The widening lifecycle mismatch between OEM products and the critical electronic inventory used to create them has had a profound effect on the modern supply chain. Where once OEMs could source the parts required over time under the assumption they would be available for a reasonable amount of time, now even components that were once commoditized are transitioning toward obsolescence before even reaching the marketplace.

There are several reasons for this trend – the demand boom in the IoT and automotive markets, increased competition, etc. – but regardless of why, OEMs are now being forced to adapt to the market with the help of new proactive obsolescence management strategies. Without such strategies in place, their only other option (outside of product discontinuation) is to source components from third-party vendors and non-authorized distributors, who not only significantly mark up prices according to market demand, but also lack the processes to protect against counterfeit components. Discontinued components account for approximately 67 percent of all counterfeit activity, and these components often are not detected until months or even years past initial testing. The only fool-proof method of avoiding this issue is full traceability for each individual component – a demand many third-party vendors will not be able to comply with.

With none of these scenarios ideal for the OEM, the only path forward is to commit to purchasing their inventory on the front end of their product’s lifecycle. While that used to be more wishful thinking than an actual solution, the supply chain industry now offers ways to make such commitments without the loss of upfront working capital. But the issue of working capital is only half the battle; once the inventory is in hand, then the OEM needs to resolve the issue of storing it.

For those struggling with this dilemma, below are the three primary solutions OEMs have to choose from, and the limitations of each:

1. Authorized Distributors

Authorized distributors are aware of their customers’ needs, and many have responded with the option to hold the inventory on their behalf. This option, however, comes with significant limitations that OEMs need to be aware of.

Space is at a premium for authorized distributors, because every square inch of their facilities dedicated to holding inventory already paid for represents a missed opportunity to increase revenue. Less available space means less space to acquire new inventory to sell, and in an industry where profits are defined by inventory turnover, any kind of offering to accommodate current customers directly counteracts their core business model. This is why distributors, if they agree to told their customer’s inventory at all, will only do so for no longer than 18 months. Whether this is sufficient or not for the OEM depends on the lifecycle of their product – but the reality of the current marketplace is that as component lifecycles are shrinking, OEM product lifecycles are increasing. For an OEM who requires long-term storage of an electronic component for five, 10, or 15 years, 18 months of support from the authorized distributor will not be sufficient.

2. Internal Infrastructure

At first glance, this immediately seems like a sensible solution. Why pay for outside solutions when an OEM can accomplish the same thing within their own walls for free, right?

That statement is built on the assumption that such a decision is, indeed, free. Generic ambient storage is not sufficient for the vast majority of electronic components. Instead, OEMs who wish to use their own facilities for warehousing must ensure that their packaging, processes, and climate-controlled infrastructure are specially designed with electronic inventory in mind. And each of these factors come at a cost, bundled together as inventory carrying costs.

These costs can vary from business to business, but, on average, OEMs can expect annual carrying costs of approximately 25-30 percent of the original cost of the component. It’s also important to mention that these costs do not include the opportunity costs involved in sacrificing warehouse space, or the losses incurred if the inventory is not handled or stored correctly. Should the latter occur, the financial consequences could be catastrophic. If a detailed evaluation of your infrastructure’s capabilities calls into question your ability to properly maintain electronic components, an alternative option should be considered.

3. Long-Term Storage Through a Supply Chain Partner

Innovation does not have to be restricted to the realm of new products. It also can be seen within B2B markets, where supply chain partners are now offering services to fulfill whatever voids the market creates. In this case, where OEMs are seeking long-term solutions for electronic inventory storage in an effort to bypass obsolescence issues, innovators have again responded favorably with a plethora of specialized options that do everything an OEM customer can ask for and then some — while saving them money.

Instead of operating under a false assumption that a single store option, either in-house or through a distributor, can be sufficient for any scenario, OEMs can instead use the expertise of a supply chain partner to craft a storage solution specifically for them. Term limits no longer have to be a concern, or the type of inventory. Such a proactive approach not only ensures that the OEM product will be supported for as long as required, but that the components in question will be maintained in a manner that all but guarantees optimal performance upon time of assembly.

How can a customized storage solution actually save an OEM money compared to using in-house facilities? Here, economies of scale come into play. Do you believe an auto manufacturer can make an airplane better and more efficiently than an aerospace OEM, who has developed its business from the ground up to do exactly that? This logic applies to storage. When a company places all of their resources and technology into a single product or service, that offering will naturally be of a higher quality than one from a business who prefers concentrating on other priorities. And the increased efficiencies from such a focus results in greater savings for all parties involved.

If you are seeking a long-term storage solution for your electronic inventory, it’s remarkable what a little research can do for your company. The market has a remarkable way of responding to the needs of its customers, and this issue is no different. It’s time to give storage in your supply chain the attention it deserves.