COVID-19 Supply Chain Strategy: Hedge Against Inflation With Buffer Stock

By Logan Wamsley

Supply chains around the world are still feeling the drastic effects of the COVID-19-caused lockdown of the global economy, and various industries are having to dig deep to find ways to move forward despite the setbacks. The medical industry has been getting a particularly high amount of press. As demand continues to spike, supply has thusfar been unable to match it, causing shortages of testing kits, masks, and ventilators the world over. If shipping lanes over air and sea continue to be restricted, this seems like a near-impossible task without buying time — which is the current goal of the federal government as they try to “flatten the curve” to get medical supplies to more closely match demand.

Another effect of the current market is the skyrocketing costs. As demand for the medical supplies increases, then the limited supply of both products and components will spark a high amount of competition, which in turns creates bidding wars and rapidly rising prices. In short, as bad as the situation looks, it continues to get worse.

One strategy that manufacturers could have implemented to avoid this, is hedging against the market with the purchase of buffer stock. In essence, this means purchasing a large quantity of inventory upfront in the process at the current price while knowing in advance that costs will soon rise. To do so successfully, however, requires two things: the ability to understand the future sways of the market, and enough on-hand working capital sufficient enough to completing a large bulk purchase.

Luckily, through Partstat’s various programs, manufacturers still have the ability to do just that:

BOM Monitoring

One of the key features of Partstat’s BOM Monitoring platform is the ability to accurately monitor and predict both obsolescence and allocation of critical electronic components weeks or months before they occur. This is done through the use of over 50 billion points of Big Data that take into account trends in average inventory quantities, average lead times, and average price, each of which can be easily viewed through a series of intuitive trending charts such as the one below. Through this information, it can be easily determined if an electronic component is poised to rapidly increase in price, in which case immediate action might be warranted.

EOL Last Time Buy

Should it be determined that average prices will continue to rise, then the customer can initiate an EOL Last Time Buy. Unlike a standard last time buy, a Partstat EOL Last Time Buy is completed using Partstat’s own capital. This way, manufacturers can purchase all the inventory necessary to complete their production runs regardless of the amount of working capital they have on hand, thus locking in today’s price through inevitable cost increases.

For both today’s current crisis as well as tomorrow’s, whenever that may occur, Partstat’s solutions are positioned to be the new normal of the modern supply chain, allowing manufacturers to secure the lifecycle of their products while avoiding market uncertainty in the process.