Who Are Partstat’s Inventory Financing Solutions For? Part 2: EMS Providers
EMS providers provide an incredibly important role within the supply chain, but the role is also an incredibly difficult one. Often operating at slim profit margins as low as 3%, EMS providers are tasked with maintaining high production quality for their OEM customers at the lowest possible price point — or otherwise risk becoming lost in a sea of increased competition. As a result, cash on hand can be very tight and not available when unexpected expenses arise. Partstat Inventory Financing can help with that.
In our previous post, we discussed how Partstat Inventory Financing grants OEMs the ability to acquire all the inventory needed for their builds at the beginning of the manufacturing process without sacrificing capital to do so. Inventory Financing can prove just as useful for EMS providers who seek improvement to their cash flow without putting strain on their OEM customers.
Mitigating Friction Between EMS Providers and OEMs
Sometimes, the role of the EMS provider can be somewhat difficult to define in certain scenarios, and can even vary from customer to customer. Some EMS providers, for example, offer design and consultation services, while others may offer to handle any last time buys required due to unexpected obsolescence or to avoid anticipated inventory shortages.
In some situations, however, these offerings are not entirely clear, and the OEM may have an expectation the EMS providers will purchase such inventory while the EMS provider has the opposite view, thus creating confusion on who is responsible. Partstat Inventory Financing solves this issue by giving EMS providers a clear purchasing strategy to present to their OEM customers without taking on any additional financial strain. Instead of the EMS provider taking on the purchasing responsibility, Partstat will step in and purchase the inventory using its own capital. This way, neither the OEM or the EMS provider has to provide any upfront financial commitment. EMS providers in the past have used this service as an “add-on” to present to potential OEM customers, which allows them to both stand out in a competitive marketplace and give ultimate payment responsibility to the OEM (who will purchase the inventory from Partstat over an extended term) while mitigating “friction” between the two parties. The goal of any EMS provider should be to win builds: not just current builds for an OEM customer, but multiple builds afterwards. Inventory financing greatly improves such relations.
Purchasing Already-Owned Inventory
In instances where the EMS Provider has already purchased inventory on the OEM’s behalf, Inventory Financing can also be used by the EMS provider to purchase inventory already owned by them. This instantly improves cash flow for the EMS provider without Sarbanes-Oxley issues, reduces on-hand inventory which can free up limited warehousing space, and seamlessly transfers payment responsibilities to the OEM customer.
In this situation, all of the benefits previously mentioned regarding Inventory Financing still remain intact, including the elimination of issues related to extended lead times, price inflation, and inventory shortages. And, with Parstat’s industry-leading storage capabilities, OEMs will save an average of 42% percent in annual inventory carrying costs while ensuring business continuity from the beginning of the manufacturing process to the end.
For a full list of benefits for EMS providers and their OEM customers, visit our EMS providers page. In our next article, we’ll discuss how component manufacturers can realize the benefits of Inventory Financing.