Contract Manufacturers: Recover Working Capital With an EOL Last Time Buy Solution
Commitment to purchasing last time buy (LTB) inventory can be a sticky subject matter between an OEM and their contract manufacturer. In many cases the need for LTB inventory can be a sudden, unexpected expense, and one that both parties are often unequipped to handle. This is particularly true for contract manufacturers, who often operate on razor-thin profit margins of 3-5% and simply do not have the working capital on-hand to manage such a responsibility — even if not managing it means creating additional friction with long-standing OEM partners. In some situations, the contract manufacturers will take on the responsibility anyway after determining that keeping their customers happy is more important — even if it is at the expense of their own limited working capital.
The Partstat EOL Last Time Buy Solution can eliminate this problem by easily transferring the responsibility of LTB inventory from the contract manufacturer to the OEM without concern. As a result of our solution, contract manufacturers will improve working capital with immediate payment, reduce the amount of inventory carried on their books, and keep their long-standing OEM relationships intact for future projects.
These benefits were all realized in a recent Partstat Case Study, where a contract manufacturer was placed in a difficult position by purchasing $7.6 million of inventory and committing to purchasing $3.3 million more on behalf of a medical device OEM. Although this ensured production and service commitments and eliminated the risk of a potential redesign, this situation all but used up what limited working capital the contract manufacturer had on hand.
Facing this dilemma, the Contract Manufacturer entered into an EOL Last Time Buy Solution with Partstat. As a result of the transaction:
• Partstat purchased the entirety of the $7.6 million inventory from the contract manufacturer,
• Assumed the CM’s commitment for the additional $3.3 million of future inventory, and
• Matched the OEM’s forecast and granted a 10-year, back-end-loaded delivery schedule.
As a result of the transaction, the CM recovered the entirety of their committed working capital while simultaneously moving the responsibility for payment to the OEM without any additional concerns. Additionally, because the Partstat EOL Last Time Buy Solution uses Partstat’s own working capital to purchase the inventory, neither the contract manufacturer nor the OEM had to sacrifice their own. All of this was done in addition to the other advantages offered by a Partstat EOL Last Time Buy Solution. Not only did this secure the lifecycle of the OEM’s medical device, but it also eliminated any concerns associated with unexpected price inflation.
This proves that relationships between OEMs and contract manufacturers do not have to be strained when it comes to purchasing LTB inventory, nor do the negotiations have to endanger the lifecycle of the product they are both attempting to create. Partstat ensures that both parties reach a mutual agreement, and neither have to bear the added burden of sacrificing working capital to do so.