Cash Flow vs. Inventory: Can OEMs Have Both?

By Logan Wamsley

Cash is king. This is an idiom that has long been used to drive business decisions, but in the COVID-19 economy, it has proved particularly true. On-hand capital is the life preserver that gives companies the buffer needed to survive unexpected catastrophes, such as the worldwide economic lockdown that occurred in early 2020 as a result of the pandemic. Without it, companies often have no other option but to initiate mass layoffs, or in extreme situations, even shut their doors permanently.

Having said this, in many cases, the nature of the economy is requiring many businesses to sacrifice that capital in favor of acquiring necessary inventory to get ahead of a market that is currently facing regular shortages and potential shipping delays.

Electronics manufacturers, for example, are currently facing a difficult dilemma. On one hand, they must secure enough inventory to maintain production schedules. On the other, they must continue to preserve what cash they can as they navigate issues such as product demand, supply chain risk, and even liquidity.

What is needed to walk this delicate tightrope is a way to simultaneously preserve cash and secure inventory without having a negative impact on revenue. One such option is to lean more heavily on bank lines and accumulate debt, but even this is an unsound option as banks become increasingly risk-averse.

Partstat is unique among other supply chain solution providers in that we have the financial strength necessary to step in and purchase large quantities of critical inventory on our customers’ behalf, leaving both on-hand cash untouched and bank lines free. Additionally, by allowing Partstat to take on the obligation of acquiring the inventory, OEM customers can avoid the various hidden fees that are commonly associated with holding inventory onsite for extended periods of time. Insurance, taxes, storage costs, risk loss, handling, and all administrative responsibilities are handled by Partstat’s experienced team of inventory professionals.

EMS providers and authorized distributors can adapt this solution to fit their needs, as well. Using the same solution, Partstat can purchase any end-of-life inventory on their balance sheet that may be responsible for tying up cash flow, as well as purchase any quantity of inventory that unexpectedly becomes obsoleted by the component manufacturer in the future.

2020 has proven a difficult year for virtually all industries, but many analysts are optimistic that a rapid market recovery is looming — especially if vaccines are quickly distributed early next year. Available cash and free cash flow are what will determine how prepared a company is to hit the ground running once this recovery occurs, and which companies will be left behind. With the help of Partstat’s inventory ownership solutions, our customers will be ready.