The Secret to Maximizing ROI on Excess Inventory
The largest equipment manufacturers in the world did not reach their position of industry influence without the ability to market their products to a desired audience. It’s not uncommon for experienced marketing teams to spend years building a detailed profile on their company’s consumer base.
No detail in these profiles is too specific, and the questions marketers must seek to answer are nearly infinite in number. How old are their customers? How do they consume information, and on what platforms? What time of day to they consume information? Upon consuming information, how long does it take them to convert? How many marketing impressions do they typically require before converting? When choosing between one product or another, what variables most contribute to their final decision?
According to a 2017 study published by the Wall Street Journal, companies allocate an average of 11 percent of their total budget to marketing. For consumer packaged goods, that number rises to 24 percent.
With figures of that scale, businesses obviously know the valuable role marketing plays in the creation of a successful product life cycle – but when the time comes to transfer those resources to the selling of excess inventory accumulated during the production process, most manufacturers choose to forgo such daunting, time-consuming commitments in favor of brevity. As a result, many companies fully anticipate writing off the sale of excess inventory at a discount as high as 95 percent. In cases where there is no demand for their inventory on the open market, they sometimes even opt to sell it as scrap for pennies on the dollar.
Why Do Manufacturers Settle for Such Losses?
Now, it’s important to note that such steep discounts do not stem from a manufacturer’s inability to market, but rather from a careful determination of priorities. The selling off of excess electronic components and semiconductors will only occur near the end of a product’s lifecycle, and at this stage the goal is not to accumulate additional profit, but to minimize losses against total product revenue.
Each day excess inventory sits untouched in storage comes at a price. In some cases, maintaining critical components in storage can add as much as 15 to 20 percent of the total cost – even higher if the component requires highly specialized storage procedures. As that cost continues to accumulate, the greater a liability excess inventory becomes – and inevitably a point comes where an OEM would rather sell off inventory at any price than keep it in their possession. Taking the time and resources to understand the state of the market, gauge consumer demand, and reach the correct audience on the correct platform is simply not an investment most manufacturers can make at such a late point in the game.
After 26 years in the supply chain industry, Partstat has noticed this void – and in an effort to offer our customers an opportunity to maximize ROI long after production of a product ceases, we created an Inventory Exit Solution built around marketing.
Fulfilling a Market Need
The core philosophy behind our solution is simple: When the right team of experts combines its industry knowledge with the latest analytical tools, they can comprehensively market excess inventory to optimize exposure and drive consumer demand – all at a time when significant returns can still be achieved. To borrow an old colloquialism, we strike while the iron is hot.
The process begins with our Recommendation Report. Our experienced team of supply chain specialists can identify the state of the market for over 25 million unique electrical components with the aid of Partstat – an open-access Big Data warehouse consisting of over 8 billion rows of current and historical data. After a thorough data analysis that includes current life cycle status of the component, current global availability, average distributor price, and average factory lead time, we then compile the real-time market information in a straightforward, easy-to-understand format. In the conclusion, we highlight for our customers which parts can return a sizable profit, and which parts can be immediately scrapped.
No two cases are the same, and we tailor our marketing strategy to each customer based on the state of the market they wish to reach. For example, if it is a seller’s market, Partstat will negotiate with buyers the highest possible sale price. Conversely, if the part’s data indicates a buyer’s market with low demand, we will price the part accordingly to minimize the customer’s net loss. In either case, the result can be a substantial boost to the OEM’s net revenue, which can help spur additional company growth for years to come.
Once the report has been compiled, and the inventory is inspected and safely stored in our climate-controlled warehouse, we immediately get to work marketing the relevant inventory on dozens of paid industry subscription services. What would once be considered a significant time and monetary investment on the seller’s part is now handled entirely on our end, and the results we have achieved for our customers have been overwhelmingly positive.
The Tip of the Iceberg
Of course, these services are only a fraction of what our solution includes. While maintaining complete transparency with the seller throughout the process, Partstat also handles all sales, logistics, shipping, invoicing, and payment collection responsibilities. But these features are additional conveniences that contribute to the greater whole; the true heart of our Inventory Exit Solution lies in our ability to market – and sell – with aid of Big Data.
The secret to maximizing excess inventory ROI, as it turns out, is not so secret after all.