Although the electronic components industry is currently in a shortage market, pursue best practices to prepare for the return of excess inventory conditions. Here are three ways to get ready.
As the global electronics supply chain continues to increase in complexity, organizations are more vulnerable to risk events. By strategically sourcing and proactively planning supply, OEMs can keep the supply chain up and running — and continue to get the end product into the hands of end customers.
Supply and demand imbalances are a constant reality in the electronic component market, so it’s critical that businesses remain prepared for the fluctuation between shortage and excess inventory conditions. As the supply chain cycle has historically demonstrated, the shortages will not last forever.
Preparing for opposite market conditions is a bit like carrying an umbrella in your car even on sunny days – it may not seem pressing in the moment, but it will invariably pay off in the long run. The consequences of failing to pack the proverbial umbrella will place your organization at a significant competitive disadvantage when conditions do change.
Here are 3 ways you can start preparing right now for excess inventory conditions
1. Be Proactive: Analyze Current Market Information.
Keeping a finger on the pulse of current market information is one of the best ways you can get prepared and stay prepared for changes. Shifts from shortage to excess inventory conditions can seem to occur swiftly, but the truth is, these changes are relatively predictable if your analysis is good.
In addition to keeping an eye on general industry news and peer companies’ sales and marketing information, lead time data trends are a key measure of inventory conditions. SourceToday’s Michael Knight writes, “understanding lead-time cause-and-effect yields greater insight into the electronics supply chain.”
For example, reports from late 2020 and early 2021 point to predictions from the Electronics Components Industry Association that “lead times will grow for obtaining a broad range of electronic components amid a severe global chip shortage.” These reports underscore the current shortage market; however, as suppliers move to address the shortage, a shift in lead time trends could be the first indicator of the swing towards excess inventory conditions.
2. Always keep tabs on your existing inventory levels.
Just as keeping a finger on the pulse of data lead times is a key preparation strategy for excess inventory conditions, constant monitoring of your inventory levels ensures that you’re ready for a shift. If you aren’t already, making use of inventory management software allows you to track levels in real time, and gives you advance insight into any potential issues.
Bhaskar Bose, content analyst of Gartner Digital Markets, has compiled a useful list of features to look for in selecting an effective inventory management system. These features include:
- Barcode scanning
- Inventory optimization
- Stock notifications
- Report generation
- Multilocation management
- Stock returns handling
- Material grouping
- Purchase order records
“The transparency provided by this software has a big impact on the bottom line of a business. Through accurate tracking of goods, businesses can minimize waste, analyze trends, and make better investment decisions,” says Bose.
Batch control, bulk ordering and shipping, and using third party logistics (3PL) providers are additional strategies for monitoring and regulating existing inventory levels.
3. Identify a strategic supply chain partner who can help you address your excess inventory when the time is right.
No matter how prepared your business is for excess inventory conditions, managing them alone is rarely the best strategy. A key part of successful preparation is to identify and develop a relationship with a strategic supply chain partner that is right for your business, to help you manage excess inventory when conditions shift.
Finding the right partner for your unique business means looking for a data-backed approach and ensuring that the potential partner has specific experience with the electronic components market. The right strategic partner can offer you flexible solutions, and tailor expert recommendations for quickly maximizing inventory value recovery.