The Value of Business Continuity in a Last Time Buy Transaction
Only a week into 2021, and it is becoming clear that much of the uncertainty that clouded 2020 has remained, and in some cases, even exacerbated. The United Kingdom has just imposed another nationwide lockdown following the rapid spread of a more transmissible COVID-19 variant, global vaccination distribution remains a topic of discussion (it has been estimated that some less developed regions, such as sub-Saharan Africa, may not see mass-scale vaccinations until 2023), and the effects of various geopolitical tensions and trade restrictions across the world continue to dominate discussions within and beyond the global business community.
In such an environment, the value of businesses continuity throughout the supply chain cannot be overstated. Current circumstances are, for many, necessitating a change in inventory procurement and last time buy strategies. According to Foley & Lardner LLP’s recent Global Supply Chain Disruption and Future Strategies Survey, 70% of 150 respondents indicated that the pandemic has downgraded sourcing from the lowest-cost supplier as the primary factor in supply-chain decisions, 62% indicated they might shift from just-in-time manufacturing of goods to an increase in warehoused inventories, and 40% embraced dual-sourcing or multi-sourcing strategies.
In each of these scenarios, manufacturers are poised to sacrifice limited working capital and increase their debt ratios in favor of immediate last time buy inventory acquisition with long-term production goals in mind. The balance between inventory and capital is always delicate, but in times of uncertainty, the desire for secure business continuity in the form of secure, critical inventory on hand in the name of business continuity seems to be taken precedent.
Of course, this comes with several risks of its own. Namely, a manufacturer with most of its available cash flow and bank lines tied up in last time buy inventory is severely limited in its financial flexibility. As markets continue to shift, the manufacturer will have far less capability to pivot its focus to where it can receive the greatest possible economic return.
Luckily, to avoid such a compromise in 2021, manufacturers, including both OEMs and EMS providers, can have their last time buys handled through a Partstat custom inventory solution. Designed with slow-moving inventory in mind, customers have the ability to leverage Partstat’s balance sheet to purchase any necessary last time buy inventory on their behalf. No upfront capital is required from the customer. In effect, this allows manufacturers, EMS providers, and even authorized distributors the ability to realize all of the supply chain insulation a last time buy transaction provides without the loss of any financial flexibility.
Should the last time inventory in question already be on hand, Partstat will even step in and purchase already-owned inventory from EMS providers and authorized distributors and move the obligation to their OEM customers, providing the EMS provider or authorized distributor an immediate cash payment while freeing up their balance sheet. Then, as the inventory is needed, Partstat will handle and ship it to the OEM customer on a customized delivery schedule that can be extended as long as 20 years.
As harrowing as the current times are, the state of world will eventually recover and a semblance of normalcy will be restored. Regardless of the market environment, however, a high degree of business continuity will always be critical to any successful supply chain.