Excess inventory is a blight on the electronics industry, a seemingly unending and expensive drain on resources at manufacturers and component suppliers. Nearly two decades after one of the most savage downturns in the history of the industry, though, a supply chain management services provider says it has figured out a better way for reducing the negative impact of surplus parts on OEM balance sheets.
Inventory Management Partners LLC admits its offering is not a perfect solution – there is none – but executives at the Boston-based company point to 13 years of service in the industry and insist working as partners with OEMs and electronics manufacturing services (EMS) providers offers a better and proven strategy for securing higher value from unwanted parts with the least amount of efforts on the parts of the customer.
Founded in 2003 at the height of the industry’s most notorious downcycle, IMP initially worked with one of the industry’s top contract manufacturers to dispose of its excess inventory and grew rapidly through word of mouth as more OEMs and contract manufacturers joined its roster of customers. The OEMs and EMS companies could dispose of their parts through independent distribution or brokers but IMP offered a better way to squeeze out higher pricing for the components if they allowed the company to take stock of the inventory, find buyers and split the proceeds with the seller.
After serving customers largely on the East Coast for more than a decade and following years of expanding its warehouse facilities to ensure adequate space for added inventory, IMP earlier this month launched a campaign to bring more customers onboard. The marketing initiative started with a redesign of the company's website and will extend IMP’s services to enterprises throughout North America.
The company plans to showcase what it says is a proven strategy for turning problematic mounds of excess inventory into wads of cash without beefing up the supply chain management team or devoting additional resources to the disposal of surplus components. This can be done optimally and at a higher value for the components owner than the traditional broker channel, insists executives at IMP.
“What Inventory Management Partners offers is an outsourced service for managing excess and obsolete inventory without the pains but with a higher level of financial return,” said Greg Tashjian, co-founder and managing partner at IMP, in an interview. “This is not a one-hit wonder. We are all about turning the customers’ assets into cash and making sure they get a higher financial return on excess and obsolete inventory. We take a long-term view in our relationship with our customers, primarily OEMs and EMS providers. Each customer gets individualized service and it’s that service-focused part of our operation that separates us from competitors.”
OEMs have long-cherished the concept of losing as little as possible from the sale of excess inventories. Leading companies whose COGS (cost of goods sold) runs into billions of dollars have often written off large amounts of excess inventories annually. In many cases, the companies are left holding components already bought from suppliers and distributors but which they no longer need due to various factors, including inaccurate demand forecasts – another chronic electronics industry problem. When the market cratered in 2001, for example, Cisco Systems Inc. took a $2.5 billion inventory write-down after its contract manufacturers and component suppliers declined responsibility for pre-ordered parts. The inventory snafu also resulted in numerous contract disputes that pitched component suppliers against raw material suppliers. In one such disagreement Vishay Intertechnology, Kemet and AVX were taken to court by Cabot over their initial refusal to accept tantalum powder under a previous contract agreement.
To rectify the disequilibrium in components demand and supply, companies often turn to the broker channel especially when they cannot return the items back to the supplier or the distributor. Brokers, in turn, regularly purchase components from OEMs and EMS providers, taking on the risks of selling the components but without offering premium pricing for the parts.
To avoid piling up excess inventory at manufacturers, at suppliers and anywhere in the supply chain, electronics manufacturers each year try to more closely match forecasts with actual demand. But that too has proven to be an elusive goal. In response manufacturers have developed other mechanisms such as JIT (Just-in-Time) inventory mechanisms under which parts are pulled from suppliers and distributors only when needed. That, too, has injected other forms of uncertainties into the supply chain because even suppliers and distributors don’t want to own inventories that might not be required by manufacturers.
IMP executives said the company’s strongest value proposition lies in giving OEMs the opportunity to squeeze the highest value out of unwanted components at a minimal cost to them. The company typically stocks the components at its expense at a facility in Boston from where it resells the parts to other OEMs and contract manufacturers. The owner of the components can focus on its operations without worrying about how the parts would be sold. They get a check once the parts have been sold, Tashjian said.
The company's strategy calls for transitioning components back into the electronics production process by finding new buyers without sacrificing pricing leverage. Under this program, owners of excess components simply ship the parts to IMP which takes on the task of stocking the products for as long as it takes to dispose of them – typically less than 6 months – finding buyers and ensuring its immediate transportation to wherever needed globally.
IMP said its strategy of stocking unwanted parts for free and taking on the task of finding premium buyers for the components has proven most effective for ensuring manufacturers do not dispose of excess inventory at a huge discount to the purchase price. The company warehouses the products – shipped by customers from all parts of the world– and sells them at premium prices, splitting the proceeds with the original owners.
OEMs and contract manufacturers get a console on IMP’s network where they can monitor the status of their components. The components can even be returned to the OEMs if needed for their own internal production. This has happened multiple times in the past, according to Dan Pazzanese, a co-founder and managing partner at IMP.
“We conduct market assessment on the value of the components for customers to ensure they can get the highest value for the parts because even though they know what they paid for them they may not be aware of the actual cost,” Pazzanese said. “The components are vetted by us and they go back into the supply chain through certified distributors but should a customer need the parts before they are sold, we would ship it back to them.”
Pazzanese and Tashjian established IMP to leverage their extensive knowledge of the electronics supply chain. Pazzanese worked in distribution for one of the industry’s top players before teaming up with Tashjian, a former OEM executive. Although the company is eager to expand its customer base, IMP executives said they don’t plan to offer their services in Asia yet. “Our new 5-year growth plan is geared towards expanding the business in the United States,” Tashjian. At this point we are not putting a footprint in Asia because of the challenge of validating materials and staying away from counterfeit parts.”