Preserving OEM Working Capital: Making Obsolescence Management ExcitingBy Logan Wamsley
When finances enter any discussion regarding obsolescence management strategies, it usually takes one of two forms: the price of obsolescence management, and the potential cost of not implementing such a strategy.
Both forms, while critical to consider, rarely elicit genuine excitement from the OEM’s perspective. Not unlike typical consumers choosing insurance plans, it can be difficult for companies to view long-term benefits when the conversation centers on costs. The natural apprehension that comes with so quickly parting with working capital — even if all evidence points to such an investment being vital to the success of the modern supply chain — never fully dissipates.
Sound investments made on the basis of possibilities (or, more accurately, probabilities) are always going to have a number of “what if?” questions attached to them. What if we choose not to fortify our supply chain from obsolescence? Maybe it would be a costly mistake, but maybe it wouldn’t be. Maybe we will get lucky, and we could reinvest that capital back in our business now instead of later.
The fact such second-guessing questions even exist speaks to a failure of obsolescence management strategy providers of not properly conveying just how much value such strategies have. Outside of the lottery, it is extremely difficult to sell products and services based on maybes and what ifs even if the inner logic is sound. They key is to give prospective customers an obvious, tangible value upfront that is beyond probabilities and possibilities. A proven obsolescence management strategy can save an OEM tens, even hundreds of thousands of dollars under certain, less than ideal market conditions, but what has been historically missing from the equation is the immediate, instantly felt value.
This changes with a Partstat Last Time Buy Solution. Instead of being exclusively concerned with providing long-term value, this solution provides equal, immediate value in the form of working capital. Unlike any other obsolescence management strategy in the industry, Partstat will purchase any quantity of last time buy inventory direct from the manufacturer on our customer’s behalf using our own capital. If the OEM requires $15 million of LTB inventory, then Partstsat is prepared to purchase, store, and, on a personalized delivery schedule, ship it anywhere in the world it is required — all with $15 million remaining on the OEM’s books to invest back into their business however they see fit. They could expand their workforce, reinforce their infrastructure, purchase new equipment, or even initiate the research and development needed to introduce the next generation of products to the marketplace.
But just because the short-term value is highlighted in our solution does not mean that the long-term value is in any way diminished. Not only does such a solution fortify business and secure the customer’s supply chain against obsolescence, but the use of Partstat’s long-term storage infrastructure has been proven to save OEMs 42 percent in annual inventory storage costs. Plus, by committing to obtaining all the inventory required to complete a production run upfront in a single purchase, Partstat can use this situation as leverage to negotiate significant bulk purchase discounts. By allowing the manufacturer to fulfill large quantities of inventory at one time without the need to power down equipment, manufacturing costs are reduced, which passes savings on to the customer.
What our ability to use our own working capital to aid customers has done is bring excitement to something as innocuous as obsolescence management. This was our intention from the beginning, and the market response has been overwhelming. Since we began offering the Last Time Buy Solution, Partstat has saved over $100 million in working capital for our customers including GE, Philips, Honeywell, IBM, Coca-Cola, and many more. And just as excited as our customers are, we are excited to help them reach the pinnacle of their industry.