Stockpiling makes sense — until it doesn’t. Now is the time to strategize on venting your excess safety stock.
The intense supply chain pressures created by the current electronic component shortages are driving changes to purchasing strategies, and particularly to just-in-time. In response to the current shortages, buyers have adapted their strategies to ensure that critical components are on hand. Once they identify a source for parts they need, we often see buyers purchasing significant amounts of excess safety stock.
If this is your strategy, then you know that purchasing safety stock eases the pressures of a severe shortage. With stock in hand, you gain a measure of security that your lines won’t go down by running out of inventory. Safety stock also provides security for those unforeseen demand shifts that surface.
But what goes up must come down. Typically, we’ve observed that after the shortage cycle abates, the overall market experiences a shift from shortage to excess. With this shift, the electronics market will begin to see mass amounts of excess safety stock. Awareness of this cycle can make all the difference in how much ROI your excess safety stock can offer.
To maximize your options for off-loading your safety stock, follow these guidelines.
1. Take an aggressive stance
We highly recommend addressing excess safety stock head-on. After your critical need for safety stock passes, your excess can cause more problems than it’s worth. Holding onto excess safety creates a number of pitfalls, including cash flow issues, warehouse space constraints, and rising operational costs. All of these can add up quickly if your excess safety stock lingers beyond its useful lifespan for your supply chain needs.
2. Create connections
Global supply chains provide opportunities for sourcing and selling. Working with a global distributor who has the connections to move your excess inventory means that you are reaching the broadest scope of buyers. The broader the distribution network, the more likely your materials are to find a buyer. A distributor can run the data on your excess parts and create global matches quickly and efficiently.
3. Plan for action
You can take control by proactively planning for your excess stock post-shortage. Carefully watching your inventory to see when your excess security stock is no longer in play can help you identify the right time to start working with a supply chain partner. You can also identify your storage demands upfront and prepare to deal with your excess safety stock accordingly. If you are facing storage constraints, consider consignment options that will allow you to store your materials off-site with a distributor. Look for a partner with a history of broad-based consignment. Consignment is an area where an experienced supply chain partner is particularly important because the security of your excess is in play.
4. Exercise market awareness
Watching the market to ensure you enter at the optimal moment takes time. A supply chain partner can help take the burden off by helping you analyze market trends to find the right time to sell excess safety stock. You acquired this stock strategically, and there’s every reason to take a strategic approach to move it. Ensuring that your excess hits the market at the right time could make a significant difference in your return. Working with a partner means that you aren’t wasting valuable time on analysis.
To Summarize: You don’t have to risk experiencing the downsides of holding excess safety stock. Prepare for market shifts today by tackling plans for your excess safety head-on.