The 4 Most Common Mistakes Associated with Last Time Buys

Last time buys, even in the best of situations, rarely go smoothly. There are dozens of variables in play – and if one miscalculation is made, it could have profound consequences for your product, business, relationship with consumers, and profit margins.

If you are prepared to make a last time buy, below is a brief list of the most common mistakes OEMs make involving such a transaction. Each of these can be avoided – but without proper procedures and infrastructures in place dedicated specifically to last time buy management, your odds of reaping the success predicted by your original business plan are slim. With the help of a valued supply chain partner such as Partstat, your business will find itself in a much stronger position to innovate, grow, and potentially even enter new markets.

1. Delayed Reaction to PCN Notices

One of the largest hurdles facing OEMs regarding last time buys is their ability to know when they occur, and how to react accordingly. Some OCMs give clients a 12-month window to secure their inventory, but there is no mandate or industry standard telling them to do so. In fact, of the hundreds of thousands of parts approaching obsolescence every year, over 40 percent have an immediate LTB date. When an OCM decides to end production of a component, there’s an almost 50 percent chance they won’t notify buyers at all.

Even with 12 months’ notice, however, many OEMs struggle to finalize their orders in time. If your company is not prepared to act immediately regardless of the timeframe the OCM provides, this should be your supply chain infrastructure’s top priority.

2. Excess Inventory

With the numerous factors in play affecting product assembly, it is rare to have initial estimated last time buy needs align 100 percent with final output needs. In the event that a product is below such projections, for whatever reason, excess critical inventory quickly becomes a major – and expensive – concern.

Each day excess inventory sits untouched in storage comes at a price. In some cases, maintaining critical components in storage can add as much as 15 to 20 percent of the total cost – even higher if the component requires highly specialized storage protocols. As that cost continues to compound, the greater a liability excess inventory becomes – and inevitably the time comes when an OEM would rather sell off inventory at any price than keep it in their possession. Taking the time and resources to understand the state of the market, gauge consumer demand, and reach the correct audience on the correct platform is simply not an investment most manufacturers can make at such a late point in the game. And as a result, most OEMs will use a lot bid strategy to sell what was once critical last time buy inventory at a discount as high as 95 percent.

3. Insufficient Inventory

On the other side of the coin, should an OEM underestimate their last time buy needs, the resulting dilemma could be every bit as problematic as excess inventory – although in very different ways.

In the event where an OEM does not have the necessary inventory on hand for assembly, usually the only option (outside of a costly redesign or product discontinuation) is to turn to the services of third-party vendors. These companies have built an entire business model on OEM’s ability to inaccurately estimate critical inventory needs – and they know that most OEMs are willing to pay almost any price to avoid disrupting their product output. In some cases, it’s not uncommon to see markups for high-demand, low-supply components as high as 30-40 percent.

4. Lack of Storage Infrastructure

It has already been mentioned that on-site storage of electronic components can be expensive, but such expenses can also be greatly compounded depending on the type of critical last time buy inventory acquired. Some components, such as ASICs, for example, require highly specialized handling and storage procedures that cannot be met without significant investments in equipment and personnel training. If these expenses are not properly accounted for, not only will your company’s profit margins potentially decrease to unmanageable levels, but you will also drastically increase the risk of compromising years’ worth of downstream revenue.

There Is Always a Solution

As these mistakes prove, the act of a successful last time buy does not begin and end with the transaction itself. Your supply chain infrastructure not only needs to know how to promptly complete last time buys, but it also needs the proper resources to prepare for them — as well as how to maintain the last time inventory once it’s in your possession.

This is why Partstat aids our customers not only in seamlessly completing last time buys, but in offering solutions that cover the entire life cycle of an OEM product from conception to end-of-life. For over 25 years, we have strived to educate customers on how to properly manage their product life cycles, and we would love to show you what we can offer.

For details on each of our supply chain solutions offered through Partstat or our affiliate Partstat, click on one of the links below:

• BOM Monitoring Solutions to stay ahead of obsolescence and allocation with the help of Big Data, allowing you to take proper measures to make a last time buy before a PCN is even released.

• Last Time Buy Solutions to secure up to 10 years of LTB Inventory without spending a drop of working capital.

• Critical Inventory Storage Solutions for all types critical inventory that guarantee long-term business continuity, all while saving OEMs up to 42 percent in annual carrying costs.

• Excess Inventory Solutions that use Partstat’s comprehensive marketing strategies to sell excess inventory at maximum value.