3 Simple Proactive Strategies to Minimize Excess Inventory

By Logan Wamsley

Even the most detailed, analytics-based prediction models available to manufactures today cannot fully eliminate the persistent issue of excess inventory.

This is a statement OEMs and their EMS provider counterparts know well, and likely live with producing each and every product in their line.

In one respect, excess inventory is the result of choosing the lesser of two evils. In an industry where the lack of a single critical electronic component can lead to a costly redesign, the use of aftermarket third-party suppliers, or even premature product discontinuation, it is always better to have too much than not enough — even if that decision can have significant drawbacks in the form of rapidly diminishing value and increased carrying costs.

For instances when a manufacturer finds itself with excess inventory, Partstat’s Excess Inventory Solution uses our access to Big Data to understand the market conditions for each individual part, pricing the part for maximum value immediately at the point of sale. Our open-source Big Data platform Partstat, with a daily search volume of over 20,000, also allows us to index customer inventory on all of the Internet’s major search engines — including Google, Bing, and Yahoo — ensuring maximum visibility and the greatest likelihood the right buyer will see it when the highest return can be achieved.

But while Partstat has a solution in place for these situations, for maximum savings of working capital, it’s important for a manufacturer to be proactive as well as reactive. Excess inventory is an issue that cannot be eliminated entirely, but there are simple measures that can be considered to minimize it. Below are just a few simple guidelines that we feel can be of tremendous value to any Partstat customer that considers them:

Forecast the State of Your Company’s Future

In an effort to cut competition, many industries (such as the aerospace and telecommunications industries) are opting to combine resources through mergers and acquisitions.

Obviously, such a radical transition can have drastic effects on an established supply chain — and the resulting inefficiencies can commonly make excess inventory a significant issue. Should such a transition be on the horizon, project managers, engineers, and executives should be transparent with one another and ensure that communication channels remain as open and streamlined as possible.

Concentrate on Performance, Not Output

Occasionally, electronic components are present in a final product that were not a part of the original design specifications. There are many reasons this could occur, but one common explanation is to compensate for underperforming (or outright deficient) original components.

This push of new alternative components into the supply chain late into a product’s life cycle often results in wild inaccuracies which can lead to significant excess. Before a product enters the market, manufacturers should conduct thorough testing to ensure that components operate as intended for as long as intended. The fewer 11th-hour variables enter into a supply chain, the fewer adjustments from initial projections will be needed. This proactive strategy will also reduce the need for rapid fulfillment of bulk purchases, which can be done through Partstat’s Last Time Buy Solution, if needed, without the sacrifice of upfront working capital.

Everyone Takes Responsibility, and Everyone Shares Blame

The idea that a single overhead entity can shoulder all the responsibility that comes with minimizing excess inventory is folly. Each level in an efficient supply chain has an equal part to play in the acquisition — or lack thereof — of critical electronic components and semiconductors.

From the engineers to the sales managers, awareness that individual actions play a critical role maintaining the standards manufacturers strive to achieve is paramount. The flow of information within a manufacturer should, regardless of the situation, always remain a top priority, and accountability likewise should always be equally shared. One way to ensure this is to install set, long-term financial incentives on all pay scales. When there is tangible skin in the game, the drive to succeed becomes that much stronger.

Does your company have a unique, proactive strategy for minimizing excess inventory? Let us know in the comments below!