2024: The Year of Overhang Inventory Risks?

By Logan Wamsley

Supply Chain Relief Does Not Come Without Risk

Since the beginning of the COVID-19 pandemic, much of the news coverage regarding global supply chains has centered around inventory shortages, particularly in the electronics sphere. For 2024, however, that narrative seems to be shifting at least temporarily from inventory shortages to overhang inventory. While this state of affairs may come with a degree of relief for manufacturers, it doesn’t come without inherent risks that needs to be considered.

The Specter of Rising Interest Rates

The costs of stored excess inventory do not remain static. Depending on the time length inventory needs to be maintained, the costs of providing a stable, secure environment suitable for component storage could rise based on inflation trends. Additionally, should interest rates continue to rise, it puts pressure on manufacturers to purchase more inventory at current prices, quickly creating a crisis of warehousing space.

[R]ising interest rates are sparking debates around offsetting inventories with losses to mitigate obsolescence risks,” said Josh Pucci, senior vice president of sales at electronics distributor Sourceability, in a report from EPS News. “Many of these products have expiration dates and lead times of up to two years pose a risk for holding inventory that will be useless when demand rebounds.”

An ideal solution would be to both purchase new inventory to insulate the manufacturer against future shortages while simultaneously maintaining current inventory without resorting to cutting excess inventory selling strategies.

Effects of Labor Shortages

Inflation is not the only issue that can impact overhang inventory. In addition to rising costs, 2024 is also poised to be a year plagued by labor shortages. This is a continuance of a trend that has been ongoing since the COVID-19 pandemic. In 2022, for example, labor disruptions were up 92% compared to the previous year, with over 770 unique labor-related alerts such as strikes, walkouts, and mandatory stay-at-home orders due to poor air quality.

Compounding the issue even further is also the concern regarding the age of the labor force. Throughout most of the first world in countries such as China, Japan, The U.S., and throughout Europe, there is concern regarding the increasing average age of populations. While many professionals throughout the supply chain are approaching retirement, fewer and fewer skilled younger professionals are replacing them. While this is prompting many manufactures to invest more heavily into automation and AI solutions, those that do not have the upfront capital necessary for such investment often have no other option than lowering the skill threshold for employment. This requires a greater reliance on mentorship and training protocols. Should these be outdated or lacking, safety and security of both workers and the inventory could be greatly compromised.

“Factories need a rich pool of labor who can manage the physical demands because workers often have to stand for eight or nine hours a day,” said Bindiya Vakil, CEO and co-founder of Resilinc, a supply chain mapping, monitoring, and resiliency analytics company, to EPS News. “Further, younger workers now have more options for gig work so we will continue to see more disruptions.”

Resolve Overhang Inventory With New Supply Chain Solutions

Any solution consider by an OEM or contract manufacturer facing these challenges must consider two things. One, it needs to provide adequate security for current inventory, and two, it must work into the company’s overall financial strategy. The single strongest solution that accomplishes both is a Semiconductor 3PL Solution or Inventory Ownership Solution offered by industry-leading supply chain partner Partstat.

Partstat’s Semiconductor 3PL Solution features secure, climate-controlled warehousing that is optimized for even the most sensitive electronic inventory, even raw die and wafer with the aid of our desiccant dry cabinets. This presents an ideal option for manufacturers that require additional warehousing for overhang inventory without resorting to selling it for pennies on the dollar.

Going a step further for manufacturers that wish to unlock the potential of their tied up capital , an Inventory Ownership Solution would see Partstat actually purchase the overhang inventory from the customer. From there, Partstat would then deliver the inventory back to the customer on a customized delivery schedule. This allows the customer to immediately realize tied-up working capital upfront at maximized market value, which can be used to hire skilled labor or infrastructure upgrades — all while saving an average of 42% in annual carrying costs. In one case study, Partstat allowed a EMS customer to recover $7.6 million in tied-up working capital while drastically reducing their carrying costs.

For more information on how these solutions can insulate your company from today’s overhang inventory risks, contact Partstat today!