There’s a very quick answer to what to do about excess inventory: plan better to avoid amassing it. Excess inventory often ends up on the grey market. There are plenty of brokers who are willing to buy it for a knock down price – the going rate is maybe 10% of the face value – then sell it, often without any provenance or proper paperwork. Some of these brokers are genuine and are relied upon to help customers during shortage periods; others are much less professional, resulting in components being stored poorly, and ultimately leading to counterfeit components entering the supply chain.
There’s no doubt that a big underground market of surplus dealers exists. Typically, they will say: “I’ll take it off your hands, and I’ll store it for you and I’ll upload it onto a website, and I’ll pay you as I sell it”. This ‘pay as you go’ approach is very popular, but the parts are often really old and have not been well looked after, so the quality is effectively junk.
So, my number one message to purchasers is ‘buy correctly and buy from an approved source’.
In order to do that, companies must be much more diligent in their forecasting, but I know that is more easily said than done. A new product launch can go much better than expected … or much worse. At Anglia, we employ smart buying techniques based on analysing sales and demand very closely. We have AI crawling all over our large inventory to make sure that it comprises what our customers are most likely to require. Therefore, we have very little excess inventory. What we are left with, we usually manage to sell slowly over a period of time, complete with CoO (Country of Origin) statements and date codes. What we can’t sell, we scrap, but because of our tight controls, last year, for example, we only had to scrap 0.5% of our total year’s stock.
However, accepted practices, as well as necessary rules and regulations, can make things very difficult. For example, the big contract manufacturers have been advised by their customers – the huge consumer and automotive giants – that they don’t want inventory that is over two years old, despite the fact that because of long lead times, sometimes when an order is ready for shipment the parts will be more than two years old. This means that the banks won’t lend against inventory that is over two years old. We’re campaigning, with ECSN and others, to increase this period to three years. The date code is mostly an issue for semiconductors – resistors, for example can, counter-intuitively, get more stable as they age.
Of course, what nobody wants is to be left with a lot of e-waste to dispose of. What little Anglia has to scrap, we do so responsibly and professionally in accordance with WEEE legislation, wherever possible, using facilities that can reclaim the precious metals.
You can trace a lot of the problem of surplus inventory back to the big contract manufacturers in Asia, who routinely buy 20% more than they need,
relying on the grey market to offload any unwanted parts. This makes it difficult to determine what the market demand really is.
It’s very easy to get trapped into going round and round in circles. Big disties need to pay quarterly dividends, so they run lean on inventory. This creates shortages, so customers are forced to buy from non-authorised sources. This means that there is always a ready market for brokers. Because they can always offload into the grey market, big contract manufacturers over-order. This leads to poor market visibility and over production.
On the other hand, customers want stock that’s less than two years old and often have an imperfect view of their real needs. This leads to oversupply, e-waste, and potential counterfeit issues.
And the need to give the stock market good news can also contribute to the confusion.
Anglia categorically does not deal in excess inventory. We don’t buy it, and we don’t sell it. We only buy through authorised agreements. We appreciate that there are some very reputable companies that are set up to deal in excess inventory, and currently, it’s a service that industry needs. But it’s not what we do. However, we are very well equipped to track shortages and price fluctuations, and we like to work very closely with our customers so that we can get the clearest possible picture of their requirements going forward, thereby ensuring that they don’t fall foul of supply chain issues.
About author:
Steve Rawlins, CEO, Anglia
This article was originally published in The Practical Guide of Excess Inventory e-book
