How to Resolve the Last Time Buy Issue Facing EMS Providers and Authorized DistributorsBy Logan Wamsley
OEMs are not the only companies in the electronics industry that struggle with the repercussions of last time buys. EMS providers and authorized distributors alike often are forced to tie up thousands of dollars in already limited working capital to hold large quantities of end-of-life inventory on behalf of their OEM customers.
Ideally, EMS providers and authorized distributors would like to move the payment and storage of the inventory to the OEM, but doing so comes with significant risk; not only are OEMs equally wary of sacrificing working capital inventory that may not be needed for five, ten, or twenty years, but accepting obligation for the inventory also means accepting the added responsibility of storing it in a secure, controlled environment. In extreme situations, this can create a degree of friction between the respective parties and put even long-standing client/customer relationships in doubt.
To resolve this inherent issue, Partstat has introduced two solutions that are tailored specifically for EMS providers and authorized distributors, and are each designed to work in tandem to work with one another to address both current and future end-of-life inventory issues.
The first is an inventory reduction strategy. Utilizing this, Partstat will use its own capital to purchase end-of-life inventory from the balance sheet of the EMS provider or authorized distributor, immediately freeing up cash flow. This moves the payment obligation to the OEM, but with extended terms up to 20 years, all but eliminating the effect this would have on the OEM’s working capital. Additionally, Partstat also takes the responsibility for storing the inventory in its own best-in-class facilities for the entire span of the term, which saves the OEM up to 50% in annual inventory carrying costs.
From here, EMS providers and authorized distributors can utilize the second solution, a “go-forward” strategy, where Partstat will step in as needed throughout the lifecycle of the product and purchase all of the end-of-life inventory as component manufacturers issue end-of-life notices. As each transaction is made, Partstat then stores all the inventory in their facilities while providing OEMs the same extended payment program, which can be a long as 20 years. This way, EMS providers and authorized distributors are insulated from the risk of having multiple years of end-of-life inventory trying up capital on their balance sheets; they are instead able to pursue other initiatives such as market expansion, hiring, or greater investment in infrastructure.
Partstat has purchased a variety of end-of-life inventory on behalf of its customers including semiconductors, electronic components, hard drives, graphics cards, sub-assemblies, displays, PCs, and even raw die and wafer that is used for the assembly of ASICs. Depending on the unique needs and specifications of the inventory in question, Partstat tailors the storage aspect of the solution to ensure that the inventory remains in optimal condition at the point of assembly. For the most sensitive and/or irreplaceable inventory, Partstat also offers customers the option of storing inventory in their one-of-a-kind custom storage vault, which is designed to keep inventory secure against any kind of risk known (fire, flood, electrostatic discharge, earthquake, electromagnetic interference, moisture, etc.).
These solutions were introduced to meet the needs of an industry that, for all of the evolution and expansion it has seen in recent years, has struggled to offer new and innovative strategies for addressing some of the fundamental issues EMS providers, authorized distributors, and their OEM customers continue to face. In this realm, Partstat continues to be a leader and an innovator that has, to date, preserved over $250 million in working capital for its customers. As more customers rethink their last time buy acquisition strategies, it can be assured that Partstat and its solutions will play a part in them.