Saving and Spending: The OEM Working Capital Paradox
The longer the OEM projects the lifecycle of their product to last, the more last time buy inventory needs to be purchased – and because long-term inventory needs can rarely be forecasted perfectly, OEMs prefer to have too much inventory than not enough. Every component, semiconductor, and necessary computer product, even the ones that may ultimately be sold off as excess, requires full payment upfront.
If there is any wavering on that point, then there is a strong risk that the inventory will be sold off from under them. Suppliers, unless under contractual obligation to do so, do not operate a business where orders can be fulfilled any other way than a first-come, first-served basis. Assuming there is inventory available to be purchased (no guarantee during an industry shortage), precedence is always going to go to the customer willing to pay.
Unfortunately for the OEMs willing to make this commitment, not only does this result in a significant blow to the OEM’s bottom line for the quarter, but it also means these funds will be tied up in their on-hand inventory for the entire length of the product’s lifecycle. Depending on how long the cycle of the product is, it could be three years, five years, 10 years, or, in industries such as aerospace and healthcare, even 20 years before returns on the investment can be seen.
20 years is a long time, and any aspirations they might have to grow their global footprint, hire new workers, design new products, or even just upgrade their infrastructure might need to be put on hold until the anticipated profits from their current product are realized. If that waiting period is seven, eight, or 10 years, by the time the OEM is ready to act, it’s quite possible that the rest of the marketplace has passed them by.
To keep pace, it’s imperative that the strategies OEMs have in place to acquire critical inventory not only ensure the inventory is on hand when needed, but also account for the OEM’s need to preserve as much working capital as possible to promote innovation and growth. It’s similar to the same paradox that consumers navigate while shopping at the grocery store: How can I get what I need while spending as little as possible? I can’t do one without the other!
What we have accomplished with our Last Time Buy Solution is a way for OEMs to navigate this conundrum without sacrificing the quality of their products, the reliability of their supply chain, or the growth potential of their brand. With our solution, all last time buy inventory is purchased with Partstat’s working capital, not our customers’ — and instead of one debilitating upfront payment, OEMs pay off their purchase periodically as the inventory is fulfilled in accordance to their personalized schedule.
No other service on the market offers OEMs this degree of flexibility, both financially and practically; to help our customers adjust to fluctuating production estimates, we also provide detailed consumption reports that indicate whether they are over- or under-consuming. As your fulfillment schedule adjusts to the demands of the modern market, we adapt accordingly.
It’s time that supply chain partners take working capital concerns as seriously as their customers do. Rising tides lift all boats — and if Partstat can help one manufacturer find the working capital needed to cement their place at the top of the industry, the market as a whole benefits.