and abusing the very people whose opinions may be useful?
If that is what it takes to get a working censorious on something both accounting nerds and EVE nerds can agree on then call me evil for doing it. I have a feeling somewhere in the MD Archives a similar discussion took place a long time ago. The conclusion that MD came to back then was "Use NAV". I have a beef with NAV myself, sure it's an OK way to judge corporate worth, but it does squat to actually judge if the corporation is actually doing good. Hence why I'm "battling" this a little more aggressively then I wanted to.
If that comes across as a tantrum sorry, desire to come to a censorious of what works in real life and how it could work in EVE along with what the general MD community want and are use to seeing is a thin line.
Just to clear here:-
NAV is good for only one thing - Corporate value. Using NAV as a be all end all account practices for internal, external, auditing is indeed laughable. However, it should be at least part of any report simply because it's the only real way to capture the entire corporations growth or shrinkage within EVE. NAV is the easy way out to account for all the non-real life things like magical items appearing and disappearing out of thin air.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
|
Posted - 2009.10.27 22:12:00 -
[10] - Quote
Originally by: Hexxx
Originally by: Varo Jan
Originally by: Selene D'Celeste
Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world.
Enough already with this smokescreen. If you want to run a successful business long term *anywhere* you need realistic accounting standards. If MD wants to evolve, it needs consistent accounting standards applied to all businesses - your bank-to-be included.
So how do we account for the problem areas I listed; loot, mining your own minerals, salvage, etc?
I'm looking for possible solutions here.
Magic Bucket
Anything in it, is valued at "Fair Value" It's probably the only real way to be reasonable about it.
Amarr for Life |
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 23:09:00 -
[11] - Quote
I was thinking on the way home that about how to account for magically disappearing items.
For example.
Buy a Raven
Buy Rigs
Sell on contract.
For this an automated system would pick up the cost of the Raven and Rigs but all of a sudden they disappear and the API reports a journal entry as say +120mil. While you could determine a "one time" instance of this per month if it's part of the business this would be increasingly difficult.
If you toss magically appearing and disappearing items in the 'magic bucket' and there is a pre-existing cost associated with those items, then you're golden. Your balance sheet shows a loss of those items, but you get profit in the magic bucket so it's accounted for.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.28 13:52:00 -
[12] - Quote
Originally by: Claire Voyant
I have repeatedly said I'm not talking about valuing manufactured items at their hypothetical selling price. What I am talking about is updating the "cost" to reflect current mineral prices, call it "current production cost" and updating the value of raw mineral inventory to current market prices. If you ask me, the recent massive drop in trit supports my case.
The recent drop in Trit price is the finest reason of all to NOT do what you suggest.
If I purchased 100mil units of trit for 3ISK p/u, build stuff that uses 40mil units. The items I build I would list consists of 3ISK p/u of trit used. If I then adjust the price of the Trit to the now market value of 2.5 ISK, for the remainder of the inventory. I have lost 30mil ISK value. That is simply bad business, regardless of how much the material is worth right now, the cost is ALWAYS what I paid for it.
This is the bases for the whole issue and why NAV is junky.. NAV works well when everything is going up in price, but when it's crashing it's a nightmare waiting to happen.
Now I understand where you're coming from, you're saying. "If I was to buy that trit for 2.5 to replace the Trit I used in my inventory, I why would I use the 3 ISK price I purchased the other units for." That's is LIFO. You use your inventory and instantly replace it with current market value material. It's a fair call and I can see that, in fact I was thinking of using a new term in my sheet and am currently testing it out in theoretical production and marketing runs.. CIFO (Cheapest In - First Out) meaning if I have a stack of raw materials that I have purchased over time, for different prices, I always use the production cost of the cheapest component (Like NASA) 
Example.
I build shuttles, I want to produce 1,000,000 shuttles, and I have a perfect ME BPO.
I goto Jita and refuse to purchase 2.5B units of Trit off sell orders, so I place buy orders.
Lets say I get 2.5B in batchs of 500mil units.
Batch one I paid 2.78 p/u
Batch two I paid 2.63 p/u
Batch Three I paid 2.53 p/u
Batch four I paid 2.69 p/u
Batch five I paid 2.9 p/u
The first 200,000 shuttles I produce use the 2.53ISK p/u batch.
The second 200,000 shuttles the 2.63ISK p/u batch.
If I chose to purchase another 1B units of Trit and the market price is say 2.51 ISK. The next 400,000 shuttles I produce use the 2.51 price.
In real life this would be a crazy idea because there is cost for storing inventory, this cost doesn't exist in EVE so holding onto ancient raw materials carries no burden. What it does do is allow you to ALWAYS get close or better market value (Depending on how often you purchase materials). As the price of materials decline you consume those materials first, as the price of materials goes up, you still consume the cheapest material which could be the 2.9 ISK p/u price.
If you always carry an inventory of Raw materials the "inventory" will always be made up of the most expensive price you paid for the raw material. In the case of the shuttles it's likely I would be holding onto the 2.9 Trit forever if I held an inventory and keep purchasing quantity of trit I consumed in production. My Profit margin would always be higher then LIFO and FIFO even if I sold at the same price.
The point of all of this is you MUST keep your inventory of the unused material at the price you paid for it regardless of what it's worth.
If you the price of Trit say raised to 4 per unit, why would you adjust the price to 4 ISK. You would sell your inventory to get that opportunity cost profit. Then purchase more trit at 4 ISK.
The ONLY way I could justify adjusting inventory cost to market value is if you record the adjustment as a profit or loss.
Meaning if you lose 30mil ISK adjusting the price to current market value you report a 30mil loss.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.28 14:47:00 -
[13] - Quote
Edited by: SencneS on 28/10/2009 14:48:45
Originally by: Wyehr
SencneS, please stop and read your post carefully. You are saying that two identical units of tritanium have different values depending on how much you paid for them. This may be "good accounting", but is it totally ****ing wrong.
If you are wondering, the least insane way for a builder to view the value their inventory is at the price their next batch will cost.
In your example, when the price of trit swung from 2.9 to 2.51, you can put that trit into a new pile, shine it up real good and pass it down to your children as a cherished family heirloom, but that money is gone. If you wait for the value to come back up over 2.9, you'll get your 195M ISK back, but it'll cost you however much you could have earned if you hadn't idled 1.255B ISK of your assets for the duration, and if it never comes back you won't have lost 195M ISK, but 1.45B ISK.
You do realize in the example I'm also purchasing what was consumed. If I used 1b units of trit I repurchase 1b to recovery the consumption.
I didn't say it was a smart business plan, just the way I was considering accounting for consumption and the rather quick market changes in materials.
What I don't think you understand is I could care less about that trit that cost 2.9 ISK, if it sits there for an eternity, so be it. If I used it in production, a Shuttle would cost 7,250 ISK in materials. There is no way it will ever sell if people are selling for 7,249 and making a 974 ISK per shuttle because they purchased trit for 2.51. It would be utter stupidity for me to keep the shuttles at build cost on the market when everyone else is buying new trit at 2.51 and selling them cheaper.
Sure I could take a loss, but I'd rather sit on the inventory which costs nothing to sit on, and hope one day the price of trit gets above 2.9. And here is why - You say "You'll get your 195M back but it'll cost you however much you could have earned if you hadn't idled 1.255B ISK in your assets..." I didn't idle anything, you can only produce at a given rate, if I choose to purchase materials cheaper then my inventory cost, use it, and sell, my production didn't idle. You can only produce so fast.
Maybe it might help if I added ONE SINGLE LINE to the example.
"I produce shuttles at the fastest rate possible and at the maximum production rate I can obtain, constantly without break."
There does that make it better for you? 
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.28 16:12:00 -
[14] - Quote
My idea - After speaking with Hexxx he said "It's a way for you to ever account for a loss." Which I can see, if the price of Trit never got above 2.9, I'd sit on that inventory forever, assuming the margins I where making where less then the loss I would take by using it.
The issue that I'm trying to solve is one I had in EVE. I would consume a lot of Trit at any given time, between a few mil and up to as much as 80mil units when I ran a production cycle. So in order to get the product out as quick as possible I would hold an inventory of about 100-120mil units of trit. For convenience sake I would use "Average cost" as the cost of the Trit (NOT Market value, but average cost to me). I believe most people do this, some may use market value but I wanted to know how much it cost, not how much it's worth. When I stopping producing close to Trit crashing, the average cost of my almost 100mil units in inventory cost 3.13.
I couldn't sell it for 3.13 even though for a month I was purchasing trit at about 2.95. It was lowering the average every time I purchased but I realized that the average over all had to have a limit on how much to average. I started working using FIFO in my cost of materials but realized there must be a different way. At any given time I would have between 40-60mil units of trit. I ALWAYS had that, while I could have adjusted my inventory to 80mil in stock I didn't because the potential to use 100mil units WAS there.
I realized that in some weeks the rate of consumption was low and FIFO was actually working against me. I had purchased trit for 3, and using it at that price, but there was no way I could use it fast enough to compete with people using 2.8 valued trit. It was then I rationalized myself into using the cheapest inventory I had on hand, regardless of when I purchase it. I couldn't compete with lower prices because EVE's margins are razor thin, and in the ammo business volume is king.
I know that not using the more expensive inventory can lead to artificially inflated profits. My rationalization was pretty simple - While I'm sitting on it, it on my books and the cost in which I paid for it. It's just an asset sitting there not costing anything and I haven't take a loss on it, and eventually trit will be back up over 3 ISK a unit in which I would then be ahead of market cost.
It's like a gamble, at the time the business shuts down the asset at whatever price it is worth then takes a loss. I'm not disputing that, what I'm suggesting is if the company has the means to sit on inventory that may never get used why wouldn't they?
Maybe this is an argument for depreciation, assets sitting in inventory for over a month start to take losses, after a while the depreciated value of the asset is below market value in which you sell it or use it. I could live with depreciation on stagnant assets.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.28 16:29:00 -
[15] - Quote
I just remembered the biggest reason why I rationalized doing that. I considered the fact that I had IDLE Cash/Capital. Which is worse, Idle cash or idle inventory?
Using the idle inventory is guaranteed to take a loss. Using idle cash to purchased cheaper inventory, use it, and sell product results in a profit.
Amarr for Life |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.30 13:32:00 -
[16] - Quote
Wyehr is "partly" correct about manufactures using future cost of raw materials as "cost" of materials on current production runs. However what he failed to include is it always comes with a contract from the raw materials supplier and the finished goods producer.
I work for a Automotive Supplier company, one of the, if not largest ones in the world. The process that happens is this.
I'll use Ford because it's smaller to type.
Ford says We need x amount of y component.
Company says We can supply x amount of y component, quote will come shortly.
Company says to Raw materials provider - We will need z amount of w materials, contingent of Ford signing contract i.
Raw materials provider says z amount of w materials will cost v amount.
Company sign contract with Raw materials provider to provide raw z amount of w materials at v amount only if Ford signs contract i.
Company goes back to Ford to with quote where x amount of y component is based on v amount.
Ford signs contract i.
Company doesn't wait for the Raw materials provider to deliver z amount of w materials but starts producing from raw material inventory, or in some cases y component in inventory if that component was cheaper then components made up of w materials, and a discontinued contract on Ford behalf (Which they would have paid part of for breach of contract). 
So it does happen in real life, I can't speak for any other industries but for automotive this IS the way it works. The only reason it is this way for automotive is Ford and pretty much all vehicle manufactures have incredible time constraints. When they want x amount of y components part of the contract is time, how quickly the supplier can provide them. So it's in the best interest of the supplier to maintain a full inventory of raw materials.
I wouldn't be surprised if other suppliers for finished goods manufactures work the same way. It makes sense and is GOOD business for the supplier. To translate that in EVE you would need to be a T2 Component Manufacture suppling JUST T2 ship builders. However in EVE, Raw materials are quick, and easy to get and every raw material you get as exactly the same quality level (perfect) so there is no need to keep an inventory of materials. So in EVE this methodology is extremely redundant and offers no benefit of doing it, and adds complexity that doesn't need to be there.
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