What Can Your OEM Accomplish with Extra Working Capital? Here Are 4 Possibilities
One of the defining benefits of Partstat’s Last Time Buy Solution is the ability to preserve up to 10 years of working capital. Since its introduction to the supply chain marketplace, we have preserved over $100 million in working capital for customers across the globe.
Citing such a substantial benefit, however, also requires a deeper explanation as to what 10 years of working capital can realistically do for a company.
After 27 years of operation in the supply chain industry, we have seen firsthand the many directions OEMs can take with their newfound financial flexibility, and all of them should be considered viable models for the future of your business. Below are four of the most common options we have seen Partstat customers choose with fantastic results:
Investments in New Equipment
Much has been said about the impending automation revolution that will soon sweep the manufacturing industry — and in some respects, it has already arrived. Although implementation of robotics has been relatively slower than many early analysts predicted, the promise of lighter, faster, more affordable, and more intelligent machines is too great to ignore.
Going even further, automation is no longer considered just a high-efficiency alternative to human workers performing individual, mundane tasks; instead, automation is evolving to the point where entire sections of the supply chain can be handled from end-to-end, with little human input outside of a manager who monitors input and output from a comprehensive dashboard. The question is not if manufactures will conform to these trends, but when — and working capital is what will make it all possible.
New Employees and Training Procedures
For all the inarguable benefits automation can bring to the supply chain, there has (rightly) been some concern about what this means for the thousands of factory jobs many depend on for their livelihood. In November 2017, the McKinsey Global Institute claimed that approximately half of the daily activities performed by human employees could theoretically be displaced by automation. By 2030, a global workforce consisting of up to 800 million people could be in jeopardy.
To help counter such displacement, it’s important for OEMs to realize that just because one door closes on a potential employment opportunity doesn’t mean that two more can’t be opened. To implement automated machines successfully, manufacturers will need employees with a proper understanding of technical, highly-specialized displaces that could include software management, an understanding of a variety of programmable languages, and, in some cases, troubleshooting maintenance procedures. Baseline knowledge can be taught at the university level, but adapting these learned skills into a real-world takes a comprehensive training infrastructure that only a significant investment of working capital can provide.
Supply Chain Flexibility
Not even the most efficient supply chains on Earth can claim to be immune to all forms of risk — although it may seem at times that they come fairly close. They accomplish this feat by wisely using on-hand working capital in a proactive manner that maximizes downstream revenue potential. This approach can include stockpiling finite raw materials, launching new warehousing and distribution centers in diverse locales, and even supply chain consolidation through the acquisition of component manufacturers who would benefit from the resources of a market-leading OEM (who, in turn, would benefit from the ownership of new IPs now unavailable to industry competitors).
Expansion into New Markets
Once you reach the top of your chosen industry, where else can you go but sideways into new, unexplored markets? The investment required to pivot a supply chain in such a radical manner cannot be done with working capital by itself. Instead, consideration must be made to how your company’s financial resources look through the eyes of a loan officer.
“Leaving profits in the business produces retained earnings that become capital reserves for future investment,” writes Small Business Network, Inc. President Jim Blasingame. “[B]ankers love retained earnings. It demonstrates that you have the ability to operate profitably, and the discipline to leave those profits in the business.”
Just because your working capital is not immediately spent doesn’t mean it still can’t work for you in less obvious, yet equally beneficial ways. If market expansion is in your company’s long-term plans, retention of working capital through options such as our Last Time Buy Solution should be considered a top priority.