Being prepared for dramatic fluctuations in the electronics market isn’t an easy task. When it comes time for excess inventory after component shortages, is your company ready?
The electronic component market is familiar with supply and demand imbalances. Shortages, such as the 2018 passive shortage, can cause significant strain. Then, pockets of excess electronic parts that frequently follow these periods of undersupply leave global OEM and EMS companies burdened with excess inventory. Sure, this is a common problem in the electronics industry, but keep in mind there are strategic ways to maximize return on your excess components.
Why does excess inventory occur?
Rapidly advancing technology creates a constant demand for new and improved electronic components. As new chip versions develop and older types discontinue, manufacturers face serious obsolescence and EOL (end-of-life) challenges. End-product manufacturers experiencing shortages tend to procure larger-than-needed quantities of hard-to-find or highly-sought-after components to secure enough stock for future use. But, once the shortage cycle is over and supply catches up, OEM and EMS companies can find themselves with a sizable number of excess components.
Early signs from the latest 2019 excess market
During the 2018 component shortage, several MLCC manufacturers announced their discontinuation of certain products, claiming the product had reached an EOL phase. For example, Walsin Technology announced its discontinuation of large case-sized Y5V MLCC product in October 2018, and Murata revealed its last order for MLCC GR Series and ZRA Series set would be March 2019.
After the 2018 shortage, when companies stockpiled on popular MLCCs, the global supply chain experienced extra MLCC inventory in 2019. It wasn’t until the end of 2019 when the global scale of MLCC inventory adjusted back to normal levels.
As components’ lifecycles continue to shorten, excess inventory becomes a consistent issue for the supply chain.
Excess inventory hurts your bottom line
Holding larger-than-needed quantities of inventory on-hand is not ideal. Doing this hurts your bottom line, taking up warehouse space and increasing operational costs. For OEM and EMS companies, inventory management is key for P&L (profit & loss). This being said, it’s critical to have a strategy in place to manage your inventory levels in the dynamic electronic market.
How can you strategically plan during excess market conditions?
As the electronic component market looks for a clear direction in oversupply market conditions, it’s well worth assessing your existing inventory levels and identifying possible challenges brought by excess inventory. Excess parts can become a burden to your bottom line if electronics market conditions continue to move down an unfavorable path. We recommend proactive planning for excess inventory solutions by obtaining current market information to help minimize any future potential challenges associated with excess inventory management.
Although excess isn’t at the forefront of the current electronics market, we recommend having a proactive plan in place for when the market shifts. Global independent distributors have the resources to provide you with customized and analytics-based inventory management plans, allowing you to quickly maximize profitability. Now, the question is: is your company prepared for the next wave of excess inventory?