Handling Excess During Transitioning Markets
Written by: Sam Stephens
As market conditions transition, the supply chain often experiences a whiplash effect in the form of excess inventory. Now that the electronics industry has experienced two years of supply scarcity across the board, the market is beginning to readjust, and I’m beginning to see huge surpluses coming down the line. Though additional inventory may be viewed more favorably than a lack of inventory, in my experience, excess supply poses its own set of challenges, placing a significant strain on the financial performance of any business.
As often seen in “golden screw” situations—when one key part is holding up the whole production—in today’s market the alleviation of one problem has caused the creation of another. While products are now beginning to have increased availability, others are still in constraint and will continue to cause headaches for our customers. Both create a financial burden for many companies throughout the industry, as costs are spiraling in all aspects of business.
For example, at the start of the pandemic, PC and smartphone manufacturers were having more and more difficulty finding chips for their products. They began stockpiling or doubling ordering product to mitigate against future disruptions. Now, as demand has decreased, they are facing increased inventory levels which in turn are placing a strain on their finances. This situation is all too common; a shortage occurs, companies stockpile or overorder product, and then when the component is no longer in scarcity, they have an excess. Particularly, this is the situation we are seeing across large portions of the market today, causing a need for us to provide creative solutions to our customers’ inventory management challenges.
However, this problem is not entirely bad in all cases. With the opportunity to sell excess, there is a great opportunity for our customers to tap into market inflated costs on certain products. Because alleviation of shortages has and will cause large pockets of inventory, customers who have faced inflated costs can now sell surplus product to create a new revenue stream or recoup against costs they incurred while keeping production running during the height of the shortage market.
As customers ready themselves to sell excess into the open market, I’m also seeing a renewed appetite from customers for creative and innovative solutions to inventory problems, to complement more traditional consignment programs. This desire is best filled by collaboratively sharing data with others to understand what is working across the board in the market. Along with this, partnering with a company that has experience and expertise in using data to maximize inventory resale opportunities will give your company an edge that is invaluable. Finally, it is vital to understand your own internal processes of ownership to ensure that excess partners have true visibility of the availability of products.
Partner with Converge today to learn more about handling excess materials.
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About the Author
With nearly fifteen years of experience in the independent distribution industry, Sam has been successful in commodity management, procurement, and sourcing strategy. Now, as Global
Sourcing Senior Manager at Converge, he helps oversee all aspects of the sourcing function, with strong focus on excess strategy that better enables customers to forecast and manage against upcoming changes in the market.