3 Common OEM Situations that Necessitate Bulk Purchases of Critical Inventory

All OEMs are well-acquainted with the unique set of circumstances that necessitate a last time buy of critical electronic components.

As the lifecycle of OEM products continues to increase against the decreasing lifecycle of electronic components, semiconductors, and peripheral products, last time buys are increasingly becoming the OEM’s method of choice for confronting obsolescence.

The act of accumulating a significant quantity of critical inventory does come with its own unique challenges — the sacrifice of working capital, storage and fulfillment challenges, the potential revenue loss caused by excess inventory — but especially when the only alternatives are options such as product discontinuation or redesign, last time buys represent a transaction all OEMs must do and do well.

Last time buys, however, hardly represent the only situation in which an OEM may require the accumulation of critical inventory. Component obsolescence may pose one of the greatest dangers to today’s supply chains, but just because a critical electronic component is still active does not mean that there are certain scenarios where an OEM can greatly benefit from a large-scale inventory order.

Here are just a few examples of situations where Partstat customers have found a need to immediately purchase and secure bulk orders of critical inventory.

Rising Component Demand

The market price for standard electronic components, unless explicitly stated otherwise in a service contract, rarely remains locked throughout the entire lifecycle of an OEM product. As demand for a component rises or stays consistent against diminishing supply (due to obsolescence, price increases for raw materials, or other unseen variables), marginal price hikes can be expected. If not properly counted for in lifecycle projections, OEMs can quickly go over budget.

EPS News, when discussing the recent price hikes in the DRAM and NAND flash memory markets, described component pricing as “firmly in suppliers’ favor… Semiconductor industry consolidation and changes in the distribution sales model have left end customers with fewer supplier options and fewer qualified design resources.”

If price increases in a specific market are expected over time, a large bulk purchase is an excellent way for OEMs to mitigate their effects — provided the OEM is prepared to take on added financial burdens related to working capital and warehousing.

Going even further, due to the reduced costs needed to manufacture large quantities of components at once, bulk purchases also give OEMs substantial leverage to negotiate discounts. The potential for OCMs to realize multiple years’ worth of downstream revenue in a single order is hard to pass up, and such a proposal is an easy way to tip the component market back in the OEM’s favor.

Market Inflation

According to Reuters, the International Institute of Finance (IFF) forecasts 2018 global growth at 3.5 percent. While this is reported to be an optimistic, “stable” outlook for the global economy in terms of job growth and reduced employment, such growth also increases the risk of inflation.

As inflation continues to reduce the purchasing power of the dollar, it can affect an OEM’s ability to support the lifecycle of their products just as much as a traditional price increase. Once again, should market projections not fall in the OEM’s favor, some may opt to purchase the necessary critical inventory in advance, thus taking advantage of their working capital’s value while they still can.

Field Repair Units

To curb rising costs, OEMs will often move forward with a bulk purchase of inventory willingly; they can take advantage of today’s prices, or (should warehousing costs outweigh the benefits) opt to wait until the inventory is needed. There are other scenarios, however, that give OEMs no choice at all.

In many industries, such as the aerospace and healthcare industries, the relationship between OEM and consumer does not end with the purchase of the OEM product. CT scanners and MRI machines, for example, often come with long-term service agreements that require the OEM to support, repair, and update their products over a certain period — commonly 7-10 years.

To fulfill this obligation, OEMs must include the purchase of field repair units into their budget, which are almost exclusively sold in bulks of 100-200. This puts the OEM in a significant bind; not only must they sacrifice working capital to complete such a transaction, but they must then store these units until needed several years into the product’s lifecycle.

Authorized distributers can often reduce this burden somewhat, but most do not have the capabilities to store and fulfill inventory for more than 12 months. Should the OEM be required to support service agreements for several years — and the OEM does not have the on-site infrastructure needed to warehouse on their own — other options must be considered to keep these valuable units safe and secure.

Built for More than Just Last Time Buys

Although we call it our Last Time Buy Solution, this Partstat offering is uniquely positioned to offer OEMs the ability to purchase and store large quantities of inventory regardless of its lifecycle status — without any of the drawbacks any of the above scenarios bring to pass.

The benefits of completing your bulk purchase through Partstat include:

1. The ability to purchase up to 10 years of inventory without the sacrifice of upfront working capital.

2. The reduction of annual inventory carrying costs by 42%. This includes capital costs, inventory service costs, and inventory storage costs.

3. Guaranteed fulfillment of your inventory to anywhere in the world, on a delivery schedule customized for you, for up to 10 years.

If your company is prepared to complete a large order for any reason, contact Partstat and see how much you can save. We have preserved over $100 million in working capital for OEM customers, and we can preserve yours.